Sponsor Message:
Civil Aviation Forum
My Starred Topics | Profile | New Topic | Forum Index | Help | Search 
Will The 787 Break Even? And When?  
User currently offlineabba From Denmark, joined Jun 2005, 1335 posts, RR: 2
Posted (2 years 2 months 3 weeks 2 days 6 hours ago) and read 12071 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, 30904 posts, RR: 87
Reply 1, posted (2 years 2 months 3 weeks 2 days 6 hours ago) and read 12076 times:
Support Airliners.net - become a First Class Member!

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, 1820 posts, RR: 0
Reply 2, posted (2 years 2 months 3 weeks 2 days 6 hours ago) and read 12066 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, 21511 posts, RR: 60
Reply 3, posted (2 years 2 months 3 weeks 2 days 5 hours ago) and read 11874 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, 7144 posts, RR: 8
Reply 4, posted (2 years 2 months 3 weeks 2 days 5 hours ago) and read 11738 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, 1820 posts, RR: 0
Reply 5, posted (2 years 2 months 3 weeks 2 days 4 hours ago) and read 11669 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, 1335 posts, RR: 2
Reply 6, posted (2 years 2 months 3 weeks 2 days 4 hours ago) and read 11658 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, 1820 posts, RR: 2
Reply 7, posted (2 years 2 months 3 weeks 2 days 4 hours ago) and read 11610 times:
Support Airliners.net - become a First Class Member!

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, 1820 posts, RR: 0
Reply 8, posted (2 years 2 months 3 weeks 2 days 4 hours ago) and read 11572 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, 2826 posts, RR: 42
Reply 9, posted (2 years 2 months 3 weeks 2 days 4 hours ago) and read 11548 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, 1335 posts, RR: 2
Reply 10, posted (2 years 2 months 3 weeks 2 days 3 hours ago) and read 11382 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, 9610 posts, RR: 52
Reply 11, posted (2 years 2 months 3 weeks 2 days 3 hours ago) and read 11238 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, 12454 posts, RR: 25
Reply 12, posted (2 years 2 months 3 weeks 2 days 2 hours ago) and read 11167 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, 841 posts, RR: 1
Reply 13, posted (2 years 2 months 3 weeks 2 days ago) and read 10864 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 onlineltbewr From United States of America, joined Jan 2004, 13078 posts, RR: 12
Reply 14, posted (2 years 2 months 3 weeks 2 days ago) and read 10777 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, 17443 posts, RR: 46
Reply 15, posted (2 years 2 months 3 weeks 2 days ago) and read 10699 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 onlinekanban From United States of America, joined Jan 2008, 3502 posts, RR: 27
Reply 16, posted (2 years 2 months 3 weeks 1 day 23 hours ago) and read 10619 times:
Support Airliners.net - become a First Class Member!

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, 21511 posts, RR: 60
Reply 17, posted (2 years 2 months 3 weeks 1 day 23 hours ago) and read 10604 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, 10008 posts, RR: 96
Reply 18, posted (2 years 2 months 3 weeks 1 day 19 hours ago) and read 10402 times:
Support Airliners.net - become a First Class Member!

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, 545 posts, RR: 1
Reply 19, posted (2 years 2 months 3 weeks 1 day 18 hours ago) and read 10299 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, 1335 posts, RR: 2
Reply 20, posted (2 years 2 months 3 weeks 1 day 18 hours ago) and read 10244 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, 841 posts, RR: 1
Reply 21, posted (2 years 2 months 3 weeks 1 day 14 hours ago) and read 10002 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, 1820 posts, RR: 0
Reply 22, posted (2 years 2 months 3 weeks 1 day 13 hours ago) and read 9657 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, 4395 posts, RR: 2
Reply 23, posted (2 years 2 months 3 weeks 1 day 13 hours ago) and read 9535 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, 1335 posts, RR: 2
Reply 24, posted (2 years 2 months 3 weeks 1 day 12 hours ago) and read 9313 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...


User currently offlinepanais From Cyprus, joined May 2008, 462 posts, RR: 0
Reply 25, posted (2 years 2 months 3 weeks 1 day 12 hours ago) and read 9458 times:

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 more than expected based on the false information of the supply chain working as designed on paper, while the 787-9 will probably sell closer to the upper side of list price and be more desirable because of performance.


User currently offlinepar13del From Bahamas, joined Dec 2005, 7144 posts, RR: 8
Reply 26, posted (2 years 2 months 3 weeks 1 day 11 hours ago) and read 8596 times:

Quoting panais (Reply 25):
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.

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 the 787-8 designed and into production, does any of that cost get added to the sale price and program cost of 787-9 / 10 frame?
Dual use facilities, do they split the numbers to assign a portion between the frames or does it all go to the 787-8, and when we talk about the program breaking even, are we talking about all models or just the initial?


User currently offlinesolarflyer22 From US Minor Outlying Islands, joined Nov 2009, 1058 posts, RR: 3
Reply 27, posted (2 years 2 months 3 weeks 1 day 10 hours ago) and read 8698 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.

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 expense was put on the sub-contractors too so its spread across many companies. They're also almost done with a second production line in South Carolina. I think their production cost will come down faster than EADS as Boeing actually is well known for managing actual production (if not design) very well. Unfortunately for them, they rely on CFRP which is tied to Oil prices which have been rising.


User currently offlineoldeuropean From Germany, joined May 2005, 2090 posts, RR: 4
Reply 28, posted (2 years 2 months 3 weeks 1 day 10 hours ago) and read 8639 times:

And break even can't be fixed and will rise.

