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Will The 787 Break Even? And When?  
User currently offlineabba From Denmark, joined Jun 2005, 1385 posts, RR: 2
Posted (2 years 6 months 2 weeks 4 days 11 hours ago) and read 12248 times:

It has now been discussed - for God knows how many times - when and if the A380 program will break even.

But what about the 787?

The implementation of that program was screwed up much more dramatically than the A380 program! And it is also rumored that the early frames were sold at previously unseen deep discounts. The early frames - it is also said - did not live up to what Boeing has promised and, therefore, Boeing has to pay airlines huge compensations.

Rumors also have it that even if Boeing from now on manage to produce and deliver - to spec. - the entire backlog of orders on the program they will not - especially if cost of capital is included - have earned as much as a cent!

What is myth and what is fact in all of this?

71 replies: All unread, showing first 25:
 
User currently offlineStitch From United States of America, joined Jul 2005, 31420 posts, RR: 85
Reply 1, posted (2 years 6 months 2 weeks 4 days 11 hours ago) and read 12253 times:
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I am 100% positive the 787 will break even and generate a healthy profit for Boeing. I expect a minimum of 2000 deliveries over the life of the program, which is double the current accounting block.

User currently offlinesweair From Sweden, joined Nov 2011, 1833 posts, RR: 0
Reply 2, posted (2 years 6 months 2 weeks 4 days 11 hours ago) and read 12243 times:

Much of the sunk RnD could be used in other projects, like cfrp barrels, bleed-less system etc How much of the A380 is useful for other smaller aircraft?

I guess the wings of the 777X taking a few hints from the 787 project.


User currently offlineikramerica From United States of America, joined May 2005, 21583 posts, RR: 59
Reply 3, posted (2 years 6 months 2 weeks 4 days 10 hours ago) and read 12051 times:

Likely after 1000 frames delivered, and they will get there by end of the decade.

Not nearly as profitable as was projected, but surely not a failure.

The other thread was supposed to be about if the A380 is a cash cow for airlines, not Airbus, something NOT discussed ad nauseum because we hadn't had enough in service or enough time to consider it.



Of all the things to worry about... the Wookie has no pants.
User currently offlinepar13del From Bahamas, joined Dec 2005, 7665 posts, RR: 8
Reply 4, posted (2 years 6 months 2 weeks 4 days 10 hours ago) and read 11915 times:

Well to follow the logic that has been applied to other frames, you need to define your break even figures.
Which cost are you including, everything from day one, items that Boeing have or have not written off, current cost to produce a frame versus sales price, include a portion of RD, write-off and compensation in each frame until that number reaches zero, etc etc.

Unfortunately, a consensus of how A.Net should calculate break even was never settled in the A380 threads, so I expect many more of these threads before the 787 slips into the great beyond.


User currently offlinesweair From Sweden, joined Nov 2011, 1833 posts, RR: 0
Reply 5, posted (2 years 6 months 2 weeks 4 days 9 hours ago) and read 11846 times:

767 sold a thousand, 757 sold a thousand, 787 will probably sell more than these combined.

User currently offlineabba From Denmark, joined Jun 2005, 1385 posts, RR: 2
Reply 6, posted (2 years 6 months 2 weeks 4 days 9 hours ago) and read 11835 times:

Quoting sweair (Reply 2):
How much of the A380 is useful for other smaller aircraft?



Very much of the A380 is on the A350. The high pressure hydraulic system just to mention one thing. But many many more could also be mentioned.


User currently offlineEagleBoy From Niue, joined Dec 2009, 1917 posts, RR: 2
Reply 7, posted (2 years 6 months 2 weeks 4 days 9 hours ago) and read 11787 times:
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Quoting sweair (Reply 5):
767 sold a thousand, 757 sold a thousand, 787 will probably sell more than these combined.
Quoting sweair (Reply 2):
Much of the sunk RnD could be used in other projects, like cfrp barrels, bleed-less system etc .......

I think these 2 points support the idea that, Yes the B787 will turn a profit for Boeing.


User currently offlinesweair From Sweden, joined Nov 2011, 1833 posts, RR: 0
Reply 8, posted (2 years 6 months 2 weeks 4 days 9 hours ago) and read 11749 times:

I think of the 2 787 has a better chanse to

Quoting EagleBoy (Reply 7):
I think these 2 points support the idea that, Yes the B787 will turn a profit for Boeing.

Well it has a lot of aircraft to replace, the 752, 767 and some A330..That is quite a big segment. I would rather see a true 757 replacement..


