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Boeing/Airbus - Orders And Profits Article  
User currently offlineracercoup From United States of America, joined Jan 2007, 208 posts, RR: 0
Posted (2 years 3 weeks 3 days 5 hours ago) and read 7717 times:

Just tripped on this article written in May from an investment perspective. The article makes interesting points on the A380, selling prices and selling strategies and profitability between the two manufacturers.

http://seekingalpha.com/article/5920...oeing-vs-airbus-orders-and-profits

22 replies: All unread, jump to last
 
User currently offlinesweair From Sweden, joined Nov 2011, 1831 posts, RR: 0
Reply 1, posted (2 years 3 weeks 3 days 5 hours ago) and read 7676 times:

That tells a lot, interesting how this will play out in the future. 500 million taxpayers have deep pockets..

User currently offlinephxa340 From United States of America, joined Mar 2012, 898 posts, RR: 1
Reply 2, posted (2 years 3 weeks 3 days 5 hours ago) and read 7643 times:

As many members have pointed out already ... Airbus' profits are thin because they chase market share. The A380 report was a little suprising to me , I am starting to actually believe that the A380 might not be a profitable program with the break even still 200 orders shy as airlines order them 1 or 2 at a time (Excluding EK) by 2020.

I wonder is Boeing's profit margins are going to deteriorate with the MAX being offered at aggressive discounts.


User currently offlineRoseflyer From United States of America, joined Feb 2004, 9697 posts, RR: 52
Reply 3, posted (2 years 3 weeks 3 days 4 hours ago) and read 7510 times:

This was discussed back in May when the article was first published. It should be understood that there are some different program accounting rules that are used between the two.

However Airbus does have lower margins than Boeing. There's no way a company like Boeing can survive in the US private sector with a 1.7% margin. That's the margin that companies with low capital investment requirements such as retail (grocery store, etc) can have. Companies requiring large capital investment won't get investors to fund new programs with that kind of return. It goes back to why Airbus relies on some government backed loan. Without it, the private sector isn't going to adequately fund development.

EADS lives in a different environment than Boeing. Being a partially government owned company allows Airbus to get capital and survive on lower margins. Boeing on the other hand needs higher returns to attract investors to fund its development along with having strong cashflow.

The article is right that Airbus has a lot of potential to increase returns, but that will come at the cost of market share, which is something that Airbus goes after heavily. They'll trade returns for market share.

Astuteman has some good comments on this subject.



If you have never designed an airplane part before, let the real designers do the work!
User currently offlineRuscoe From Australia, joined Aug 1999, 1590 posts, RR: 2
Reply 4, posted (2 years 3 weeks 3 days 1 hour ago) and read 7140 times:

Unless it has changed recently another point about backlog is that Airbus value theirs at list while Boeing value theirs at actual, so a direct total value comparison is difficult..

Figures for 2010 were Airbus 135 million av backlog unit value, and for Boeing 80 million.

Ruscoe


User currently offlineastuteman From United Kingdom, joined Jan 2005, 10176 posts, RR: 97
Reply 5, posted (2 years 3 weeks 2 days 19 hours ago) and read 6811 times:
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Quoting sweair (Reply 1):
That tells a lot, interesting how this will play out in the future.

It tells nothing. It's a pile of garbage. My 8 year old daughter could have written this article with far greater fidelity and accuracy.

It misses out some absolutely fundamental factors that have influenced Airbus's declared profit margin in the last 6 - 8 years

Quoting sweair (Reply 1):
500 million taxpayers have deep pockets..

That may be true. Fortunately Airbus gives them more back than they put in. I guess those deep pockets give them room to put it all  
Quoting phxa340 (Reply 2):
As many members have pointed out already ... Airbus' profits are thin because they chase market share.

Airbus's profits have been thin because they've written off exceptional losses year after year of titanic proportions. They've written down at least E6Bn - E7Bn on the A380, E2Bn on the original A350, and E4Bn on the A400M that they didn't expect to spend when the programmes were launched.
Strip those away, and their undelying margin has been in the 6% - 7% region

They've also been thinned by heavy hits on currency hedging. Strip those out as well and the margin gets closer to Boeing CA's

In 2005, by the way, when there were no exceptionals, and the exchange rate was more favourable, Airbus's margin was 11%   

Now that they are carrying less programme risk, expect their margins to sart to come back up again. At least the article gets that right..   

Quoting Roseflyer (Reply 3):
It should be understood that there are some different program accounting rules that are used between the two.