AI still expects $1 billion, now including further price reductions.

Quote:
India’s 787 Compensation Package Could Include Price Reduction On Order
http://www.aviationweek.com/Article....l/avd_06_07_2012_p04-02-465381.xml

And what's about other airlines?

[Edited 2012-06-08 06:39:40]


Wer nichts weiss muss alles glauben
User currently offlineikramerica From United States of America, joined May 2005, 21511 posts, RR: 60
Reply 29, posted (2 years 2 months 3 weeks 1 day 10 hours ago) and read 8586 times:

Quoting Daysleeper (Reply 21):

No links just memories?



Of all the things to worry about... the Wookie has no pants.
User currently offlinesweair From Sweden, joined Nov 2011, 1820 posts, RR: 0
Reply 30, posted (2 years 2 months 3 weeks 1 day 10 hours ago) and read 8518 times:

Quoting par13del (Reply 26):
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 the 787-8 designed and into production, does any of that cost get added to the sale price and program cost of 787-9 / 10 frame?

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. There were probably loss making models of the 767 and 757, 737,777, A340, A300 etc etc

But all those projects were successful in the end. The tricky part is if a project is just one single model, if it is a dud the whole project is a dud. It would be wise to cover the risk with more models.


User currently offlineabba From Denmark, joined Jun 2005, 1335 posts, RR: 2
Reply 31, posted (2 years 2 months 3 weeks 1 day 10 hours ago) and read 8465 times:

Quoting ikramerica (Reply 29):
No links just memories?



You could read this good article. At 1600 Boeing would still have been better off putting their funds in the bank....

Quoting Revelation (Reply 12):


http://seattletimes.nwsource.com/htm....html


User currently offlineikramerica From United States of America, joined May 2005, 21511 posts, RR: 60
Reply 32, posted (2 years 2 months 3 weeks 1 day 10 hours ago) and read 8316 times:

Quoting abba (Reply 31):

That's not the same thing though.

That article says about 1100 before profit which sounds plausible.



Of all the things to worry about... the Wookie has no pants.
User currently offlineairboe From San Marino, joined Jan 2011, 45 posts, RR: 0
Reply 33, posted (2 years 2 months 3 weeks 1 day 10 hours ago) and read 8202 times:

Quoting ikramerica (Reply 3):
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.

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 this clever blog,
http://theblogbyjavier.com/2011/10/28/will-boeing-787-ever-break-even/

Part two:
http://theblogbyjavier.com/2011/10/31/more-on-boeing-787-break-even/


And finally part three (Break even for dummies):
http://theblogbyjavier.com/2011/11/03/787-break-even-for-dummies/


But some tend to forget one very important prerequisite: The customers must be happy with it.
I think 788 is to small and I expect many -8 to be converted to -9, which - when they finally after another delay will have that frame finished, probably will be great, and I think the expected -10 could be even better for transatlatic flights, and "inter-Asia" fligths as well.

But if they do it rights this time it will break even.



keep it free of the propellers
User currently offlinesweair From Sweden, joined Nov 2011, 1820 posts, RR: 0
Reply 34, posted (2 years 2 months 3 weeks 1 day 10 hours ago) and read 8164 times:

Quoting abba (Reply 31):
At 1600 Boeing would still have been better off putting their funds in the bank....

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 value of all the new tech derived from this project? The electric architecture, the bleed-ess engines, cfrp barrels etc

Lots of neat new tech has been brought forward with the 787, tech that will be used on many other applications and by other OEMs. The start was lousy but I think the 787 project will shine in the end and bring a lot of income to Boeing, its suppliers and even competitors.


User currently offlineStitch From United States of America, joined Jul 2005, 30904 posts, RR: 87
Reply 35, posted (2 years 2 months 3 weeks 1 day 10 hours ago) and read 8130 times:
Support Airliners.net - become a First Class Member!

Quoting panais (Reply 25):
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.

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 777-200A can't possibly have recovered more than a fraction of the cost to bring it to market, but the 777-200ER did very well and when you add in the 777-200LR, 777-300, 777-300ER and 777 Freighter, the whole program is said to be very good to Boeing's bottom line.



In the end, if Boeing felt every 787 delivered would lose them money, they'd have cancelled the program before first delivery to NH. Better to lose $30 billion by canceling than $60 billion by delivering.

[Edited 2012-06-08 07:22:45]

User currently offlineDaysleeper From UK - England, joined Dec 2009, 841 posts, RR: 1
Reply 36, posted (2 years 2 months 3 weeks 1 day 10 hours ago) and read 8076 times:

Quoting ikramerica (Reply 29):
No links just memories?

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 discussions on this subject I have spent a great deal of time and effort going through the numbers for the 787, if you actually have real data and a sound basis for your estimate then I'm more than happy to do so again. I'm not however going to waste my time if your basis is nothing more than wishful thinking.

So, for the third time; What are you basing your estimate on? And is this a production break even, or a project break even?


User currently offlinesweair From Sweden, joined Nov 2011, 1820 posts, RR: 0
Reply 37, posted (2 years 2 months 3 weeks 1 day 9 hours ago) and read 7896 times:

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 the long run.

Air framers make a lot even on old planes, all those spares and consulting...


User currently offlineStitch From United States of America, joined Jul 2005, 30904 posts, RR: 87
Reply 38, posted (2 years 2 months 3 weeks 1 day 9 hours ago) and read 7900 times:
Support Airliners.net - become a First Class Member!

