Sponsor Message:
Civil Aviation Forum
My Starred Topics | Profile | New Topic | Forum Index | Help | Search 
WSJ : Boeing Needs To Sell 1100 787s To Break Even  
User currently offlinephxa340 From United States of America, joined Mar 2012, 899 posts, RR: 1
Posted (2 years 2 months 4 weeks 1 day 22 hours ago) and read 28740 times:

http://www.forbes.com/sites/ycharts/...-have-to-deliver-to-turn-a-profit/

Looks like the delays really ate into Boeing's profits. I see no reason that in the long run Boeing passes this number easily. As production stabilizes, I also see its costs for production being reduced. With that being said, I am wondering if the break even factor for new projects at A and B are going to continue to rise.

I was a little surprised that the number was 1,100.

145 replies: All unread, showing first 25:
 
User currently offlinecol From Malaysia, joined Nov 2003, 2129 posts, RR: 22
Reply 1, posted (2 years 2 months 4 weeks 1 day 22 hours ago) and read 28697 times:

I do not see the concern. Break even will be later, same as 380, but they will make money. 1100 is not really a surprise, I was thinking 1200 for 787 and 500 for 380 by the time all the dust has settled.

The life of both programs (787 and 380) is still young and so much potential.


User currently offlineDreadnought From United States of America, joined Feb 2008, 8927 posts, RR: 24
Reply 2, posted (2 years 2 months 4 weeks 1 day 22 hours ago) and read 28700 times:

Considering that they have 859 firm orders after 8 years on offer, and the very successful 767 took nearly 22 years to achieve that many orders, I have little doubt that they will hit 1,100 planes pretty quick (relatively speaking).


Veni Vidi Castratavi Illegitimos
User currently offlineRuscoe From Australia, joined Aug 1999, 1590 posts, RR: 2
Reply 3, posted (2 years 2 months 4 weeks 1 day 22 hours ago) and read 28644 times:

The breakeven point depends, amongst a lot of other things, upon what you include on the cost side.

I think the best guess would be "an awfull lot" , and 1100 may be the figure, but I think at best would be an intelligent guess.

Ruscoe


User currently offlineflightsimer From United States of America, joined Aug 2009, 591 posts, RR: 1
Reply 4, posted (2 years 2 months 4 weeks 1 day 22 hours ago) and read 28629 times:

Quoting Dreadnought (Reply 2):

They actually have already sold over 1100 787s to date. However, there have been over 200 cancelations to date as well. I am curious to know if they kept any money and how much from those 200+ cancelations and if that money will have any affect on the actual 1100 frames or if that 1100 is already including any said money.



Commercial Pilot- SEL, MEL, Instrument
User currently offlineFlighty From United States of America, joined Apr 2007, 8709 posts, RR: 3
Reply 5, posted (2 years 2 months 4 weeks 1 day 19 hours ago) and read 27931 times:

Quoting phxa340 (Thread starter):
I was a little surprised that the number was 1,100.

Management was wrong to sell the 787 program as some kind of slam-dunk profit machine. It was a huge program designed to take Boeing Commercial into a new generation. It's not all about 787 revenues. There are many potential future revenues that arguably will come from 787 R&D costs.

Could it have been done more cheaply? I would argue not. The question was tested; Boeing was not capable of achieving 787 faster.


User currently offlinePHX787 From Japan, joined Mar 2012, 7859 posts, RR: 19
Reply 6, posted (2 years 2 months 4 weeks 1 day 18 hours ago) and read 27678 times:

Quoting col (Reply 1):
1100 is not really a surprise, I was thinking 1200 for 787 and 500 for 380 by the time all the dust has settled.

yeah I was expecting well over 1300 for the 787.

Quoting Flighty (Reply 5):
Could it have been done more cheaply? I would argue not. The question was tested; Boeing was not capable of achieving 787 faster.

Well when you have something as revolutionary as the 87, you are gonna have design flaws and delays from creating something pretty much outta scratch. I think (of course I'm not an aviation industry expert but bear with me here) that if Boeing didn't really set such a huge, concrete EIS date until the first test frame had it's parts delivered to the particular preliminary assembly factories, then the "delays" wouldn't have happened.

Of course investors hate it when companies aren't concrete on their plans.......nor do they like it when they keep delaying stuff.....it's a huge bind for the aviation industry that, in a sucky economy, is very difficult to escape.

Good luck Boeing. I think eventually they can do it. If the 777 can sell 1000, then I think the 787 shouldn't have a problem getting to 1100.



我思うゆえに我あり。(Jap. 'I think, therefore I am.')
User currently offlineatcsundevil From United States of America, joined Mar 2010, 1223 posts, RR: 2
Reply 7, posted (2 years 2 months 4 weeks 1 day 15 hours ago) and read 27119 times:

Quoting PHX787 (Reply 6):

Investors aren't the main issue when it comes to EIS. If you spend $150m on an airplane, you sure as hell want to know when you're getting it. Contracts exist for a reason, and simply leaving the delivery timeline listed as "when we get around to it" doesn't really fly (literally).

