WIederling
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Re: 747-8 Currently Cash Positive?

Tue Feb 12, 2019 10:14 am

seabosdca wrote:
1) Boeing chose to produce the double-stretch 747-8 passenger frame because LH wrote a check. .


LH had a massive deposit with Boeing by way of Boeing having canceled that promised connectivity solution.

The 748 project shew inflationary scope expansion and associated problems. not much stayed unchanged.
One issue seems to have been that the existing design documents did not reflect
what the unionised workforce built in the factory.
787 vagaries just turned that into a double whammy.
Added whammy: classic 747 and the 748 don't share much spares?

what I wondered: is the 748 bookkeeping wise a stand alone project
or is it an extension of the classic 747 ( and thus the accounting block ) ?
Murphy is an optimist
 
Bongodog49
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Re: 747-8 Currently Cash Positive?

Tue Feb 12, 2019 10:47 am

WIederling wrote:
seabosdca wrote:
1) Boeing chose to produce the double-stretch 747-8 passenger frame because LH wrote a check. .


LH had a massive deposit with Boeing by way of Boeing having canceled that promised connectivity solution.

The 748 project shew inflationary scope expansion and associated problems. not much stayed unchanged.
One issue seems to have been that the existing design documents did not reflect
what the unionised workforce built in the factory.
787 vagaries just turned that into a double whammy.
Added whammy: classic 747 and the 748 don't share much spares?

what I wondered: is the 748 bookkeeping wise a stand alone project
or is it an extension of the classic 747 ( and thus the accounting block ) ?


I wouldn't choose to highlight the fact that the workforce are unionised as an explanation to why the product differed from the design documentation, in days gone by this was the norm, firstly drawings were all done individually by hand, you couldn't bring up an electronic copy of the adjacent parts, that was the first way of achieving inaccuracies, then the manufacturing processes were much more reliant on hand work.
The result was that parts on the production line often didn't slot together as designed, hence why production lines employed skilled fitters, as their title suggested they made things fit together using their years of experience, much of it learned on the shop floor. The 747 started out in that era.

Here in the UK we had the ultimate example, the decision to take 50 year old plus Nimrods, strip down and refurbish the fuselages, fit new wings, avionics and engines and have a new plane. The subcontractors doing the stripping down quickly discovered that no two were alike, I'm sure the staff who were about to retire were not surprised at all, especially as some of these fuselages had originally been destined to be Comet airliners, the younger decision makers however appear ed to have no idea how things used to be
 
WIederling
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Re: 747-8 Currently Cash Positive?

Tue Feb 12, 2019 11:02 am

Bongodog49 wrote:
I wouldn't choose to highlight the fact that the workforce are unionised as an explanation to why the product differed from the design documentation,


the "unionized" link was intentionally made.

With control over who is allowed to work and some other aspects
a US Union controlled workforce appears as a kind of subcontractor
introducing informational barriers.

This informal working model also explains a lot of the 787 production issues.
Management didn't know and probably wouldn't understand this "subterranean"
information flow and was not scoped into contracts and supervision
for the externalized work.
Murphy is an optimist
 
mjoelnir
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Re: 747-8 Currently Cash Positive?

Tue Feb 12, 2019 11:33 am

RJMAZ wrote:
kitplane01 wrote:
I'm not asking of the program as a whole is profitable (it's not, and there were write-offs to prove it).

First mistake. A write-off does not mean the program as a whole is not profitable.

Copied from another thread.

"These numbers are made up but are approximate to keep the math simple.

On each $200+ million 747-8 aircraft Boeing might make $40 million profit. $20 million of that profit will be allocated to pay off the development cost. The other $20 million goes to the end of year company profit. The remaining money from the sale covers the cost of construction.

That $20 million allocated for development is calculated by taking the development cost of $4 billion and dividing it by 200 aircraft. 200 aircraft is what boeing initially thought they would sell. If Boeing after a few years worked out that it will sell only 150 aircraft then it must take a one off hit of $1 billion. This is what Boeing has done.

Some members think that one off hit means the program has made a loss. That is not the case. Boeing has still been making $40 million profit per frame, they simple did not allocate enough of that profit towards paying off develooment. With 150 frames sold that would be $6 billion of profit which is well over the $4 billion development cost. As Boeing is still making profit on every frame it will or already has broken even and will continue to slowly make a profit."