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 accounted for in previous income statements).

User currently offlineairbazar From United States of America, joined Sep 2003, 8314 posts, RR: 10
Reply 39, posted (2 years 2 months 3 weeks 1 day 9 hours ago) and read 7860 times:

Quoting MaverickM11 (Reply 15):
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.

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 A380 on the other end, is changing the markets and the industry as a whole. It's not fair to say that the A380 has less potential than the 787 because it has no existing aircraft to replace. The A380 is its own new segment so logically it is not replacing anything else but itself a few years down the road. Better yet, it will be next stepping stone for customers who need to grow from the 748i, unless Boeing comes up with anything bigger. The production rate and sale price is also verry different on the A380 vs. 787. The current 787 and A380 backlogs are about the same in terms of production months. The 787 backlog will be even shorter is Boeing starts delivering more than 10/month after next year.


User currently offlinesweair From Sweden, joined Nov 2011, 1820 posts, RR: 0
Reply 40, posted (2 years 2 months 3 weeks 1 day 9 hours ago) and read 7687 times:

Will the first 789 get assembled this year? How much of certification will it need? Its mostly a stretched 788?

User currently offlinemham001 From United States of America, joined Feb 2005, 3619 posts, RR: 3
Reply 41, posted (2 years 2 months 3 weeks 1 day 8 hours ago) and read 7362 times:

Quoting Daysleeper (Reply 36):
In previous discussions on this subject I have spent a great deal of time and effort going through the numbers for the 787, if you actually have real data and a sound basis for your estimate then I'm more than happy to do so again. I'm not however going to waste my time if your basis is nothing more than wishful thinking.

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 few bother to consider this....

Quoting sweair (Reply 37):
parts and services.


[Edited 2012-06-08 08:39:46]

User currently offlinemoo From Falkland Islands, joined May 2007, 3926 posts, RR: 4
Reply 42, posted (2 years 2 months 3 weeks 1 day 8 hours ago) and read 7180 times:

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 in existence has yet come close to that:

747 - 1524 over 46 years
767 - 1090 over 34 years
777 - 1371 over 22 years

I doubt the 747 will break the 2,000 mark. The 777 might, with a decent enough NG version, but its a way off yet.

Whats different enough about the 787 to expect exceptional final sales performances from the very start of the campaign?


User currently offlinecmf From , joined Dec 1969, posts, RR:
Reply 43, posted (2 years 2 months 3 weeks 1 day 8 hours ago) and read 6996 times:

Quoting Roseflyer (Reply 11):
Margin is set on program accounting blocks which are simply forecast amounts to cover the development cost.

The accounting block is about production costs. Only some development costs are clear enough to include.

Quoting Roseflyer (Reply 11):
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.

Have to disagree. This is of course very much generalized but electronics has a fairly high generic R&D which is handled by keeping it outside of the products. It is essentially like back office costs. True productions costs on the other hand are usually running over short time periods which make it easy accounting wise.

What is difficult with "standard" accounting are projects having high and long term R&D costs coupled with uncertain outcome. Think medical companies.

Quoting Revelation (Reply 12):
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 787 was not a luxury. It was a requirement for Boeing to stay in business. Without new products your dead man walking.

Quoting solarflyer22 (Reply 27):
Remember, alot of the expense was put on the sub-contractors too so its spread across many companies.

Makes no difference if it is Boeing direct or subcontractors. It still must be covered by revenue generated from sales of the final product.

Quoting Stitch (Reply 35):
It doesn't really matter if an individual model within the family breaks even, as long as the family as a whole breaks even.

Kinda, you should never develop a model unless you think it will generate positive return.

Quoting Stitch (Reply 35):
In the end, if Boeing felt every 787 delivered would lose them money, they'd have cancelled the program before first delivery to NH. Better to lose $30 billion by canceling than $60 billion by delivering.

   Why separating R&D and production is so important.

Quoting Stitch (Reply 38):
Boeing's Accounting Block for the 787 is 1100 frames, so that's when they expect to have amortized all the production costs



No, that is not how program accounting and accounting block works.

1,100 is the number of frames Boeing has high confidence in that they will be able to deliver and predict costs and revenues for. Because they did not take a charge when they announced the number we know it will create positive (or at least break even) result on production cost. We do not know if this happens at the 1,100 frame or at some frame earlier than that.


User currently offlineRevelation From United States of America, joined Feb 2005, 12454 posts, RR: 25
Reply 44, posted (2 years 2 months 3 weeks 1 day 7 hours ago) and read 6719 times:

Quoting Roseflyer (Reply 11):
The investors in aerospace typically look at cash flow and long term profits posted. Boeing accounting consistently earns a predictable profit every year.

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 company executives, usually at investor conferences, but as time has marched on they are less willing to talk about it. For instance, the last statement I found from the CEO said the number of frames for break-even for the VLA had increased, but he wouldn't say by how many. The info from B seems to be harder to find and is usually not directly attributed.

This may be due to what you say about the number being of less importance in general, or of less usefulness in the aerospace industry, or differing practices in the different investing communities.

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.

Sure, but that's true for all programs both inside and outside of aerospace. For instance, the 777 wing work fed into the 787, and both fed into the 747-8, and all will feed into the 777-X.

Quoting astuteman (Reply 18):
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.....

Fair enough. I guess I haven't been paying close enough attention. I thought when the surge of workers imported to France all went back home that things were more or less under control.