You might be able to argue that the EIS and delivery dates could have been more conservative to account for the labor and technical problems incurred during the 787 design and testing, but that would be stupid. Having "less concrete" dates on the timeline and a more conservative delivery schedule could have cost them potential sales which could have exceeded the delay compensation.


As for break-even, that number should drop as they come closer to full production, which will hopefully happen by 2014-15. Considering the success of literally every single Boeing family since the 707, reaching and exceeding break-even should be cake.


User currently offlineChiad From Norway, joined May 2006, 1171 posts, RR: 0
Reply 8, posted (2 years 2 months 4 weeks 1 day 15 hours ago) and read 27093 times:

Quoting col (Reply 1):

I do not see the concern

LOL ... seriously ...
If you invested in a program that should have made profits after 100 units produced, but because of delays caused it to extend the expected profit making until 1100 units produced.
Would you not be concerned? Here I am not even taking into account that you still need 300 units more on order before reaching that goal.


User currently offlinecmf From , joined Dec 1969, posts, RR:
Reply 9, posted (2 years 2 months 4 weeks 1 day 14 hours ago) and read 26884 times:

  
Here we go with the 1,100 myth again.


User currently offlineDaysleeper From UK - England, joined Dec 2009, 871 posts, RR: 1
Reply 10, posted (2 years 2 months 4 weeks 1 day 14 hours ago) and read 26808 times:

Quoting phxa340 (Thread starter):

I was a little surprised that the number was 1,100.

You and me both..... As I posted a couple of weeks ago...

in line with Boeings own figures published in the third quarter performance review at the end of 2011 (available here the project has cost them 18 Billion USD. I don't believe this figure includes R+D costs and some of it has already been written off/ accounted for. In fact several aviation journalists have estimated the figure to be as much as 32 billion USD, however for the purpose of this example I'm going to stick with Boeings own figures to avoid any dispute.

Now around the same period Boeing also published the 787's accounting block, this is nothing more than a point in time from which they can calculate figures such as their margin on the program - It has absolutely nothing to do with when the program will break even or make a true profit in terms of program costs, it just an accountancy tool. - For example; It is estimated that the margin on the first 1100 frames is going to be around 5%, this means that if it costs Boeing $100 to manufacture them, then they can expect to sell them for $105 making a $5 profit.

So, to get an idea of when they will break even and recover the $18 Bn they have spent, we can do some very simple math.

let's say they have managed to sell each of the 787's for 150 M$ each, this is obviously much much higher than what they actually have managed, but again in order to avoid dispute and being anti-Boeing i'll go with it, just to prove the point.

So, at the end of 2011 they had 821 orders for the 787. If they expect to make 5% on each of these frames we have $7.5 M$ x 821 - Giving us a grand total of 6,157,500,000 - Just over 6 Bn $. If we then deduct this 6 Bn$ from the 18Bn $ they have spent, it means that after selling the entire backlog they are still 12bn $ short of repaying the program costs.

I have obviously simplified this to make a point, and ignored things such as the Time Value of Money. But the point stands, expecting Boeing to break even at 1100 frames is insanity and even if we assume they will make the maximum margin of 10% on the next 1100 frames it's going to be the middle of the next decade around frame 2200 when they will approach the true program break even.


User currently offlineChiad From Norway, joined May 2006, 1171 posts, RR: 0
Reply 11, posted (2 years 2 months 4 weeks 1 day 14 hours ago) and read 26784 times:

Quoting Dreadnought (Reply 2):
Considering that they have 859 firm orders after 8 years on offer

This success is has two edges.
If you have 800 orders and delivers on time then everything is awesome.
But if you have 800 orders and 3 year ++ delays with compensations and cancellations then it's not so awesome.

And not to forget that the B787 programs put several other programs on hold.

That being said ... the B787 surely will create profits, but not for several years, delaying resources that would otherwise been used for other projects.


User currently offlinescbriml From United Kingdom, joined Jul 2003, 12808 posts, RR: 46
Reply 12, posted (2 years 2 months 4 weeks 1 day 13 hours ago) and read 26688 times:
Support Airliners.net - become a First Class Member!

Quoting Dreadnought (Reply 2):
Considering that they have 859 firm orders after 8 years on offer

It's actually 824 after Qantas dumped another 35. More worryingly, that total has been going in the wrong direction since 2008.

I don't doubt that they'll get there, assuming 1,100 is the correct number, but it could be a lot more difficult than some think.

Quoting cmf (Reply 9):
Here we go with the 1,100 myth again.

If it is a myth, you could offer some help in busting it.



