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Boeing Annual Report  
User currently offlineTomB From United States of America, joined Nov 2006, 79 posts, RR: 0
Posted (3 years 3 months 1 week 5 days 9 hours ago) and read 4281 times:

I received the Boeing annual report. In reading it, I came across the following interesting information:

In 2010, Boeing had Revenues of $64.3 B and Net Earnings of $3.3 B. Boeing’s Revenues have fluctuated in the $60.1 B to $68.3 B range over the past five years. (B = Billions and M = Millions in this article).

Boeing recorded the following write-offs of forward losses on the B-747 and B-787 programs:

B-747 B-787
2008 $ 685 M
2009 $ 1,352 M $ 2,693 M
Total (to date) $ 2,037 M $ 2,693 M

Boeing accounting procedures for aircraft programs: “Costs to produce new aircraft are included in inventory and are accounted for using program accounting.”

The B-747 program is in a reach-forward loss position having recorded a total of $2,037 M of reach-forward losses in 2009 and 2008. Subsequent deliveries will be recorded at zero margin.

The first three 787 flight test aircraft are written off a non-saleable. Our current assessment is that the 787 program does not have a reach-forward loss. However, there continues to be significant pressure on revenue, costs and the profitability of the 787 program.

On the Boeing commercial aircraft programs, Inventory values increased from $18.6 B in 2009 to $26.6 B in 2010 – an $ 8 B increase. This largely reflects the build up of B-787 and B-747-8 aircraft prior to certification.

As of 12/31/10, the Boeing 787 program includes the following amounts in Inventory:

Work in Progress $ 9,461 M
(includes deferred production costs)
Supplier Advances $ 1,956 M
Tooling and Other Non—Recurring Costs $ 1,447 M
Total Inventory – B-787 Program $12,864 M

Commercial aircraft program Inventory values included amounts credited in cash or other consideration to airline customers totaling $1,970 M at December 31, 2010. In other words, compensation to airline customers for late B-787 and B-747-8 deliveries.

Now let us do a little analysis on the $ 9,461 M of B-787 Work In Progress value. If 30 airframes with a sales price of $76 M (Flightblogger figure as I remember) each were included in the December 31, 2010 Inventory, that would account for $2,280 M of WIP Inventory.

That leaves $7,180 M of capitalized R&D which will have to be amortized over the future 800 B-787 deliveries. There is also $1,447 of Tooling and Other Non-Recurring Costs that have to be amortized over the future deliveries. Thus, if $8,627 M of capitalized R&D and Tooling are amortized over the next 800 B-787 deliveries, Boeing will have to charge each aircraft $10.8 M each. As R&D costs are continuing to be capitalized in 2011, the actual amortization figure will exceed $11 M each. As the average airframe sales price (excluding engines) probably averages about $100 M, amortization of R&D and Tooling will cost more than 10% of the sales price.

Vought Purchase

Boeing purchased the Vought operation in Charleston, SC for $1,006 M. Of the purchase price, $606 M was assigned to Goodwill. The remaining $400 M of the purchase price was assigned to tangible assets. I guess Boeing was highly motivated to purchase the Vought operation and pay more than $600 M above the tangible asset value.

Jim Albaugh

I think Jim Albaugh is providing good leadership for Boeing Commercial Aircraft. Per Jim McNeryney’s letter to stockholders: “This back-to-basics approach includes a disciplined 11-step technical review process now required for all new programs. This rigorous process for identifying and mitigating risks begins at the design concept stage and continues all the way through product delivery and support.”

“These actions – along with the steps we have taken to strengthen leadership and organization structures increases visibility and coordination across the supply chain, and bring certain manufacturing and engineering work back into Boeing – will help ensure the disciplined execution that has sustained the corporation for 95 years.”

I see Jim Albaugh’s handprints on the above back-to-basics approach and perhaps Boeing will avoid the B-787 project management debacle on the next aircraft program.

Jim McNerney’s Compensation

Jim McNerney had total compensation of $16.6 M in 2008, $19.4 M in 2009 and $19.7 M in 2010. In spite of the B-787 program mismanagement and the estimated $10++ B cost overruns for the B-787 program, executive compensation was not penalized.

If a B-747 crashes on my house in the next several weeks, you will know that Boeing did not approve of my message.

14 replies: All unread, jump to last
 
User currently onlinepar13del From Bahamas, joined Dec 2005, 7054 posts, RR: 8
Reply 1, posted (3 years 3 months 1 week 5 days 8 hours ago) and read 4274 times:

Quoting TomB (Thread starter):
Now let us do a little analysis on the $ 9,461 M of B-787 Work In Progress value.

Quick question, does this work in progress value take into consideration the frames that are not saleable and have forwarded losses already written off been included?


Quoting TomB (Thread starter):
Boeing recorded the following write-offs of forward losses on the B-747 and B-787 programs:

B-747 B-787
2008 $ 685 M
2009 $ 1,352 M $ 2,693 M
Total (to date) $ 2,037 M $ 2,693 M

Not trying to be smart with the question, but the thought stood out when you got into the calculations of how much needs to be added to each frame sold to recoup losses.