Quoting astuteman (Reply 18):
Which could also be said of the big bird across the pond...

Indeed. There are many masterpieces on the big bird such as the composite wing box that are making appearances onto the newer planes.

Quoting panais (Reply 25):
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.

Not a fair comparison because the -8 will bear most of the costs.

Quoting solarflyer22 (Reply 27):
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.
Quoting ikramerica (Reply 32):
That article says about 1100 before profit which sounds plausible.
Quoting Stitch (Reply 38):
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 accounted for in previous income statements).

The meat of the ST article is here:

Quote:

Bell projected that the cost to build each Dreamliner will drop below the price paid by the buyer around 2015, providing positive cash flow for the first time.

"That time frame is when we'll start seeing it really get positive," he said.

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.

Those costs, estimated by The Seattle Times at around $16 billion, will have to paid back for Boeing to see a return on its total investment.

That will likely take at least an additional 700 deliveries beyond the initial 1,100 jets.

So the 1100 number is indeed Boeing's own number based on program accounting, and ST added in another 700 to cover the basic R&D and the cost of buying out the SC plants.

IMHO it's fair to lump those in because the costs are large and are directly linked to the 787 program, but my opinion is not unanimous.

The "break even for dummies" article above explains its even more pessimistic outlook, one backed up by the earlier quote from other analysts.

In block accounting, you do take in the time value of money for development costs (you do amortize them), but you do not take into account the time value of money for revenues. The article makes the point that a dollar you got ten years ago is a dollar then, but now it's about 38 cents today once you take into account the time value of money, because that dollar is not working for you over that ten year period. The fact that the 787 delays have delayed huge amounts of revenue for very long periods of time makes this effect very significant.

Its predecessor articles also states that Boeing is using a much more optimistic learning curve assumption than one based on the reality of the 777 program, so according to it, the 1100 number is flawed.

The reality for both A's VLA and B's new widebody twin is that the big spending is done and paid for, and now it's all about making the product quickly, cheaply and correctly, which is never easy, but both vendors are expected to be able to pull it off.



Inspiration, move me brightly!
User currently offlinepar13del From Bahamas, joined Dec 2005, 7144 posts, RR: 8
Reply 45, posted (2 years 2 months 3 weeks 1 day 7 hours ago) and read 6519 times:

Quoting cmf (Reply 43):
Makes no difference if it is Boeing direct or subcontractors. It still must be covered by revenue generated from sales of the final product.

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 cost that contractors may incur because of Boeing is covered by the contract, those by the vendor are not Boeings responsibility and may not have to be reported to Boeing, so who and how are those accounted for and shared across the sale of final product?


User currently offlinesweair From Sweden, joined Nov 2011, 1820 posts, RR: 0
Reply 46, posted (2 years 2 months 3 weeks 1 day 6 hours ago) and read 6057 times:

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. The contractors got skilled by doing the 787 parts, now they can use that skill to supply for A350.

How many frames will pay for the A350? When we are at it..


User currently offlineRevelation From United States of America, joined Feb 2005, 12454 posts, RR: 25
Reply 47, posted (2 years 2 months 3 weeks 1 day 6 hours ago) and read 5998 times:

Quoting cmf (Reply 43):
The 787 was not a luxury. It was a requirement for Boeing to stay in business. Without new products your dead man walking.

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 given company just could not survive if they had overruns of such immense magnitude.

Quoting par13del (Reply 45):
Boeing has a contract with the contractor and vice versa, those are the numbers Boeing has to account for, excess cost that contractors may incur because of Boeing is covered by the contract,

Do you know that, or are you making a supposition? Wouldn't such costs be capped to some degree? Keep in mind most vendors had to bid to get Boeing's business.



Inspiration, move me brightly!
User currently offlinelightsaber From United States of America, joined Jan 2005, 13012 posts, RR: 100
Reply 48, posted (2 years 2 months 3 weeks 1 day 4 hours ago) and read 5700 times:
Support Airliners.net - become a First Class Member!

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 debt accumulation, then we would have a different discussion. But interest rates are low and likely to remain there until more than enough of the debt has been paid off.

The break even number is muddied by Boeing taking charges and this pulling expenses off the 787 program that should be there... but still, they will break even.

Quoting Stitch (Reply 1):
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.

I would agree. I expect the vast bulk to be the 789. I'll be curious, if there is a 787-10, how well it does. I expect it will take a bit of weight removal to make that a strong sellers. Oh, it will have a market, but until more range is available than promised today, the 789 will be the #1 profit center.

Quoting ikramerica (Reply 3):
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.

Exactly my opinion. The time to break even is being extended, but it shall be achieved. Your timeframe is reasonable.

Quoting moo (Reply 42):

As an aside, why is the projected sales for the 787 so high?

A large fraction of the world's population will begin traveling. The big growth will be at the larger Asian cities. Look at how aircraft sales have grown with time. We're going from a world where if we say a billion people have a chance for the middle class to a world where 3 to 4 billion will have that chance. Nothing is going to keep the people of not only the BRICs, but also Indonesia, Thailand, Malaysia and elsewhere from joining the global middle class.

And I didn't even mention South America and Africa, which have much potential for growth too. Global air travel doubles every 15 years. I see a short term 'handicap' due to the various economic things going on, but I suspect in 2027, we'll have seen air travel double.