Time flies like an arrow, but fruit flies like a banana! #44cHAMpion
User currently offlinepeanuts From Netherlands, joined Dec 2009, 1442 posts, RR: 4
Reply 13, posted (2 years 2 months 4 weeks 1 day 13 hours ago) and read 26641 times:

Quoting scbriml (Reply 12):
but it could be a lot more difficult than some think.

Going from 824 to 1,100? Doubtful.
Look what's flying in the skies today and what's needed in the skies over the next 25 years. This is not rocket science.



Question Conventional Wisdom. While not all commonly held beliefs are wrong…all should be questioned.
User currently offlinecmf From , joined Dec 1969, posts, RR:
Reply 14, posted (2 years 2 months 4 weeks 1 day 12 hours ago) and read 26373 times:

Quoting scbriml (Reply 12):
If it is a myth, you could offer some help in busting it.

Done it several times already but here we go again.

1,100 is the initial accounting block.

The accounting block is the number of planes where they can, with high confidence, calculate production cost and revenue.

From this an average cost is calculated and used at cost of goods at time of sales.

This is done because building planes is very different from the type of production standard accounting rules cover. The main differences are low quantities with much higher direct cost for early frames and very long time. With standard rules a new project will take very long time to show profit.

Essentially you "borrow" some of the profits expected to be gained at later frames and show them now. It is a bit controversial because it breaks two important accounting rules; 1) do not take profits early 2) The "unaccounted cost" is shown as inventory. In my mind it is right because it better follows the most fundamental accounting rule: Represent the companies current status.

As you can see R&D is not represented in any way.

Production costs are represented but there is no connection between break even and how the accounting quantity is reached. There is however a secondary calculation stating that if production costs are not covered by the accounting block then a charge must be taken.

This charge is the only connection between accounting block and break even and it does not tell us at what number of planes the break even would have taken place.

Similarly, if there is no charge we know that production cost is covered inside the accounting block but we have no idea at what frame number it takes place.

Boeing's annual reports are the best sources to read up on the details how this is working. Some of them spend more time than others to explain it. One of them much more than others. For some reason I think it is the 2008 report but I am not at all certain.


User currently offlinePlaneInsomniac From Canada, joined Nov 2007, 680 posts, RR: 0
Reply 15, posted (2 years 2 months 4 weeks 1 day 12 hours ago) and read 26123 times:

Quoting Daysleeper (Reply 10):
If we then deduct this 6 Bn$ from the 18Bn $ they have spent, it means that after selling the entire backlog they are still 12bn $ short of repaying the program costs.
Quoting cmf (Reply 14):
As you can see R&D is not represented in any way.

Wait, are both of you saying that "real" break-even requires a lot MORE than 1,100 planes?



Am I cured? Slept 5 hours on last long-haul flight...
User currently offlinecmf From , joined Dec 1969, posts, RR:
Reply 16, posted (2 years 2 months 4 weeks 1 day 12 hours ago) and read 25618 times:

Quoting PlaneInsomniac (Reply 15):
Wait, are both of you saying that "real" break-even requires a lot MORE than 1,100 planes?

All I said is that the often used 1,100 number is coming from the accounting block size and it has nothing to do with break even.  

As to your question. I would be very surprised if what you call real break even happens before 1,100 but more importantly it is a number that just doesn't matter. The only time it had some kind of importance was when the project got its original approval and even then it was displayed in other ways.

Since then the only numbers that matter are: NPV, how much money is required to reach positive cash flow and the confidence in those numbers.


User currently offlineKDAYflyer From United States of America, joined Jun 2012, 155 posts, RR: 0
Reply 17, posted (2 years 2 months 4 weeks 1 day 11 hours ago) and read 24976 times:

I think the 1100 frames figure is crap. It doesn't take into account parts and other services that the airlines will buy and so forth over the life of the program.

User currently offlineStitch From United States of America, joined Jul 2005, 31261 posts, RR: 85
Reply 18, posted (2 years 2 months 4 weeks 1 day 11 hours ago) and read 24702 times:
Support Airliners.net - become a First Class Member!

Quoting cmf (Reply 16):
I would be very surprised if what you call real break even happens before 1,100 but more importantly it is a number that just doesn't matter.

  

Just as the "500+" break-even number thrown around for the A380-800 program is a number that just doesn't matter.

The only useful purpose for quoting "break even" numbers seems to be to sling mud at each program, and how useful is that, really?

The vast bulk of these program's costs have been paid for out of cash flow and neither company is mired in debt. The goal now is to get positive cash flow, as cmf noted. The A380 is expected to do that around 2015 and with the projected 787 production rate being in the double-digits by then, chances are it will be CFP at that point, as well.


User currently offlinebueb0g From United Kingdom, joined Jul 2010, 661 posts, RR: 0
Reply 19, posted (2 years 2 months 4 weeks 1 day 11 hours ago) and read 23911 times:

Thought it would be much higher. Quite good news in all.