It should indeed. All of the above programme losses have been taken on the chin up front in the accounts - something Boeing doesn't do to anything like the same degree. Most of its recent overruns have been buried in the programme accounting.
It's important to understand what causes Airbus to do this. Declaring low profits in the period has enabled them to avoid Corporation tax charges and thus preserve cash.

Quoting Roseflyer (Reply 3):
There's no way a company like Boeing can survive in the US private sector with a 1.7% margin

True.
Equally, there's no way that Airbus could survive on an underlying operating margin of that sort either. In the last 6-8 years they have spent an eye-wateringly large amount of money on product developments that haven't gone as planned.
In that time, their borrowing from both Governments and provate sector have remained unchanged.
The money came from its underlying profitability.
Despite their "deep pockets" there's no way that the member nation taxpayers could, or would, have stood for that sort of input.

And we shouldn't be misleading people into believing they would either directly, or by implication.   

It's insidious, innacurate, and in my opinion agenda driven

Rgds


User currently offlinesweair From Sweden, joined Nov 2011, 1831 posts, RR: 0
Reply 6, posted (2 years 3 weeks 2 days 13 hours ago) and read 6580 times:

Nah EADS is governmental and in my view it will stay that way, Enders will leave before the politicians leave. Nice try but I guess he lost in the end. With a commie in France now this will hardly change, governmental airplane plant no3. Only hope is that EU goes bankrupt  

User currently offlineKC135TopBoom From United States of America, joined Jan 2005, 12173 posts, RR: 51
Reply 7, posted (2 years 3 weeks 2 days 9 hours ago) and read 5940 times:

Quoting astuteman (Reply 5):
It misses out some absolutely fundamental factors that have influenced Airbus's declared profit margin in the last 6 - 8 years

What would those profit goals be?

Quoting astuteman (Reply 5):
Airbus's profits have been thin because they've written off exceptional losses year after year of titanic proportions. They've written down at least E6Bn - E7Bn on the A380, E2Bn on the original A350, and E4Bn on the A400M that they didn't expect to spend when the programmes were launched.
Strip those away, and their undelying margin has been in the 6% - 7% region

No, it doesn't. The margin would in negitive numbers had EADS/Airbus not written off those E17B in program costs as the costs would need to be carried on each of those programs.

Quoting astuteman (Reply 5):
In 2005, by the way, when there were no exceptionals, and the exchange rate was more favourable, Airbus's margin was 11%

There is nothing EADS, or Boeing, can do about the exchange rates between monies. They are what they are. The only way both companies could show exactly what each made, or lost, is to use the same currency. Up until about 2008, or so, both used the USD in the pricing of all of their product sales. Then around 2008, Airbus shifted to using the Euro, which artifically inflated their profit margins for a short while. When the exchange rate is at or about about $1.25, or more, to E1, Airbus's profits take a serious hit. The shift to the Euro by EADS was brought about by France, who sells their products in Euros (they were sold in French Francs before the Euro), not Dollars. As you know that the wings for Airbus are built in the UK. Airbus pays for those wings in Euros, not Pounds Sterling.

Remember, signing the contract does not establish the actual cost to the customers because exchange rates vary daily, if not more often. The exchange rate comes into play only for the deposit, progress checks, and check written at delivery (unless the exchange rate is written into the contract, which does not happen to often).

Quoting astuteman (Reply 5):
It should indeed. All of the above programme losses have been taken on the chin up front in the accounts - something Boeing doesn't do to anything like the same degree.
Quoting astuteman (Reply 5):
Most of its recent overruns have been buried in the programme accounting.

Not true. Because Boeng is a publicly traded company, it must use the accounting systems outlined by the FEC. Boeing can write off some programs costs, and partially has in the case of the B-787 and B-747-8 programs. But they, by US Law, cannot write off the entire amount. But all program costs written off can be used for tax purposes.

Quoting astuteman (Reply 5):
It's important to understand what causes Airbus to do this. Declaring low profits in the period has enabled them to avoid Corporation tax charges and thus preserve cash.

Yes, that is true, meanwhile Boeing is subjected to the US Corproate Tax rate of 35%. Yet, they still made a higher profit rate over the period in the link.

Diuscounts across the product lines hurt Airbus a lot more than it hurts Boeing, because of the higher profit margin Boeing enjoys. For example, as mentioned in the story, the A-380 lists for E380M, and the B-747-8I lists for $318M. If the sale of each is discounted at an assumed 20%, the contract price for the A-380 is about E304M ($364.8M USD at an exchange rate of $1.20 per E1), and the contract price for the B-747-8I is about $254.4M. The 20% discount rate I picked is not close to actual discounts given by both OEMs to favored customers. Those discount rates sometimes are 40% or even 50% or more.