Lightsaber



Societies that achieve a critical mass of ideas achieve self sustaining growth; others stagnate.
User currently offlinesweair From Sweden, joined Nov 2011, 1820 posts, RR: 0
Reply 49, posted (2 years 2 months 3 weeks 1 day 4 hours ago) and read 5674 times:

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 growth?

User currently offlineastuteman From United Kingdom, joined Jan 2005, 10008 posts, RR: 96
Reply 50, posted (2 years 2 months 3 weeks 1 day 3 hours ago) and read 5579 times:
Support Airliners.net - become a First Class Member!

Quoting solarflyer22 (Reply 27):
Remember, alot of the expense was put on the sub-contractors too so its spread across many companies

Remember that the profit also goes where the expense was put......
That is the meaniing of "risk sharing"..

Rgds


User currently offlineMD-90 From United States of America, joined Jan 2000, 8507 posts, RR: 12
Reply 51, posted (2 years 2 months 3 weeks 1 day 2 hours ago) and read 5478 times:

I wonder how much of this will depend on how much Boeing can save by assembling 787s in South Carolina as opposed to Washington?

User currently offlinepar13del From Bahamas, joined Dec 2005, 7144 posts, RR: 8
Reply 52, posted (2 years 2 months 3 weeks 1 day 2 hours ago) and read 5440 times:

Quoting Revelation (Reply 47):
Do you know that, or are you making a supposition?

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 and yes that delays as a result of Boeing would be capped, hence my comment that those are the numbers Boeing would use to calculate cost per frame.
My question to the initial poster is how much of these in-direct cost are Boeing able to charge to each and every frame that is sold, my assumption is that it should only be those covered by contracts.


User currently offlinefrmrCapCadet From United States of America, joined May 2008, 1714 posts, RR: 1
Reply 53, posted (2 years 2 months 3 weeks 1 day 2 hours ago) and read 5376 times:

Accounting rules are designed to avoid companies providing overly optomistic statements. Somehow both Airbus and Boeing, with few exceptions, show far better cashflow results than the accounting (actually cost of development versus profit on particular models) shows. In fact Boeing has generally shown quarterly profits, and Airbus occasional quarterly losses are not even close to being of major concern. And IIRC both have also paid for all or most development costs out of current cash flow. Perhaps someone more knowligable than I could comment.

Let me restate the above in another way, it may help. We look at development costs for individual models versus the profits for those models. The costs often seem out of line with profits. Yet both companies seem to pump out planes and quarterly profits, or at least minimal losses. Confusing.



Buffet: the airline business...has eaten up capital...like..no other (business)
User currently offlinetdscanuck From Canada, joined Jan 2006, 12709 posts, RR: 80
Reply 54, posted (2 years 2 months 3 weeks 1 day 2 hours ago) and read 5372 times:

Quoting sweair (Reply 49):
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 growth?

Aviation is one of the last sectors that will abandon liquid hydrocarbons; due to increasing energy cost, non-liquid-hydrocarbon energy sources (hydro, wind, solar, nuclear, natural gas, geothermal, coal, etc.) are only going to gain prominence, freeing up what remaining liquid hydrocarbon we have for aviation.

Eventually, we'll figure out how to economically synthesize the hydrocarbon (biofuel or direct synthesis) rather than using oil.

Quoting frmrCapCadet (Reply 53):
We look at development costs for individual models versus the profits for those models. The costs often seem out of line with profits. Yet both companies seem to pump out planes and quarterly profits, or at least minimal losses. Confusing.

Program accounting. There's a huge temporal displacement between when the money goes out and when it comes back in.

Tom.


User currently offlinecmf From , joined Dec 1969, posts, RR:
Reply 55, posted (2 years 2 months 3 weeks 1 day 2 hours ago) and read 5325 times:

Quoting par13del (Reply 45):
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 cost that contractors may incur because of Boeing is covered by the contract, those by the vendor are not Boeings responsibility and may not have to be reported to Boeing, so who and how are those accounted for and shared across the sale of final product?

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 part Boeing contracted out means Boeing's part of the revenue goes down.

Quoting Revelation (Reply 47):
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 given company just could not survive if they had overruns of such immense magnitude.

Agree. Though I do not like to label that a luxury.

Quoting lightsaber (Reply 48):
But interest rates are low and likely to remain there until more than enough of the debt has been paid off.

Did Boeing take on much debt? I thought on Boeing's side it was mainly cash flow and contracting with a subsidies covering some small parts.

Quoting MD-90 (Reply 51):
I wonder how much of this will depend on how much Boeing can save by assembling 787s in South Carolina as opposed to Washington?

Boeing has stated the SC line is more expensive. I expect much of it is because the rate is lower.


User currently offlineaztrainer From United States of America, joined Oct 2011, 576 posts, RR: 1
Reply 56, posted (2 years 2 months 3 weeks 1 day ago) and read 5209 times:

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 make up the difference in technical support and replacement parts.

It would also be interesting to see how much of the growing pains that Boeing had/has with the 787 project will be implemented in future redesigns and new designs.


User currently offlineStitch From United States of America, joined Jul 2005, 30904 posts, RR: 87
Reply 57, posted (2 years 2 months 3 weeks 1 day ago) and read 5213 times:
Support Airliners.net - become a First Class Member!

Quoting aztrainer (Reply 56):
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 make up the difference in technical support and replacement parts.

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 usually very high-margin sales.


User currently offlinelightsaber From United States of America, joined Jan 2005, 13012 posts, RR: 100
Reply 58, posted (2 years 2 months 3 weeks 21 hours ago) and read 5091 times:
Support Airliners.net - become a First Class Member!