User currently offlineairfrnt From United States of America, joined Jul 2004, 2829 posts, RR: 42
Reply 9, posted (2 years 6 months 2 weeks 4 days 9 hours ago) and read 11725 times:

Unlike the A380, there is actually a decent market for the 787. It's not the insane world-beating 707 or 747 success that it could have been, but it will still be north of the 757 and 767 in commercial success terms.

User currently offlineabba From Denmark, joined Jun 2005, 1385 posts, RR: 2
Reply 10, posted (2 years 6 months 2 weeks 4 days 8 hours ago) and read 11559 times:

Quoting airfrnt (Reply 9):
Unlike the A380, there is actually a decent market for the 787. It's not the insane world-beating 707 or 747 success that it could have been, but it will still be north of the 757 and 767 in commercial success terms.



Well if it is true that the 787 needs more than a 1000 copies delivered on time and to spec. it is possibly safe to say that we will need to wait untill well in to the next decade before the money spend on this program together with cost of capital is recouped.


User currently offlineRoseflyer From United States of America, joined Feb 2004, 9818 posts, RR: 52
Reply 11, posted (2 years 6 months 2 weeks 4 days 8 hours ago) and read 11415 times:

Because of program accounting and many of the concerns and critiques of the process, investors commonly look at the cash flow of aerospace companies rather than specific profit margin. Margin is set on program accounting blocks which are simply forecast amounts to cover the development cost. They are hard to get meaning out of.

The investors in aerospace typically look at cash flow and long term profits posted. Boeing accounting consistently earns a predictable profit every year. Cash flow is also relatively consistent although it did get tight in 2009 when production rates were cut.

If you want some real expert opinions, here are some:
http://seekingalpha.com/article/2775...s-boeing-s-787-dreamliner-not-very
http://www.bloomberg.com/news/2011-1...ility-to-output-of-1-100-jets.html

Aerospace is one of the harder industries for accounting. From an economics standpoint in my opinion the only one harder is the electronics market where development costs are even higher and prices vary far more. With electronics price goes down with time and production costs are low and relatively fixed. With airplanes production costs go down with time. Prices are an upside down U with them peaking somewhere near the middle of the program.

Here's a chart explaining the rationale behind program accounting (source first article)

http://static.seekingalpha.com/uploads/2011/6/29/933684-130938087271252-Brian-Nelson_origin.png

Personally I would not get too focused on the compensation arguments. They are factors, but way overblown in my opinion when talking at a program level. Air India was asking for 30% discounts which were extreme, but I doubt those actually were given. It's easy to get caught up in the hype of underperforming and disastrous delays, but in reality, Boeing is a profitable company. Program accounting helps figure out what the margin actually is, but as a whole Boeing is not losing money. Strong cashflow remained with the 737 and 777 programs and despite contracting the defense industry has a higher profit margin than commercial airplanes.

[Edited 2012-06-07 14:32:57]

[Edited 2012-06-07 14:33:44]


If you have never designed an airplane part before, let the real designers do the work!
User currently offlineRevelation From United States of America, joined Feb 2005, 12965 posts, RR: 25
Reply 12, posted (2 years 6 months 2 weeks 4 days 8 hours ago) and read 11344 times:

Quoting abba (Thread starter):
Rumors also have it that even if Boeing from now on manage to produce and deliver - to spec. - the entire backlog of orders on the program they will not - especially if cost of capital is included - have earned as much as a cent!

What is myth and what is fact in all of this?

IMHO pretty close to what you state.

One good article is:

http://seattletimes.nwsource.com/htm...echnology/2016612066_boeing27.html

which contains:

Quote:

From the 787's program's inception, "it's probably not a positive investment return," said Barclay's Copeland. "That said, of the substantial costs that the program faced, the majority are sunk and behind the company. Looking forward from here, I think the prospect of it being a positive return on investment is very good."

So, like the other plane under discussion, 787 was a luxury that Boeing was able to pay for out of existing cash flows, but on a program basis, is not at all likely to make any money.

The article contains some very rough and loose calculations that say that for the -8 model alone, it'd need to sell 1800 frames for break even and even more if you add in the -9 and -10.

Pretty sobering numbers.

That being said, IMHO the root causes are different. Boeing seemed to get the market demand prediction right, but botched some design and many more manufacturing aspects of the program. Airbus seemed to be overly optimistic about market demand, but got design and manufacturing mostly right, except for that major screw up with different versions of CATIA. Again, this is all IMHO...