User currently offlinepacksonflight From Iceland, joined Jan 2010, 379 posts, RR: 0
Reply 2, posted (3 years 3 months 1 week 5 days 7 hours ago) and read 4137 times:

Quoting TomB (Thread starter):
That leaves $7,180 M of capitalized R&D which will have to be amortized over the future 800 B-787 deliveries

How are risk sharing partners like MHI and Fuji in Japan accounted for?

Is 7,180M total value of the program, and does a part of that amount belong to the risk sharing partners?


User currently offlinejustloveplanes From United States of America, joined Jul 2004, 1036 posts, RR: 1
Reply 3, posted (3 years 3 months 1 week 4 days 10 hours ago) and read 3843 times:

Thanks for the interesting post.

On the 748 that is in a forward loss - Does that mean they are already accounting for the entire program at a loss (projected sales), or just the frames sold to date?

If the latter, and frames sold as of the report date are at zero margin, then new frames sold as of now will have a margin?

Related question: If the 787 is not in a loss forward position, than the breakeven point for the program is somewhat below the 850 or so frames now booked for sale?


User currently offlinetdscanuck From Canada, joined Jan 2006, 12709 posts, RR: 80
Reply 4, posted (3 years 3 months 1 week 3 days 20 hours ago) and read 3642 times:

Quoting justloveplanes (Reply 3):
On the 748 that is in a forward loss - Does that mean they are already accounting for the entire program at a loss (projected sales), or just the frames sold to date?

They're accounting for it against the program quantity, which usually lags a little bit behind actual frames sold but not by much. Keep in mind that the "program" here is the entire 747, so the program accounting quantity includes everything since the 747-100.

Quoting justloveplanes (Reply 3):
If the latter, and frames sold as of the report date are at zero margin, then new frames sold as of now will have a margin?

No...they don't calculate margin per frame.

Quoting justloveplanes (Reply 3):
Related question: If the 787 is not in a loss forward position, than the breakeven point for the program is somewhat below the 850 or so frames now booked for sale?

It's below the accounting quantity...as far as I know, Boeing hasn't release the program accounting quantity for the 787 yet.

Tom.


User currently offlineStitch From United States of America, joined Jul 2005, 30551 posts, RR: 84
Reply 5, posted (3 years 3 months 1 week 3 days 14 hours ago) and read 3537 times:
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Quoting tdscanuck (Reply 4):
It's below the accounting quantity...as far as I know, Boeing hasn't release the program accounting quantity for the 787 yet.

The Annual Report states it will be released when ZA100 is delivered to NH.


User currently offlineAesma From France, joined Nov 2009, 6526 posts, RR: 9
Reply 6, posted (3 years 3 months 1 week 3 days 11 hours ago) and read 3420 times:

2 billions write-off for the 748, I thought it was 1 billion ?


New Technology is the name we give to stuff that doesn't work yet. Douglas Adams
User currently offlineruscoe From Australia, joined Aug 1999, 1541 posts, RR: 2
Reply 7, posted (3 years 3 months 1 week 3 days 10 hours ago) and read 3376 times:

I wouldn't get too concerned.

Boeing has learn't a thing or two from Airbus.

One is how to account for program failed assumptions. (stuff ups)

The wright offs have already been spent, and are written off against income and hence the loss is reduced by Boeings marginal rate of taxation. (I have no idea what that is but likely to be 20%)

Because the money is already spent, one has to look at the program, from the present point ignoring past losses which have been absorbed by income. This means Boeing does not have to build in recovery of the write off amounts in the future sale price of each aircraft. They would if they could but they will never sell another 787 or 747 if they do.

The important thing is this: Does the current sale price of each frame covere the actual cost of each frame?
I think that is likely to be line ball but the 789 and 10 should be quite profitable.

Airbus's problem with the 380 is that some of the frames they are proeducing have not been sold at a price which covers actual production costs, and it is likely the 787 and 747 have similar frames. A compare and contrast of key managment, accounting anf production numbers show Airbus and Boeing are very similar in their positions, except for one, vakue of unbuilt frames, but that is not part of this discussion.

Thank God for cash flow, which keeps them going.

Ruscoe


User currently offlineBaroque From Australia, joined Apr 2006, 15380 posts, RR: 59
Reply 8, posted (3 years 3 months 1 week 3 days 10 hours ago) and read 3360 times:

Quoting ruscoe (Reply 7):
Boeing has learn't a thing or two from Airbus.

Looks like it. I hope it does not suffer the same fate as Airbus so that when the write offs turn up as cash, B is not (also) declared bankrupt in the wondrous mirror world of a.net!!  


User currently offlineAirNZ From , joined Dec 1969, posts, RR:
Reply 9, posted (3 years 3 months 1 week 3 days 8 hours ago) and read 3267 times:

Quoting tdscanuck (Reply 4):
Keep in mind that the "program" here is the entire 747, so the program accounting quantity includes everything since the 747-100.