Quoting cmf (Reply 55):
Did Boeing take on much debt?
Fitch Ratings has downgraded its Issuer Default Ratings for the Boeing Company and Boeing Capital Corporation (BCC) from A+ to A. The downgrade is driven by the “continued cash flow impact from delays in the B787 and B747-8 programmes”.

Inventory build and other costs from these two programmes have weighed on the company's cash performance for three years, and Fitch expects this will continue in 2011. B787-related assets on Boeing's balance are sheet likely to increase another USD6 billion to approximately USD19 billion. Fitch's ratings actions for Boeing and BCC were:

Long-term IDR downgraded to A from A+;
Senior unsecured debt downgraded to A from A+;
Bank facilities downgraded from A to A+;
Short-term IDR affirmed at F1;
Commercial paper programmes affirmed at F1.


http://www.centreforaviation.com/ana...s-wto-decision-due-this-week-44613

However, things are turning around:
Fitch Ratings on Monday affirmed the debt ratings of aircraft manufacturer Boeing Co. and its financing arm, Boeing Capital.

Fitch’s issuer default ratings on the companies are at the mid-point of investment grade.

The rating outlook is stable, which means they aren’t expected to be changed in the near future. The ratings cover about $12.4 billion of debt.

http://articles.boston.com/2012-01-2...atings-debt-ratings-rating-outlook

Do you consider $12.4 billion in debt significant? I'm sure its also impacting the 787 'risk sharing' partners.


Lightsaber



Societies that achieve a critical mass of ideas achieve self sustaining growth; others stagnate.
User currently offline2175301 From United States of America, joined May 2007, 1061 posts, RR: 0
Reply 59, posted (2 years 2 months 3 weeks 11 hours ago) and read 4810 times:

Quoting lightsaber (Reply 58):
Do you consider $12.4 billion in debt significant? I'm sure its also impacting the 787 'risk sharing' partners.


Lightsaber

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, and almost all companies, routinely run "sizable debt" as part of business strategy due to tax and business advantages.

What would be most useful here would be a chart of Boeing's debt for the last decade (or longer) to see how much it changed during the 748 and 787 projects. I have no doubt that it increased by at least a few Billion; but I would be very surprised if it was more than half of the $12.4 Billion cited as their total debt.

It would also be interesting to see what happens to the debt numbers over the next 2 years as the "inventoried" planes get finished and delivered.

Have a great day,


User currently offlinelightsaber From United States of America, joined Jan 2005, 13012 posts, RR: 100
Reply 60, posted (2 years 2 months 3 weeks 8 hours ago) and read 4681 times:
Support Airliners.net - become a First Class Member!

Quoting 2175301 (Reply 59):
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.

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.com/2012/06/boeings-787-inventory-plan.html

That post is an update the ncy787 blog regularly updates on 787 status. Notice that in June of this year 787s will roll off the line straight to customers sans rework.   

Quoting 2175301 (Reply 59):
It would also be interesting to see what happens to the debt numbers over the next 2 years as the "inventoried" planes get finished and delivered.

Now much of the debt is being carried by 'risk sharing partners.' So some of the unraveling will not impact Boeing's balance sheets, but their vendors instead. However, there will be some nice 'positive impact' as the 787s hit the fleet.

If the table in the above link is correct, starting in January 2013, we will see a large boost in 787 deliveries.   

Lightsaber



Societies that achieve a critical mass of ideas achieve self sustaining growth; others stagnate.
User currently offlineRevelation From United States of America, joined Feb 2005, 12454 posts, RR: 25
Reply 61, posted (2 years 2 months 3 weeks 7 hours ago) and read 4657 times:

Our friend Jon Ostrower's WSJ article from yesterday:

Boeing Hits a Milestone: Factory Rolls Out First Dreamliner to Go Directly Into 'Preflight Operations'

jives with many of the things being said here:

Quote:

Quickly cutting production costs is essential for Boeing, which spent an estimated $14 billion developing the Dreamliner, according to Barclays Capital, and has already suffered costly delays. UBS analysts estimated last month that Boeing spends about $242 million to build each plane, and sells them for an average of $113 million. They and other analysts estimate that Boeing's losses will sink to at least $20 billion by the time costs fall enough that each Dreamliner sells for a profit, likely in 2014 or later.

So we easily see how spending $242M to build a plane you are selling for $113M is leaving you in the hole by $129M, more than what you are selling it for!

The whole point of the article is that Boeing is rapidly closing that gap, by around $10M a quarter, but it echos the main point from the "breaking even for dummies" article, in even clearer language:

Quote:

The losses don't show up on Boeing's bottom line, because accounting rules let the company spread the Dreamliner's costs over years—effectively booking earnings now from future Dreamliners that it expects to produce more profitably. With previous models, Boeing initially spread its costs over 400 planes, but with the Dreamliner it is distributing the costs over 1,100 planes—a number it says reflects unprecedented demand.

The earlier article said this a bit more technically: This metric does not take into account the time value of money as it pertains to revenue. While the more financially astute understand this, I think many here have not really grasped it, and I didn't grasp it till I read a few of the articles in this thread. So, while Boeing is using a well-understood technique for well-understood reasons, it's one that leaves a lot out when used casually.

The article has a lot more facts and figures about BCA as a whole as well as historical precedents (including the notion that what is more important is BCA's overall cash flow and cash on hand), but also points out that many feel that even the current guidance is overly optimistic based on previous programs and that the 787 is putting a lot of pressure on other programs to keep making huge profits.