Quoting Chiad (Reply 8):
LOL ... seriously ...
If you invested in a program that should have made profits after 100 units produced, but because of delays caused it to extend the expected profit making until 1100 units produced.
Would you not be concerned? Here I am not even taking into account that you still need 300 units more on order before reaching that goal.

The cash flow is what is important to them right now, not the long-term profit of the program. As long as they're pushing frames out of the door, Boeing should be happy.

Boeing knew they weren't going to make a profit "after 100 units produced", partly because no big airliner in recent years has had a break even that low but also because they sold many with huge discounts. It's pretty apparent that the cash flow is what Boeing is after, and that's what they'll get. The "break even point" is fairly academic at the moment; they'll hit it someday, but there's no rush to get there.



Roger roger, what's our vector, victor?
User currently offlineContnlEliteCMH From United States of America, joined Mar 2005, 1465 posts, RR: 44
Reply 20, posted (2 years 2 months 4 weeks 1 day 10 hours ago) and read 23741 times:

Quoting Stitch (Reply 18):
The only useful purpose for quoting "break even" numbers seems to be to sling mud at each program, and how useful is that, really?

The only useful purpose? Perhaps if you're not a serious investor. Knowing an accurate breakeven point (among other things) allows investors to gauge confidence in the ability of the company's management. The usefulness of this is obvious.

That the programs may be sustained by cash flow (or low costs of financing) is not an excuse to forego detailed analysis, of which breakeven is one (important, IMO) metric. Perhaps you can clarify what you mean, because your post reads as a dismissive hand wave of numbers that matter. The desire to know the commercial viability of the 787 program is legitimate.

Quoting bueb0g (Reply 19):

The cash flow is what is important to them right now, not the long-term profit of the program. As long as they're pushing frames out of the door, Boeing should be happy.

This statement may be correct if you emphasize the word "now" in the first sentence and restrict this to the 787 program. The program has bled billions in cash that it will not recoup soon; thus, the focus on cashflow is appropriate.

As for future programs, profitability projections will play a standard part in determining whether and to what extent those programs exist.

[Edited 2012-08-31 08:02:59]


Christianity. Islam. Hinduism. Anthropogenic Global Warming. All are matters of faith!
User currently offlinecmf From , joined Dec 1969, posts, RR:
Reply 21, posted (2 years 2 months 4 weeks 1 day 10 hours ago) and read 23491 times:

Quoting ContnlEliteCMH (Reply 20):
The only useful purpose? Perhaps if you're not a serious investor. Knowing an accurate breakeven point (among other things) allows investors to gauge confidence in the ability of the company's management. The usefulness of this is obvious.

When has investors had access to break even numbers for a program?

What will a break even number provide that changes what we know about how the 787 (or any other program for that matter) is doing?

We can discuss if enough information is provided in the annual and quarterly reports. I certainly would love to see more but break even? No that is a number that will be extremely uncertain even if we can agree what numbers should be included in it.


User currently offlineStitch From United States of America, joined Jul 2005, 31261 posts, RR: 85
Reply 22, posted (2 years 2 months 4 weeks 1 day 10 hours ago) and read 23410 times:
Support Airliners.net - become a First Class Member!

Quoting bueb0g (Reply 19):
Thought it would be much higher. Quite good news in all.

The trick is, this number - the Accounting Block - will continue to rise as the 787 program secures more orders. That doesn't mean the break-even number rose, because that number isn't Boeing's projection of the number of frames they feel are necessary to break even, but the number of frames they feel they can calculate production cost and revenue across.



Quoting ContnlEliteCMH (Reply 20):
Perhaps if you're not a serious investor. Knowing an accurate breakeven point (among other things) allows investors to gauge confidence in the ability of the company's management. The usefulness of this is obvious.

I'm not a serious investor in Boeing, but I have been continually invested in them for 15 years.

And considering Boeing, to my knowledge, has never released the break even number for any of their jet-age commercial programs, even as an unserious investor, I can't use break-even as a gauge for my confidence in the company's management. I have to use information Boeing does make public (revenues, profits, margin percentage, cash flow, orders, deliveries, etc.).



Quoting ContnlEliteCMH (Reply 20):
Perhaps you can clarify what you mean, because your post reads as a dismissive hand wave of numbers that matter. The desire to know the commercial viability of the 787 program is legitimate.

It is a dismissive hand wave of a number that is not known and will never be known outside of a handful of executives of The Boeing Company.

The commercial viability of the 787 program will be determined by how many units are delivered and how long it is in production.

[Edited 2012-08-31 09:07:11]

User currently offlineRevelation From United States of America, joined Feb 2005, 12856 posts, RR: 25
Reply 23, posted (2 years 2 months 4 weeks 1 day 10 hours ago) and read 23410 times:

The number is not a surprise. Albaugh said the 787 will be a drag on the bottom line, just as Enders has said the same for A380 and A440M.


