abba From Denmark, joined Jun 2005, 1330 posts, RR: 2 Posted (2 years 1 month 3 weeks 9 hours ago) and read 12029 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!
par13del From Bahamas, joined Dec 2005, 7062 posts, RR: 8
Reply 4, posted (2 years 1 month 3 weeks 8 hours ago) and read 11696 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.
airfrnt From United States of America, joined Jul 2004, 2824 posts, RR: 42
Reply 9, posted (2 years 1 month 3 weeks 8 hours ago) and read 11506 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.
abba From Denmark, joined Jun 2005, 1330 posts, RR: 2
Reply 10, posted (2 years 1 month 3 weeks 7 hours ago) and read 11340 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.
Roseflyer From United States of America, joined Feb 2004, 9497 posts, RR: 52
Reply 11, posted (2 years 1 month 3 weeks 6 hours ago) and read 11196 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.
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)
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!
Revelation From United States of America, joined Feb 2005, 12339 posts, RR: 25
Reply 12, posted (2 years 1 month 3 weeks 6 hours ago) and read 11125 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!
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...
ltbewr From United States of America, joined Jan 2004, 13039 posts, RR: 12
Reply 14, posted (2 years 1 month 3 weeks 4 hours ago) and read 10735 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.
MaverickM11 From United States of America, joined Apr 2000, 17343 posts, RR: 46
Reply 15, posted (2 years 1 month 3 weeks 3 hours ago) and read 10657 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.
astuteman From United Kingdom, joined Jan 2005, 9977 posts, RR: 96
Reply 18, posted (2 years 1 month 2 weeks 6 days 23 hours ago) and read 10360 times:
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
abba From Denmark, joined Jun 2005, 1330 posts, RR: 2
Reply 20, posted (2 years 1 month 2 weeks 6 days 22 hours ago) and read 10202 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.
sweair From Sweden, joined Nov 2011, 1811 posts, RR: 0
Reply 22, posted (2 years 1 month 2 weeks 6 days 17 hours ago) and read 9615 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.
Burkhard From Germany, joined Nov 2006, 4386 posts, RR: 2
Reply 23, posted (2 years 1 month 2 weeks 6 days 16 hours ago) and read 9493 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?
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...
: 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
: 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
: 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
: 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.