I think Airbus CEO Ender's statement about A380 being "a financial liability for years to come" could have just as easily been said by BCA's CEO about the 787.

Go check out the article!!!



Inspiration, move me brightly!
User currently offlinetdscanuck From Canada, joined Jan 2006, 12709 posts, RR: 80
Reply 62, posted (2 years 2 months 3 weeks 4 hours ago) and read 4480 times:

Quoting cmf (Reply 55):
Did Boeing take on much debt?

They did a several-billion $ bond issue a few years back, fairly explicitely to fund 787. So yes.

Quoting aztrainer (Reply 56):

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 make up the difference in technical support and replacement parts.

It's not a naive question, but it's not really the right question because none of the airframers break costs down to a "per airframe" basis. It's functionally impossible to identify how much any particular airframe "cost" so you can't match sale revenue to production cost anyway.

Tom.


User currently offlinecmf From , joined Dec 1969, posts, RR:
Reply 63, posted (2 years 2 months 2 weeks 6 days 19 hours ago) and read 4214 times:

Quoting lightsaber (Reply 58):
Do you consider $12.4 billion in debt significant? I'm sure its also impacting the 787 'risk sharing' partners.

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 my own golden rule. In 2008 Boeing's debt was at its lowest in the last decade at 7.5 BUSD. In 2009 it jumped to 12.9 BUSD and has since moved down slowly and is now (end 2011) at the 12.4 BUSD you mentioned.

Thanks for not only making me aware of this but also reminding me to always apply the golden rule. At least I asked it as a question and didn't make a statement 

As to if 12.4 BUSD is significant. It is a lot of money but it is less than 20% of Boeing's revenue so I would consider it no issue.

For fun, I included stock buy back when I checked the last decades annual reports and between 2004 and 2008 Boeing spent 11.4 BUSD on buying back stock. I have never been able to understand why companies do this. It just doesn't make sense to me to spend a lot of money to reduce dividends with a small fraction of the money spent. Even less so when they could have been essentially debt free if they had used it instead of taking on debt. The increases claimed on stock price are temporary at best.

Quoting 2175301 (Reply 59):
What would be most useful here would be a chart of Boeing's debt for the last decade (or longer) to see how much it changed during the 748 and 787 projects.

Preparing my answer to lightsaber I did just that. Hopefully the table doesn't mess up the formatting.






































































































































































year Revenue Earnings Operation Earnings Net Rev. BCA Earn. BCA Debt cash R&D Adm. Exp. Def. Prod &nbsp Dividend Out. Shares Buy back
2002 53,831 2,296 492 28,387 2,017 14,403 2,333 1,639 2,959 785 777 570 799.7 0
2003 50,256 685 718 22,408 707 14,443 4,633 1,651 3,200. 837 777 573 800.3 0
2004 52,457 1,820 1,872 21,037 745 12,200 3,204 1,879 3,657. 703 777 861 793.2 751
2005 54,845 2,562 2,572 22,651 1,431 10,727 5,412 2,205 4,228 683 777 861 760.6 2,875
2006 61,530 2,206 2,215 28,465 2,733 9,538 6,118 3,257 4,171 871 777 991 757.8 2,000
2007 66,387 4,058 4,074 33,386 3,584 8,217 7,042 3,850 3,531 1,043 777 1,129 736.7 2,774
2008 60,909 2,654 2,672 28,263 1,186 7,512 3,268 3,768 3,084 *4,244 777, 787 1,187 698.1 3,3031
2009 68,281 1,335 1,312 34,051 -583 12,924 9,215 6,506 3,364 *4,395 777, 787 1,233 726.3 50
2010 64,306 3,311 3,307 31,834 3,006 12,421 5.359 4,121 3,644 *9,780 777, 787 1,245 735.3 0
2011 68,735 4,011 4,018 36,171 3,495 12,371 10,049 3,918 3,408 *16,546 747, 787 1,263 744.7 0

* 787 numbers include deferred production and WIP. sadly they are combined in the annual reports even though other models are specified.

[Edited 2012-06-09 22:28:15]

User currently offlinelightsaber From United States of America, joined Jan 2005, 13012 posts, RR: 100
Reply 64, posted (2 years 2 months 2 weeks 6 days 17 hours ago) and read 4126 times:
Support Airliners.net - become a First Class Member!

Quoting cmf (Reply 63):
I typically verify everything I'm told but I've heard that everything came from cash flow so many times I failed to follow my own golden rule.

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/obligations, I should point out that the 787 should become quite profitable in the future. Mostly thanks to its HUGE volume potential. Almost narrowbody levels of production.

Quoting cmf (Reply 63):
As to if 12.4 BUSD is significant. It is a lot of money but it is less than 20% of Boeing's revenue so I would consider it no issue.

I did not mean to imply it was an issue for Boeing, but rather evidence that several hundred 787s must go out the door prior to break even for the program. If you will, a more academic point. My debate is what volume of 787s must enter the fleet for 'break even.'

Then there is that wonderful source of revenue, ancillary revenue. The 787 should be second to no other plane for Boeing due to the computerization, electrical subsystems w/diagnosis, and other aspects. But that takes volume in the fleet. Volume production starts in January 2013. The 'rule of thumb' for ancillary sales is 300+ (some say 400+) airframes in service. However, I come from the R&D side where it is the ROI for PIPs. So ancillary revenue might be a nice addition earlier, but it still takes volume.