Inspiration, move me brightly!
User currently offlinepar13del From Bahamas, joined Dec 2005, 7510 posts, RR: 8
Reply 24, posted (2 years 2 months 4 weeks 1 day 10 hours ago) and read 22778 times:

The number is significant for me in that I now want to know when Boeing will produce 1,100 frames.
My desire - mentioned in another thread - is for them to get all lines - surge or otherwise - running at their full capacity as soon as possible to get the program back on track.
A delay is a delay, the only way to catch up is to increase production, Boeing has invested a ton is securing additional production facilities as well as taking over partners who were failing, flooding the market now with 787's is the only way to recover the situation.
Pretending that the program is now on track could be regarded as "fools gold", until all the clients who ordered the a/c and can claim compensation have the product in hand, the delay and its effects remain.

Will it cost in increased production cost, yes, absolutely, but that's the price to be paid for the slip ups that were made earlier in the program, get out of jail free cards is for Monopoly.  


25 ytz : 1100 is no biggie. So they'll hit break-even by the end of the decade (they will go above 10 frames per month in my opinion). And then there will be 2
26 Post contains images Daysleeper : It's going to be significantly higher than 1100 frames, and it's easy to see why; As I stated above the margin on the first 1100 frames is estimated
27 ckfred : Just because Forbes thinks it knows the cost structure of Boeing, and thus the number of aircraft that have to be sold to break even, doesn't mean any
28 SSTsomeday : I have difficulty believing the figure is quite that high. Especially as costs to produce will decrease and production will increase. And I have diffi
29 davs5032 : Not trying to be confrontational, just curious where you got the 5% estimated margin from. Is there a specific age or # of years past EIS that you're
30 Stitch : Jon Ostrower's original article in the WSJ that Forbes' Contributor YCharts referenced didn't mention "break even". Jon stated that Boeing estimates t
31 JoeCanuck : From a company standpoint, as long as production is increasing and continues for long enough, break even is irrelevant. The money has already been spe
32 scbriml : In the long-term, no, but the short-term is less convincing - more cancellations than new orders since 2008. Back in 2007, all the Boeing fan-boys we
33 Post contains links Daysleeper : Boeing publish the average margin in their financial statements and performance reviews which are available here. I believe the last one was around 8
34 Post contains links PlaneInsomniac : Wait a second. What just happened? Did we not spend the last decade arguing over and over and over again that the only measure of a program's success
35 JoeCanuck : What has changed is the reality of these programs. They are now so huge, complex, time and money consuming that break even would be impossible to cal
36 SEPilot : This is true; however, if they embark on too many programs that never break even, let alone make a profit, that health will sooner or later fail. The
37 XT6Wagon : yes, lets use that $18B from some people who shouldn't be allowed to estimate the tip to leave at a BurgerKing, shall we? Its fun when you add things
38 Daysleeper : 18 billion $ is the figure given out by Boeing at the end of last year, it relates SOLEY to the 787 project. The rest of your post is nothing but an
39 Post contains links XT6Wagon : http://seattletimes.com/html/busines...echnology/2016310102_boeing25.html ah here is a nutjob cost, dunno if its the one that A.net was tossing around
40 Daysleeper : Its mentioned in the webcast I linked too in my first post to this thread.... "Love"
41 sweair : They took a 3 bn write off on RnD on the first 3 frames. That leaves 15bn if that is really a correct sum, we don't know, we can only guess.
42 Post contains images EPA001 : Maybe so, but 90% of the problems of the program were management issues, mostly in development and production ramp-up. . And we will continue to go a
43 PlaneInsomniac : I disagree with you on that point. These same basic truths that are being discussed here now have been pointed out time and again for years here on a
44 Post contains images astuteman : You do get some some posters that are consistent, and resonable with their arguments regarding both of the major programmes. But it IS fascinating to
45 bueb0g : Yeah, but the current backlog does take them a long way - not saying the cancellations aren't an issue, but it's not as if they're scrambling for new
46 tdscanuck : Not 90%. At least a full year can be attributed to two basic causes...the side-of-body discovery and the electrical fire. Those were both pure engine
47 cmf : Have to say that I am disappointed you quote me in making this statement. I know where you're coming from but I do not think my record support your s
48 justloveplanes : Is this Boeing's definition of an accounting block? If so, do you have a source? See comment below on R&D costs. Might just be old news, old spec
49 Stitch : And the trick is, we just assume all those programs not only broke even, but were wildly profitable. If you believe the speculation, Boeing has proba
50 kanban : Face it we will never know.. having been on the inside, news releases are only part of the story and the target you seek is always moving.. there is n