Inspiration, move me brightly!
User currently offlineDaysleeper From UK - England, joined Dec 2009, 873 posts, RR: 1
Reply 13, posted (2 years 6 months 2 weeks 4 days 6 hours ago) and read 11041 times:

Quoting ikramerica (Reply 3):
Likely after 1000 frames delivered, and they will get there by end of the decade.

Where have you got this figure from? Almost all of the estimates I've seen put the break even for the 788 somewhere north of 1600 frames.


User currently offlineltbewr From United States of America, joined Jan 2004, 13200 posts, RR: 15
Reply 14, posted (2 years 6 months 2 weeks 4 days 5 hours ago) and read 10954 times:

Don't forget that much has been learned and expended in money as to new materials and manufacturing costs on the 787 which may cut the costs of developments of other future model aircraft both civilian and commercial. So the 'break even' of the 787 may require more frames sold than initially expected, but it may lead to lower break even frames numbers as to replacements for the 737 as well as eventually the 747.

Two other factors that may affect the 'break-even' are the changes in the making of the 787 as to farming out major airframe components to sub-contractors with them sharing the risks as well as placing a factory in South Carolina, lowering labor costs.


User currently offlineMaverickM11 From United States of America, joined Apr 2000, 17824 posts, RR: 46
Reply 15, posted (2 years 6 months 2 weeks 4 days 5 hours ago) and read 10876 times:

Quoting abba (Thread starter):
It has now been discussed - for God knows how many times - when and if the A380 program will break even.

But what about the 787?

Right now the numbers are totally on the 788s side--huge backlog, enormous opportunity in terms of network application, and plenty of existing aircraft it can replace. The 380 has none of those things, in spite of both model's disastrous program start.



E pur si muove -Galileo
User currently offlinekanban From United States of America, joined Jan 2008, 3864 posts, RR: 27
Reply 16, posted (2 years 6 months 2 weeks 4 days 4 hours ago) and read 10796 times:
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the other thing to remember is that the plane will mature with models beyond the -9 and -10... so there may never be a point where a true break even occurs...

User currently offlineikramerica From United States of America, joined May 2005, 21583 posts, RR: 59
Reply 17, posted (2 years 6 months 2 weeks 4 days 4 hours ago) and read 10781 times:

Quoting Daysleeper (Reply 13):
Where have you got this figure from? Almost all of the estimates I've seen put the break even for the 788 somewhere north of 1600 frames.

When did that happen? Where are those numbers coming from?



Of all the things to worry about... the Wookie has no pants.
User currently offlineastuteman From United Kingdom, joined Jan 2005, 10243 posts, RR: 97
Reply 18, posted (2 years 6 months 2 weeks 4 days ago) and read 10579 times:
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Quoting Revelation (Reply 12):
Boeing seemed to get the market demand prediction right, but botched some design and many more manufacturing aspects of the program. Airbus seemed to be overly optimistic about market demand, but got design and manufacturing mostly right

That surprises me.

I would have thought that the one thing it is abundantly clear Airbus did is completely screw the design-to-manufacture aspect of the programme.
The 3 years of delay and slow production ramp up, and many billions of attendant cost overruns, haven't been voluntary.....   

Quoting kanban (Reply 16):
the other thing to remember is that the plane will mature with models beyond the -9 and -10... so there may never be a point where a true break even occurs...

Which could also be said of the big bird across the pond...  
Quoting sweair (Reply 2):
How much of the A380 is useful for other smaller aircraft?

Are you going to be (yet) another one on here who's going to focus on 10% of the plane, and call it the whole picture?
That would be sad

Rgds


User currently offlineflightsimer From United States of America, joined Aug 2009, 606 posts, RR: 1
Reply 19, posted (2 years 6 months 2 weeks 3 days 23 hours ago) and read 10476 times:

Sometime at the beginning of the year, didn't Boeing report an official unofficial rough number of 1200 for the entire program? Or was that just someone else's estimate?


Commercial Pilot- SEL, MEL, Instrument
User currently offlineabba From Denmark, joined Jun 2005, 1385 posts, RR: 2
Reply 20, posted (2 years 6 months 2 weeks 3 days 23 hours ago) and read 10421 times:

Quoting ltbewr (Reply 14):
Don't forget that much has been learned and expended in money as to new materials and manufacturing costs on the 787 which may cut the costs of developments of other future model aircraft both civilian and commercial. So the 'break even' of the 787 may require more frames sold than initially expected, but it may lead to lower break even frames numbers as to replacements for the 737 as well as eventually the 747.



I am afraid not. New developments will need to improve on the 787 to about the same extent that the 787 improved over the 777. The fact that Boeing did the 787 might be what actually saved them as a major player in civil aviation. This might be - money aside - the most important aspect of the 787.