So I agree with above that the 787 could make a profit for Boeing even though losing money in production. But not at today's disparity between cost and sales price. But that will be corrected naturally by simply understanding the production and having efficiency improved. Volume will help tremendously.

There are starting to be a little noise about further production increases.

http://www.reuters.com/article/2012/...15/us-boeing-idUSBRE84E15020120515

I suspect we will soon see 12 to 16 frames per month. By soon, I mean in 2015 or 2016.

Lightsaber



Societies that achieve a critical mass of ideas achieve self sustaining growth; others stagnate.
User currently offlineastuteman From United Kingdom, joined Jan 2005, 10008 posts, RR: 96
Reply 65, posted (2 years 2 months 2 weeks 6 days 16 hours ago) and read 4080 times:
Support Airliners.net - become a First Class Member!

Quoting lightsaber (Reply 64):
While I note vendors debt/obligations, I should point out that the 787 should become quite profitable in the future. Mostly thanks to its HUGE volume potential

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, but little or no revenue, at the point at which break-even is reached, the 787 will have returned a LOT of money back to its parents - money they don't have today.
Just insert the number you think the programme has cost, and that's what will have been returned at break-even..

Rgds


User currently offline2175301 From United States of America, joined May 2007, 1061 posts, RR: 0
Reply 66, posted (2 years 2 months 2 weeks 6 days 12 hours ago) and read 3903 times:

Quoting cmf (Reply 63):

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 extra debt to fund the 787/748 project - and currently have $12.4 Billion in debt; that they also have $10 Billion in cash on hand (highest in the last decade).

It would be very interesting to see an update of that chart every year or so. Perhaps it could be the key point of its own thread on overall Boeing cost/profitability and project cost.


Have a great day,


User currently offlinesweair From Sweden, joined Nov 2011, 1820 posts, RR: 0
Reply 67, posted (2 years 2 months 2 weeks 6 days 12 hours ago) and read 3891 times:

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 below real inflation.

User currently offlinetdscanuck From Canada, joined Jan 2006, 12709 posts, RR: 80
Reply 68, posted (2 years 2 months 2 weeks 6 days 11 hours ago) and read 3804 times:

Quoting cmf (Reply 63):
For fun, I included stock buy back when I checked the last decades annual reports and between 2004 and 2008 Boeing spent 11.4 BUSD on buying back stock. I have never been able to understand why companies do this.

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 enormous pressure to do something with large cash reserves because they're terrible places to have that money sitting.

Boeing had an absolutely huge cash reserves, thanks to many years of very good cash flow. They had to do something with it; there was nobody they wanted to buy and they'd already done the capital investment they needed to do. Buying your own stock "puts the money to work" in some sense, since if you do well you can sell that stock again later for a return. The return on stock is typically far better than simple bank rate.

The company I used to work for spent billions on buying a company that had absolutely nothing in common with our business; it was all done, apparently, to shut up the investors about our huge cash reserves.

Tom.


User currently offlinesweair From Sweden, joined Nov 2011, 1820 posts, RR: 0
Reply 69, posted (2 years 2 months 2 weeks 6 days 10 hours ago) and read 3775 times:

Investing in the NSA would be better than lose on inflation..

User currently offlinecmf From , joined Dec 1969, posts, RR:
Reply 70, posted (2 years 2 months 2 weeks 6 days 10 hours ago) and read 3733 times:

Quoting tdscanuck (Reply 68):
Boeing had an absolutely huge cash reserves, thanks to many years of very good cash flow. They had to do something with it; there was nobody they wanted to buy and they'd already done the capital investment they needed to do. Buying your own stock "puts the money to work" in some sense, since if you do well you can sell that stock again later for a return. The return on stock is typically far better than simple bank rate.

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 owners.

Not that I would give all away as dividend. I would use half as a one time employee bonus.

But as I said, it is just my way of looking at it.


User currently offlinefrmrCapCadet From United States of America, joined May 2008, 1714 posts, RR: 1
Reply 71, posted (2 years 2 months 2 weeks 6 days 7 hours ago) and read 3591 times:

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 could easily find. This is the sort of information which can be updated or modified as time goes by.


Buffet: the airline business...has eaten up capital...like..no other (business)
Top Of Page
Forum Index

This topic is archived and can not be replied to any more.

Printer friendly format

Similar topics:More similar topics...
DC3's Go On And On. Will The 787 Do The Same? posted Mon Jul 27 2009 11:00:31 by Art
When Will The 787-10 Be Launched posted Tue Jan 9 2007 22:47:32 by T773ER
When Will The 787 Be Rolled Out? posted Mon Oct 30 2006 23:27:41 by NYC777
Will The Growth Of AUH And DOH Effect DXB? posted Fri Sep 2 2011 08:23:40 by IndianicWorld
Will The 787 Use The Signature Boeing Ceiling? posted Thu Jul 22 2010 21:05:19 by VC10er
Boeing 787 Break-even Point, Where Is It Now? posted Tue Jul 29 2008 14:59:34 by Keesje
Will The 787-10 Be Built posted Thu Apr 10 2008 13:54:18 by N1KE
What Engines Will The 787-10 Use? posted Wed Mar 7 2007 17:39:06 by EA772LR
Will The 787 Landing Gear Need Redesign? posted Sun May 28 2006 12:03:24 by Speedmarque
Will The 787 Get The Same Reception? posted Sat May 20 2006 15:39:41 by Glom