51 cmf : The annual reports is the best source for how it works. Some of them describe it more detailed than others. Here is the text from the 2002 annual rep
52 Post contains links justloveplanes : Overhead may/may not include company R&D. Depends on the accounting scheme. Sometimes it is just general, admin and sales (lihghts, lawyers and s
53 cmf : R&D is a separate line item. If you have any doubt look at what happened when they reclassified the first three frames to R&D. I fully expect
54 PlaneInsomniac : I am sorry for being a little unspecific there. It's just that your one remark was the starting point for my train of thoughts. My comments were not
55 ikramerica : I little harsh, but true. If the development costs were $18billion for Boeing ALONE, not including the costs for buy in subs, well, the math would be
56 justloveplanes : Per the University of Wyoming definition in my last post, R&D is a line item under overhead. Are you sure Boeing's R&D isn't a line item unde
57 Post contains images PHX787 : Easy solution then: Fire all the managers and get some people who are competent
58 Post contains images cmf : I fully understand where you're coming from and I agree there is a big difference in how some people are changing stance depending on who something h
59 Post contains links cmf : http://www.boeing.com/news/releases/2012/q3/120725a_nr.pdf page 9. Notice how cost of products, general and administrative expense another and researc
60 justloveplanes : You can't tell from the general ledgers here if Boeing puts R&D as part of individual program overheads for the accounting block. Per the UW stat
61 Flighty : With Boeing, a couple of fairy dust microns of fact are used in PR... and then only to make their artistic endeavors in fiction seem real.
62 Post contains images cmf : Boeing commercial R&D spending in million USD per financial reports 2012: 454 (first 6 months) 2011: 2,715 2010: 2,975 2009: 5,383 2008: 2,838 20
63 Post contains links trex8 : Lets not forget this thread AW: GE Racing To Keep Pace With Hot Sales (by AirbusA6 Apr 16 2007 in Civil Aviation)?threadid=3362208&searchid=336220
64 Daysleeper : I can't remember the exact minute, I can however perhaps clear up some of the confusion in here regarding what costs are included; Around 9.7 Bn $ of
65 scbriml : Saying Boeing needs to sell 1,100 787s to break even is somewhat misleading anyway. To realise the full revenue from 1,100 sales, they have to deliver
66 Ruscoe : Are there any taxation savings related to loss making ventures in the USA which would reduce the total tax burden and hence ameliorate the program los
67 justloveplanes : My point is that the accounting block for program accounting is not in the quarterly report. The accounting block is a different view of finances fro
68 Post contains links cmf : 2012 Q2 report page 31 (page 35in pdf): 737: 6,200 747: 1,547 767: 1090 777: 1,450 787: 1,100 Neither quarterly or annual reports report individual p
69 JoeCanuck : Like the people on these programs, enthusiasts also had a learning curve. It's not a contradiction to change attitudes as reality changes. One should
70 AirlineCritic : There must be some error here. Maybe the 2012 number is first three months, not six. Otherwise they'd be running at 30% R&D level compared to pre
71 cmf : I accepted the numbers as indication the 787 and 747 programs have achieved EIS but went back and checked the numbers and you're absolutely correct.
72 Post contains links justloveplanes : Correct, we agree! So R&D is an expense per your research. Overhead is an expense. University of Wyoming (I suggest you read the link I sent) acc
73 Rheinbote : Beware that all aircraft OEMs deliberately muddy the meaning of break even. 1. Boeing and Spirit say they expect to achieve unit cost break even aroun
74 Wisdom : It matters beyond that too. When investors see that the money they invest offers a ROI of 0% over 20+ years, they would start being less supportive f
75 justloveplanes : Small correction, I believe Boeing expects to acheive * 5% profitability over an entire run off 1100 planes *. Break even will come sooner (maybe not
76 Rheinbote : Yes, that's what I tried to imply. You have to differentiate between initial accounting blocks and later accounting block increases that reflect prog
77 AlaskaSea : Do you have any sources to back these statements up? Or are you stating your own opinion? If the 767 could so easily beat the 787 with the GEnx engin
78 abba : What I find unclear is what this means exactly. 5% profitability does that mean (only) that Boeing will have 5% left of the sales prise after the pro
79 Stitch : The initial accounting block for the 777 was 400 frames, but was then subsequently raised to 500 and then 600 frames to prevent the program from movi
80 Rheinbote : Yes. Thank you, Stitch. I stand corrected, I mixed the numbers up!
81 Post contains links cmf : Expensed means the cost is taken in the period it happens, i.e. not amortized over multiple periods. Overhead is a bit more difficult. When you can s
82 Post contains links justloveplanes : Quoting cmf (Reply 81):I provided the US GAAP rules for R&D. I do not understand how you can have any doubt about them. If you still don't accept
83 cmf : No, it matters very much. Program accounting is about amortizing costs over multiple years. Since R&D isn't allowed to be amortized it can not be
84 AirlineCritic : I have no idea what Boeing includes in their program accounting. But just to be clear, accounting laws and accounting principles such as GAAP general