The 747-8 produced deferred (production) cost. Before anything can be counted against development cost, the deferred cost has to be booked. Because Boeing could not show that it could pay down the deferred cost inside the planed production numbers, Boeing had to write off part of the deferred cost.
Boeing will not recover the deferred cost and not the development cost. The 747-8 program is one big fat minus.

There is little talk about deferred cost in programs apart from the 787, the main reason for that is that it is not broken out separately, when the accounts are published. I assume that there are deferred cost on the 737MAX and there will be deferred cost on the 777-8/9 once the production starts. Perhaps even the KC767 is producing deferred cost.
 
AirbusA6
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Re: 747-8 Currently Cash Positive?

Tue Feb 12, 2019 12:19 pm

If Boeing hadn't the 747-8 but instead just kept the 744F in production would they have got almost as many orders for freighters anyway? After all people are still buying the 767 with a similar generation of engines?
it's the bus to stansted (now renamed National Express a6 to ruin my username)
 
WayexTDI
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Re: 747-8 Currently Cash Positive?

Tue Feb 12, 2019 12:33 pm

AirbusA6 wrote:
If Boeing hadn't the 747-8 but instead just kept the 744F in production would they have got almost as many orders for freighters anyway? After all people are still buying the 767 with a similar generation of engines?

Based on the whole (quite valid) theory that the 747 Freighter has no competition for some cargo (long, needing the front loading door), it is highly probable that the 744F would have still sold has the 748 (F, but especially 748i) never been discussed about.
 
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Polot
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Re: 747-8 Currently Cash Positive?

Tue Feb 12, 2019 12:46 pm

WayexTDI wrote:
AirbusA6 wrote:
If Boeing hadn't the 747-8 but instead just kept the 744F in production would they have got almost as many orders for freighters anyway? After all people are still buying the 767 with a similar generation of engines?

Based on the whole (quite valid) theory that the 747 Freighter has no competition for some cargo (long, needing the front loading door), it is highly probable that the 744F would have still sold has the 748 (F, but especially 748i) never been discussed about.

On the other hand, the stretch from the 748F gives it even more space over the 777F vs the 744F allowing it to have better breathing room in the lineup.

Granted with no direct Airbus competitor cargo carriers would have had no choice but to stick with Boeing. A A380F would have taken parcel carriers away, but it’s value was questionable for general freight carriers (with its specs it usually maxed out weight before volume at higher cargo densities).
 
sargester
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Re: 747-8 Currently Cash Positive?

Tue Feb 12, 2019 1:57 pm

acjbbj wrote:
sargester wrote:
The 747-8 cost Boeing more money than you can imagine and at the end of the day the A380 vastly outpaced the 748I in sales... it was a pride thing for Boeing to build this plane and its costing them dearly in the long run.


No, the A380 was a pride thing. The 747 Dash 8 is a new generation of a tried-and-true plane that was designed for real demand, from real airlines.


Every operator of the 748I has the 380 in their fleet except Air China, the 748I was a waste of Boeing`s time
 
mjoelnir
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Re: 747-8 Currently Cash Positive?

Tue Feb 12, 2019 2:20 pm

The question for Boeing to keep producing the 747-8 will not include, if Boeing getting return on the development or if it is possible to recoup the deferred cost.
The question will be is Boeing loosing less money with keeping producing the 747-8 or stopping production.

In the case Boeing is stopping production, Boeing has to instantly write off any deferred cost. I assume they have to compensate suppliers for breach of contract, repay tooling and similar and write of the infrastructure to produce the 747 now and not over years. That could be more costly than making lesser losses over many years while the production of the 747 is slowly dying off.

The only think I absolutely do not believe, that producing the 747 gives Boeing a profit.
 
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par13del
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Re: 747-8 Currently Cash Positive?

Tue Feb 12, 2019 2:25 pm

Ok, so I thought Boeing already wrote off the development cost similar to what Airbus did with the A380, in Boeing's case it occurred when the program went into a forward loss position, am I wrong?
if we no longer hold development cost against the A380 program why do so with the 748? As far as I know, what Boeing has now with Program Accounting with the 748 program is the production cost.
 
fsxfan38
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Re: 747-8 Currently Cash Positive?