Not necessarily disagreeing with you, but where does it point out that the "programme here" in the entire 747? Are you thus saying that the 747 since the 100 varient has been completely loss-making?


User currently offlineStitch From United States of America, joined Jul 2005, 30551 posts, RR: 84
Reply 10, posted (3 years 3 months 1 week 3 days 8 hours ago) and read 3212 times:
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Quoting AirNZ (Reply 9):
Not necessarily disagreeing with you (tdscanuck), but where does it point out that the "programme here" in the entire 747?

If you have the 2010 Annual Report, Page 26 shows the accounting qualities for the 737, 747, 767 and 777. The 2010 program accounting quantity for the 747 program is 1524, reflecting all but one firm orders received for the 747 program since it's launch as of December 31, 2010.



Quoting AirNZ (Reply 9):
Are you thus saying (tdscanuck) that the 747 since the 100 varient has been completely loss-making?

I'm confused, as well. Can the 747-8 program have been so poorly executed that it wiped out all the profits Boeing made on over 1400 prior deliveries? And if so, then delivering ~350 747-8s would really be enough to bring the program back to the original target RoI (as Boeing executives have stated)?


User currently offlinejustloveplanes From United States of America, joined Jul 2004, 1036 posts, RR: 1
Reply 11, posted (3 years 3 months 1 week 3 days 6 hours ago) and read 3091 times:

Quoting tdscanuck (Reply 4):

It's below the accounting quantity...as far as I know, Boeing hasn't release the program accounting quantity for the 787 yet.
Quoting Stitch (Reply 5):
The Annual Report states it will be released when ZA100 is delivered to NH.

That would help. Without the accounting quantity, the "not being in a loss forward position" statement doesn't relay too much information on profitability vs loss.

Quoting Stitch (Reply 10):
I'm confused, as well. Can the 747-8 program have been so poorly executed that it wiped out all the profits Boeing made on over 1400 prior deliveries? And if so, then delivering ~350 747-8s would really be enough to bring the program back to the original target RoI (as Boeing executives have stated)?

$10 (wild guess on the conserative side I think) million profit per frame over 1500 741/744 frames is about 15 billion dollars profit, so statement must refer to just the 748. I think Boeing is basing their numbers on selling about 125 or so 748 frames at $10-20 million profit. That isis about $1.25 - $2.5 billion profit, which would put the program at a forward loss position (development and overuns together probably hitting 5-6 billion in another wild guess.....)

If they are making about $20 million per frame then 350 breakeven per their statement would be about $7 billion which matches up with the figures presented. So..... it sounds like current sales or some current sales plusup and not total forecasted sales is the accounting quantity for the program (sensible actually).

If the current sales are also the metric for 787, 850 or less is the breakeven point as of today. Doubt they would use two different accouting metrics for these calculations.


User currently offlinetdscanuck From Canada, joined Jan 2006, 12709 posts, RR: 80
Reply 12, posted (3 years 3 months 1 week 2 days 12 hours ago) and read 2927 times:

Quoting Stitch (Reply 10):
I'm confused, as well. Can the 747-8 program have been so poorly executed that it wiped out all the profits Boeing made on over 1400 prior deliveries? And if so, then delivering ~350 747-8s would really be enough to bring the program back to the original target RoI (as Boeing executives have stated)?

When they make statements they usually say the the "747-8 program", not the "747 program", is in a loss *forward* position. The overall 747 program isn't running a loss, but from here forward the amount they expect to make in revenue doesn't cover the costs they expect to spend from here forward. At least, that's what I think is going on...program accounting is pretty opaque.

Tom.


User currently offlineStitch From United States of America, joined Jul 2005, 30551 posts, RR: 84
Reply 13, posted (3 years 3 months 1 week 2 days 8 hours ago) and read 2842 times:
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Quoting tdscanuck (Reply 12):
When they make statements they usually say the the "747-8 program", not the "747 program", is in a loss *forward* position. The overall 747 program isn't running a loss, but from here forward the amount they expect to make in revenue doesn't cover the costs they expect to spend from here forward. At least, that's what I think is going on...program accounting is pretty opaque.

Yeah, Business Week wrote a pretty damning article about it back in 2002, noting that Boeing can use it to pretty much hide massive losses just by extending the program quantity by sufficient frames to cover it.


User currently offlinetdscanuck From Canada, joined Jan 2006, 12709 posts, RR: 80
Reply 14, posted (3 years 3 months 1 week 1 day 22 hours ago) and read 2705 times:

Quoting Stitch (Reply 13):
Yeah, Business Week wrote a pretty damning article about it back in 2002, noting that Boeing can use it to pretty much hide massive losses just by extending the program quantity by sufficient frames to cover it.

Although that's true in theory, I've never seen Boeing have the accounting quantity be larger than the actually sold quantity (it typically lags by a little bit), so they don't seem to actually be doing that. If the accounting quantity suddenly jumped to be more than all known sales, that would indeed be a red flag.

Tom.


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