85 Post contains images justloveplanes : You are focused on this concept that SEC/IRS/Tax reports framework is the same framework as a program accounting framework, which would support your
86 Post contains links cmf : Clearly you guys want R&D to be included and no matter what data is provided you will find something to keep your hope alive. I can only suggest
87 abba : Taken as a program of developing and later producing and selling an aircraft the 787 no way breaks even as a program by 1100 sold and delivered aircr
88 Stitch : Boeing has consistently recorded the additional R&D costs for the 787-8 and 747-8 as separate financial charges recorded in the quarter they were
89 Post contains links and images justloveplanes : This is a good suggestion, I'll plan on doing this and sharing with the thread. I have not pre-cluded the possiblity either way though I do believe t
90 justloveplanes : You are making the same assumption as cmf, that program accounting and R&D SEC line items are synomous. Per cmf's suggestion, I will contact Boei
91 frmrCapCadet : I read the book Railroaded, a story, mostly financial, of the transcontinental RRs during the 19th century. Besides corruption and imcompetence of his
92 astuteman : As a nitpick, he was quoted as saying 2015 for equity on a "per plane" basis Rgds
93 Daysleeper : I'm not sure what the confusion is here - have you listened to the webcast I linked too in my initial post? If not, I suggest that you do. james bell
94 justloveplanes : Here is the information I was referring to from Jon Ostrower's July 25th article of the WSJ online: "Chief Financial Officer Greg Smith said Boeing h
95 Post contains images Stitch : Boeing is expected to spend $2-3 billion to bring the MAX to market, yet the initial accounting block for the 737 MAX could be as low as 200 units per
96 Daysleeper : Actually, its entirely consistent. I believe the $13.2bn he is referring too is ONLY the deferred production costs, which means it has increased by a
97 justloveplanes : How much of that cost is materials and labor that is recovered at sale closing? I.E. equipment from Hamilton Sundstrand or aft fuselages from Alenia,
98 Daysleeper : Your making things way too complicated, which I guess is how both OEMs like it - because its then practically impossible for an average person to und
99 justloveplanes : I think the 1800 number is a realistic high side case. As you said, this is complicated and even if Boeing's 1100 is realistic as of today, they still
100 sweair : I hope some of all that RnD will have a use in other programs in the future, the 787 program has raked up huge RnD bills not only at Boeing though.
101 Stitch : I don't think we can guestimate how many frames need to be delivered to break even on the total program costs (R&D, infrastructure, production co
102 FI642 : Let's not forget the benefit and profits that will be generated by the technology from the 787 into future products, that certainly will generate huge
103 Post contains images Daysleeper : Cool I personally believe that 1800 is a low estimate and 1100 is an impossibility, but it matters not. My intention as I stated in my first post to
104 Post contains images cmf : I really think there are too many uncertainties and unknowns to be able to even guesstimate it. How do you calculate a project break even without con
105 Post contains images Stitch : The price differential will depend on when the order was placed. NH, for example, converted four 2005-order 787-8s to 2012-order 787-9s this year and
106 Post contains images Daysleeper : Got to admit I had completely forgotten to take into account the new found maturity on these forums. I'll revise my statement slightly, and say that
107 Post contains images Stitch : I believe the milestone of a 787 delivery bringing in sufficient income to more than cover the cost of assembling it well be much earlier than 1800 f
108 Daysleeper : Really are being pedantic today, it's pretty clear I mean a profit in terms of the program rather than the individual frame. To quote , Jim Albaugh "
109 abba : I believe that any guesstimate that does no include after services is irrelevant. It might potentially be significant. In some industries that can be
110 Post contains images Stitch : I'm honestly not trying to be pedantic. I'm trying to be explicitly clear on my opinions. So I'll just be blunt: I believe your guess that the 787 pr
111 davs5032 : Good points. I'd think both are more than likely to occur at some point, the question is when. Can't speak for the A380 doubters, as I'm not necessar
112 Daysleeper : Don't worry I'm certainly not taking your comments personally. As has already been pointed out by other posters further up the thread we have seen a
113 Post contains images Stitch : I can't, because I can't generate a line item for every expense incurred by the 787 program up to the delivery of the 1800th 787 as well as a line it
114 Revelation : Oops, wrong thread! ........ filler ..........[Edited 2012-09-04 21:40:14]
115 Post contains images Rheinbote : Minor correction: The marginal margin guidance is on the first 1,100. Again this is a gross margin without R&D and overhead factored in (which is
116 Post contains images Daysleeper : I'd be more than happy to shake your hand when that day comes Not so sure about the though, won't global warming have flooded France by then? Peace
117 Stitch : AI's contract capped performance shortfalls at $80,000 per year per airframe, but I wonder if there will be any performance shortfall penalties. Yes,