From the article linked to above, I noticed the following:

Quote:
The positive cash flow will gradually pay back the earlier production costs to finally break even on manufacturing the planes roughly 10 years from now, Boeing said.

This calculation does not take into account the 787 research-and-development costs nor the costs of acquiring the 787 plants in South Carolina from struggling partners.


User currently offlineDaysleeper From UK - England, joined Dec 2009, 873 posts, RR: 1
Reply 21, posted (2 years 6 months 2 weeks 3 days 19 hours ago) and read 10179 times:

Quoting ikramerica (Reply 17):
When did that happen? Where are those numbers coming from?

From articles in the Seattle PI and various threads here which have discussed the costs of the program.

So, where did you get the 1000 figure from? And are you referring to a production break even point or an actual program break even?

[Edited 2012-06-08 03:37:43]

User currently offlinesweair From Sweden, joined Nov 2011, 1833 posts, RR: 0
Reply 22, posted (2 years 6 months 2 weeks 3 days 18 hours ago) and read 9834 times:

The 787 will be very profitable over time, despite some mishaps at start it will live on and become a success, I am sure. And it wont take 1600 frames 1100 maybe. I think the 787 is the best project since 777 for Boeing.

User currently offlineBurkhard From Germany, joined Nov 2006, 4409 posts, RR: 2
Reply 23, posted (2 years 6 months 2 weeks 3 days 18 hours ago) and read 9712 times:

This strongly depends if Boeing can get th eproduction costs per frame really down to where they sold the aircraft - this is work still to be done. I read a remark that they hopw to have the costs per plane below 150 Mio $ end of 2014 - which means they only loose about 40-50 Mio per frame they deliver.
Do they get the costs down below 120Mio. I expect this to be the case, question is how fast.
Can they sell the aircraft at realistic 140-150Mio net? 787 sales were slow the last few years, but eventuelly we will overcome the crises created by greedy bankers and will come back to sane economy, and then sales willbe there again.

So I expect that over the total time of the project, that I see until 2050, yes they will get their money back, and yes 3000-4000 planes will be built, but the break even will be far later then 2020 I expect. The interests for the money spent by now alone eats the cash for 10 frames - is this counted for?


User currently offlineabba From Denmark, joined Jun 2005, 1385 posts, RR: 2
Reply 24, posted (2 years 6 months 2 weeks 3 days 17 hours ago) and read 9490 times:

Quoting Burkhard (Reply 23):
787 sales were slow the last few years,



This is most likely due to uncertainty as to when one would be able to get one. When production is up and running and credible predictions as to delivery dates can be given in a not too distant future, sales will pick up again. This is the same problem the A380 has at the moment.

However, I do not believe that the 787 will be able to keep until 2050...