User currently offlineastuteman From United Kingdom, joined Jan 2005, 10176 posts, RR: 97
Reply 8, posted (2 years 3 weeks 2 days 9 hours ago) and read 5719 times:
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Quoting sweair (Reply 6):
Nah EADS is governmental and in my view it will stay that way
Quoting KC135TopBoom (Reply 7):
No, it doesn't. The margin would in negitive numbers had EADS/Airbus not written off those E17B in program costs as the costs would need to be carried on each of those programs.

I guess it's wise to know when it's time to leave the field....   

Rgds


User currently offlineStitch From United States of America, joined Jul 2005, 31250 posts, RR: 85
Reply 9, posted (2 years 3 weeks 2 days 8 hours ago) and read 5465 times:
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EADS hedged magnificently for many years, but eventually the exchange rate imbalance has impacted the effectiveness of later hedges.

And program accounting is not a financial panacea for Boeing, as they did have to write-down $2.5 billion on the 787 in 2009 and $2.6 billion on the 737/747/757/767/777 in 1997.

In their article on the 1997 production melt-down at Boeing, BusinessWeek noted that Program Accounting was created in the 1960's by the aerospace industry in general, implying it was not something unique to Boeing. However, does any other aerospace company use it nowadays?


User currently offlinemffoda From United States of America, joined Apr 2010, 1104 posts, RR: 0
Reply 10, posted (2 years 3 weeks 2 days 7 hours ago) and read 4907 times:

Boeing write-offs for the 747-8 in 2008/9 = $2,037 M. And in 2009 for the 787 = $2,693 M.

Combined = $4,730 M

Accounting methods aside, Boeing doesn't get a free ride...   



harder than woodpecker lips...
User currently offlineastuteman From United Kingdom, joined Jan 2005, 10176 posts, RR: 97
Reply 11, posted (2 years 3 weeks 2 days 6 hours ago) and read 4602 times:
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Quoting mffoda (Reply 10):
Accounting methods aside, Boeing doesn't get a free ride...

Indeed it doesn't. That's why I used the words "to the same degree".

Boeing seems to accommodate the "loss-making-frames" in the programme accounting block, and reserve the exceptionals for things like engineering overruns
I'm not aware of Airbus holding anything back.
They seem to front-load it all into exceptionals in the accounts, including production losses.

Quoting Stitch (Reply 9):
However, does any other aerospace company use it nowadays?

I certainly know of some that do  

Rgds


User currently offlinencfc99 From United Kingdom, joined May 2005, 750 posts, RR: 0
Reply 12, posted (2 years 3 weeks 2 days 5 hours ago) and read 4260 times:

Quoting KC135TopBoom (Reply 7):
The margin would in negitive numbers had EADS/Airbus not written off those E17B in program costs as the costs would need to be carried on each of those programs.

Please explain your statement a bit more. The way I understand it, if Airbus had not written off the E17B (is that number correct) and carried it on the programes, the margin would be higher, not lower.


User currently offlinesweair From Sweden, joined Nov 2011, 1831 posts, RR: 0
Reply 13, posted (2 years 3 weeks 2 days 5 hours ago) and read 4237 times:

Quoting astuteman (Reply 8):

You cant say that without the taxpayers in EU Airbus would have the market share they have today, they hardly have to go and finance on the stock market like other major OEMs, even your own employer probably.


User currently offlineStitch From United States of America, joined Jul 2005, 31250 posts, RR: 85
Reply 14, posted (2 years 3 weeks 2 days 4 hours ago) and read 3984 times:
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Quoting sweair (Reply 13):
You cant say that without the taxpayers in EU Airbus would have the market share they have today, they hardly have to go and finance on the stock market like other major OEMs...

RLA only picks up one-third of the tab. The rest Airbus needs to fund out of their own pockets or via the capital credit markets.


User currently offlineBMI727 From United States of America, joined Feb 2009, 15811 posts, RR: 27
Reply 15, posted (2 years 3 weeks 2 days 2 hours ago) and read 3842 times:

Quoting sweair (Reply 13):
You cant say that without the taxpayers in EU Airbus would have the market share they have today,

The reason Airbus had to be created was because the largely government supported aerospace companies were failing to compete. Unfortunately for Enders, the European bureaucrats weren't smart enough to get their hands out of the cookie jar completely, but it's better than it could have been.