118 Rheinbote : Stitch, you can downplay and water down the notion of compensation payments as much as you want, the total will be in the order of billions. Be it dir
119 Post contains images Stitch : And that's been my point this entire thread.
120 Daysleeper : I was under the impression that compensation payments had been accounted for by the low margin for the first accounting block? I can see your point i
121 Rheinbote : Really? While my statement applies to compensation payments only, you seem to suggest that there's no way at all to establish a brake even figure for
122 Post contains links abba : Yes but to what an extent and with what time limits - and most likely such deals does not extent to second hand owners anyway. So when the need for s
123 Stitch : That is correct. As for how delivery and performance compensation impacts the 787 program business case, Boeing knows what they're paying out so I th
124 cmf : What will you consider in your break even equation? Say that you have that number. How does it help you in the future? Is the 787 business case suffe
125 Rheinbote : The business case in terms of return on investment suffers from higher than planned investment (200-300% of the initial estimate) and both lower and
126 cmf : The break even number is just a result of other things. It doesn't tell us what went wrong and it doesn't tell us what the effects will be. I would l
127 Post contains images Rheinbote : Thanks to US program accounting where 787 deferred production cost of 14bn show up as an asset(!) in the balance sheet while pensions are underfunded
128 Flighty : A great summary. Boeing needed to learn the lessons they learned. The process was expensive, but, in hindsight, they were ignorant of certain inevita
129 tdscanuck : Just look at cash flow. Program accounting has zero impact on cash flow. If you don't like the idea that they're profitable (and they are) then reali
130 Daysleeper : I think the point he is trying to make is that accounting methods such as deferred production allow Boeing to hide the impact of the 787's program. F
131 tdscanuck : How is it hiding anything when the numbers are right there, publically and clearly, for all to see? But showing as an $800MM loss would be less accur
132 Daysleeper : No they don't. Once the frame is delivered and paid for then the difference between actual cost of manufacture and sale price remains in the deferred
133 tdscanuck : Boeing has no idea what the actual cost of any particular airframe is, so there is no way for them to track it to that level of precision. They're ra
134 Daysleeper : I'm not sure why this is relevant, my comment still stands in that deferred production does not solely represent physical assets as you claimed.
135 tdscanuck : Maybe I misunderstood you, but in Reply 132 you seemed to imply that deferred production cost was the sum of the difference between the production co
136 Post contains images cmf : It must show up as an asset somewhere. One of my complaints about project accounting is that it shows up as inventory. I think it is much closer to g
137 Rheinbote : It is evident that Boeing is highly(!) profitable overall, Boeing is in good shape, no doubt. My point is that some fellow posters like to use overal
138 scbriml : We won't know how that works out until the next all-new project. Which may be a very long way off - long enough in fact that the "787 lessons" may be
139 Post contains links justloveplanes : Well, FWIW... from Boeing Investor Relations.... re: makeup of accounting block margin..... "Thank you for your interest in Boeing and our commercial
140 Post contains links Rheinbote : Funny these guys don't know their own website: For starters they could have sent you here (best overview ever) http://phx.corporate-ir.net/External..
141 CuriousFlyer : I think Boeing or Airbus have no interest in publishing their actual breakevens or being too transparent about their accounts in general. Both firms h
142 Post contains links Rheinbote : According to this Boeing statement BCA would not have been profitable in Q1 and Q2 2012 under unit accounting rules as used by Airbus amongst others.
143 cmf : It is important how questions are formulated when you ask them. Based on their response it looks like they thought you asked for very different infor
144 justloveplanes : r Seems that way. I thought I was clear, though they may have just put my request in the canned response bin and moved on.
145 Post contains images Rheinbote : Looks like everybody is confused by facts now?
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...
Emirates To Sell Up To 30% Of Shares In IPO posted Tue Nov 13 2007 04:15:41 by Singapore_Air
Mayor Nagin Wants To Sell MSY To Louisiana posted Tue Mar 27 2007 23:27:29 by KarlB737
What Airbus Needs To Do To Break Even With A370(?) posted Wed Jun 14 2006 13:24:54 by FWAERJ
WSJ: Boeing To Announce 787 Delays posted Tue Jan 15 2008 11:47:07 by Maverick747
420 A380 Units To Break Even posted Wed Jan 17 2007 20:56:49 by Badge
Why Hasnt Boeing Been Able To Sell Any B777LR Yet? posted Tue Apr 18 2006 04:34:45 by Ydahman
Roughly How Many 748s Does Boeing Expect To Sell? posted Fri Mar 10 2006 00:49:31 by AviationAddict
WSJ: Boeing To Deliver 395 Airfames In 2006 posted Fri Jan 6 2006 05:56:35 by N328KF
Boeing To Sell Up To 965 Jets In 05 posted Fri Oct 28 2005 10:54:37 by N1786b
AirTran Edging Back To Break-Even posted Thu Oct 27 2005 23:50:49 by KarlB737