25 panais : I think that the 787-8 will never break even, while the 787-9 and the 787-10 will because more of them will be built. The 787-8 has been discounted mo
26 par13del : So a question, if the 787-9 and if made the 787-10 uses plants, lines, workers hired for the 787-8 and other companies that Boeing bought out to get
27 solarflyer22 : There is no way its 1600 planes even with the 2.5 years of delays and weight issues. I'd be shocked if its more than 1000. Remember, alot of the expe
28 Post contains links oldeuropean : And break even can't be fixed and will rise. AI still expects $1 billion, now including further price reductions. http://www.aviationweek.com/Article.
29 ikramerica : No links just memories?
30 sweair : All models share the 787 project, income and loss of the total. I don't think you value each model separately, you value the total project combined.
31 abba : You could read this good article. At 1600 Boeing would still have been better off putting their funds in the bank....
32 ikramerica : That's not the same thing though. That article says about 1100 before profit which sounds plausible.
33 Post contains links airboe : I agree, - it will have break even - at some point. I don't know if it will be at 800 or 3.650 unit's as I have seen also. I suggest you all read thi
34 sweair : If you concentrate on cost maybe, but I can at least think of a few things that this project has developed for the future of aviation, what is the va
35 Stitch : It doesn't really matter if an individual model within the family breaks even, as long as the family as a whole breaks even. With so few sales, the 7
36 Daysleeper : I've asked you more than once now where you go the 1000 figure from and both times you have evaded answering by posting a question. In previous discu
37 sweair : And one thing we forget, parts and services. Its the same with cars, the profit of the vehicle is small but the parts and services pays for that in th
38 Stitch : Boeing's Accounting Block for the 787 is 1100 frames, so that's when they expect to have amortized all the production costs (R&D have already been
39 airbazar : You're comparing apples and oranges. The 787 despite all it's expectations will for a long time be a "replacement" aircraft, as you point out. The A3
40 sweair : Will the first 789 get assembled this year? How much of certification will it need? Its mostly a stretched 788?
41 mham001 : Any guess you have is no better than anybody else unless you have real data and a sound basis. I'm quite sure you don't, first and foremost because f
42 moo : As an aside, why is the projected sales for the 787 so high? A lot of people mention expected overall sales of north of 2,000, when no other widebody
43 Post contains images cmf : The accounting block is about production costs. Only some development costs are clear enough to include. Have to disagree. This is of course very muc
44 Post contains links Revelation : I find it interesting that when I googled for info about break even for the now-closed thread, the info for A all came from direct statements from co
45 par13del : Yes, but how do you account for it, Boeing has a contract with the contractor and vice versa, those are the numbers Boeing has to account for, excess
46 sweair : The contractors will get more revenue by Airbus contracting them to do the work the 787 started. This way the 787 even benefits the A350 in some way.
47 Revelation : Yes, you are right. The point I was trying to make is that the cost overruns were paid off out of cash flow, as opposed to other situations where a g
48 lightsaber : Interest rates are low. Because of that, Boeing is certain at some point to turn to a profit on the 787. If interest rates were higher at the onset of
49 sweair : I see one major problem with more and more earthlings flying, energy cost. We are even now struggling to meet demand, how on earth will we meet that g
50 astuteman : Remember that the profit also goes where the expense was put...... That is the meaniing of "risk sharing".. Rgds
51 MD-90 : I wonder how much of this will depend on how much Boeing can save by assembling 787s in South Carolina as opposed to Washington?
52 par13del : We know Boeing outsourced a lot of production initially on the 787 to non-Boeing owned / run companies, it stands to reason that they have contracts
53 frmrCapCadet : Accounting rules are designed to avoid companies providing overly optomistic statements. Somehow both Airbus and Boeing, with few exceptions, show far
54 tdscanuck : Aviation is one of the last sectors that will abandon liquid hydrocarbons; due to increasing energy cost, non-liquid-hydrocarbon energy sources (hydr
55 cmf : It all depend on the contract terms. But remember business is business. No company is there to make Boeing's result look good at their expense. Every
56 aztrainer : Forgive me if this is a naive question, but I thought I read somewhere that Boeing could have the 787 at a "loss" in the production cost as they will
57 Stitch : It is true that the sum total of ancillaries sold over the life of an airframe can equal a fair bit of the original purchase price and they are usual
58 Post contains links lightsaber : Fitch Ratings has downgraded its Issuer Default Ratings for the Boeing Company and Boeing Capital Corporation (BCC) from A+ to A. The downgrade is dri
59 2175301 : While your general point that Boeing accumulated extra debt due to the 748 & 787 Program, it is not all of the $12.4 Billion mentioned. Boeing, a
60 Post contains links and images lightsaber : Agreed. But with over $24 billion in 787 inventory sitting at Everett, I would say a significant portion is due to the 788. http://nyc787.blogspot.co
61 Post contains links Revelation : Our friend Jon Ostrower's WSJ article from yesterday: Boeing Hits a Milestone: Factory Rolls Out First Dreamliner to Go Directly Into 'Preflight Opera
62 tdscanuck : They did a several-billion $ bond issue a few years back, fairly explicitely to fund 787. So yes. It's not a naive question, but it's not really the
63 Post contains images cmf : You're absolutely right. I typically verify everything I'm told but I've heard that everything came from cash flow so many times I failed to follow m
64 Post contains links lightsaber : Thank you for the time to compile the data. I learned from you post. It does put the debt in perspective nicely. While I note vendors debt/obligation
65 astuteman : I think the key point here though is the same as for the A380. From where the programme is now, with the large bulk of expenditure under the belt, bu
66 2175301 : Thank you for providing the information I requested and more. I find it very encouraging that even though Boeing took about $5 Billion dollars in ext
67 sweair : With interest rates low, its no problem funding more debt. But all this forces those with cash to try to beat inflation. as the interest rates are bel
68 tdscanuck : Investors hate companies with lots and lots of cash on hand...interest rates are so low that the return is terrible. Public companies are under enorm
69 sweair : Investing in the NSA would be better than lose on inflation..
70 cmf : I know it isn't how it is done in most companies. But I have always thought an extra dividend is the better option if you really care about your owne
71 frmrCapCadet : cmf - liked the chart a lot. I concur that it should be preserved best as its own thread. Boeing Financials Chart, or something the search function co
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