Why do Aerospace Engineering students have to turn things in on time?
User currently offlinesweair From Sweden, joined Nov 2011, 1831 posts, RR: 0
Reply 16, posted (2 years 3 weeks 2 days 1 hour ago) and read 3715 times:

My tip for you is to get off your high horses and see the big picture, we are talking financials not engineering. I have not disrespected any engineer at Airbus, don't take it so personal. On Wall Street they only see the numbers.

User currently offlinecmf From , joined Dec 1969, posts, RR:
Reply 17, posted (2 years 3 weeks 1 day 22 hours ago) and read 3537 times:

Quoting KC135TopBoom (Reply 7):
Not true. Because Boeng is a publicly traded company, it must use the accounting systems outlined by the FEC. Boeing can write off some programs costs, and partially has in the case of the B-787 and B-747-8 programs. But they, by US Law, cannot write off the entire amount. But all program costs written off can be used for tax purposes.

It is not a question if Boeing is following the accounting rules or not, they do. The issue is that EADS is not able to use the same accounting rules. This is why you can't take the margin reported by Boeing and compare it directly with the margin reported by EADS.

Just to give you an idea. Per the latest quarterly report Boeing Commercials operating earnings for Jan. - Sep is 3,445 MUSD. In the same period deferred production cost is 3,522 MUSD (you need to look at the three quarterly reports for this year to get that number). That means that without program accounting the 3,445 MUSD profit would have been a 77 MUSD loss.


User currently offlineCerecl From Australia, joined Jul 2008, 740 posts, RR: 0
Reply 18, posted (2 years 3 weeks 1 day 22 hours ago) and read 3501 times:

Quoting KC135TopBoom (Reply 7):
Not true. Because Boeng is a publicly traded company, it must use the accounting systems outlined by the FEC.

This is not strictly accounting regulations, but I still remember a top Boeing executive (McNerney?) telling the world days before B787 was due to have its first flight that it was going ahead amid mounting speculations of a serious delay. In retrospect, there was no way he was telling the truth and several members opined as much on this forum. They were countered by other members who were saying that as a public trading company Boeing executives must not deliberately mislead the public otherwise they will be held accountable by SEC/FEC. Then several days later another delay (which eventually became 2 years) was announced. Of course, that executive is still in his position to this day. From that moment on I refuse to take corporate regulation in the US (and the rest of the world) seriously. Lawyers and accountants will find a way to their master's bidding while staying (barely) legal. I would imagine Boeing and Airbus/EADS are the same in this aspect.


User currently offlineflipdewaf From United Kingdom, joined Jul 2006, 1578 posts, RR: 0
Reply 19, posted (2 years 3 weeks 1 day 15 hours ago) and read 3198 times:
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Quoting sweair (Reply 20):
On Wall Street they only see the numbers.

I would imagine thats the reason why Boeing would spread out the costs, just like taking out a longer term mortgage you will pay less per month but overall it will cost more. Those on Wall Street will see a more regular stable company and dividends will be more regular but will cost more in the long run. Its a toss up between what investors want to see.

Fred


User currently offlinerheinwaldner From Switzerland, joined Jan 2008, 2258 posts, RR: 5
Reply 20, posted (2 years 3 weeks 1 day 13 hours ago) and read 3163 times:

It is probably the last moment to write about Airbus and Boeings profit that way. Because the tide has turned. The early some hundreds 787 sales for dumping prices, the limitied inhouse profits of the 787 and the hunt for market share of the MAX don´t suggest that Boeing is on the high road anymore...

User currently offlinesxf24 From United States of America, joined Aug 2007, 1262 posts, RR: 0
Reply 21, posted (2 years 3 weeks 1 day 7 hours ago) and read 2757 times:

Quoting cmf (Reply 21):
It is not a question if Boeing is following the accounting rules or not, they do. The issue is that EADS is not able to use the same accounting rules. This is why you can't take the margin reported by Boeing and compare it directly with the margin reported by EADS.

EADS actually uses similar accounting procedures as Boeing. The only real difference in margins is the impact of exchange rates and the timing/amount of forward loses for unprofitable programs. Both differences are real and can't be realistically excluded when comparing financial performance.


User currently offlinecmf From , joined Dec 1969, posts, RR:
Reply 22, posted (2 years 3 weeks 1 day 5 hours ago) and read 2588 times:

Quoting sxf24 (Reply 32):
EADS actually uses similar accounting procedures as Boeing. The only real difference in margins is the impact of exchange rates and the timing/amount of forward loses for unprofitable programs. Both differences are real and can't be realistically excluded when comparing financial performance.

I have never seen anything similar to the program accounting with deferred production costs being used or available to Airbus. Very interested to see links to it.


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