Tue Feb 12, 2019 2:33 pm

The writing was pretty much on the wall when Boeing lined up their entire product line in 2016 for their 100th birthday and they very clearly put a 747-800F after the 737-Max8. Boeing views the 747 as a cargo plane now.
 
WIederling
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Re: 747-8 Currently Cash Positive?

Tue Feb 12, 2019 3:04 pm

par13del wrote:
Ok, so I thought Boeing already wrote off the development cost similar to what Airbus did with the A380, in Boeing's case it occurred when the program went into a forward loss position, am I wrong?
if we no longer hold development cost against the A380 program why do so with the 748? As far as I know, what Boeing has now with Program Accounting with the 748 program is the production cost.


R&D is billed directly.
Production cost goes into the big deferred cost hopper.
A strong motivator to sell the prototypes off to customers
even if that incurrs near or higher cost than it provides revenue.
Murphy is an optimist
 
mjoelnir
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Re: 747-8 Currently Cash Positive?

Tue Feb 12, 2019 3:05 pm

par13del wrote:
Ok, so I thought Boeing already wrote off the development cost similar to what Airbus did with the A380, in Boeing's case it occurred when the program went into a forward loss position, am I wrong?
if we no longer hold development cost against the A380 program why do so with the 748? As far as I know, what Boeing has now with Program Accounting with the 748 program is the production cost.


Boeing wrote of the development cost for the 747-8. But that has absolutely nothing to do with deferred production cost. Boeing does not count the whole cost when producing the first frames. Most of those costs are deferred.
Start to keep production cost and development cost apart. Development cost are always booked in the year they arise. Boeing defers early production cost, books part of the cost of producing those frames on cost and part as inventory. To compensate for the non existing inventory, they have to recoup the deferred cost against later production. The forward loss position is in regards to deferred cost. The forward loss position comes when it is clear that the rest of the production run will not be enough to recoup the deferred cost, that happened to the 747-8 program.

We do not hold development cost against the 747, 737, 777 and 787. We talk about production costs, that were not booked in the year they occur. They are not booked so Boeing can show a nice profit when they in reality have only small profit or a loss.

It seems that Boeing friends often forget that the losses that were not booked are real and have to be accounted for some day.
 
mjoelnir
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Re: 747-8 Currently Cash Positive?

Tue Feb 12, 2019 3:24 pm

WIederling wrote:
par13del wrote:
Ok, so I thought Boeing already wrote off the development cost similar to what Airbus did with the A380, in Boeing's case it occurred when the program went into a forward loss position, am I wrong?
if we no longer hold development cost against the A380 program why do so with the 748? As far as I know, what Boeing has now with Program Accounting with the 748 program is the production cost.


R&D is billed directly.
Production cost goes into the big deferred cost hopper.
A strong motivator to sell the prototypes off to customers
even if that incurrs near or higher cost than it provides revenue.


:checkmark:
 
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Stitch
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Re: 747-8 Currently Cash Positive?

Tue Feb 12, 2019 3:49 pm

smartplane wrote:
My hunch is LH negotiated a buyback on their 'i' purchases, triggered until a specific age, and / or by events. One of those events is likely keeping production open for a specific number of years. If production ceases then the buyback will apply, with either aircraft handed back for pre-agreed values, or additional credits issued (customer option). As buyback values erode with age and cycles, presumably at some point a crossover is reached, and closing the line will be cost-effective.


Considering how long LH keeps their frames and the fact that they sold so few, if there is a buyback clause, LH would likely have already executed it if they wished. So either there is not one, or they have chosen not to execute it. Let us not forget Boeing was opening talking about shutting down the 747 line in 2016 and took around $1.4 billion in write-downs to clear the remaining deferred production costs because they could no longer presume they would sell enough future frames to cover it.


Bongodog49 wrote:
As to the development costs, the cost of the floor space which could probably be used for something more profitable, and the jigs and tooling, I can't see any way this is going to be paid off.


Buildings 40-21, 40-22 and 40-23 have been paid off for decades as has almost all the tooling in them. The 747-8 specific tooling has also been almost entirely paid off - as per the last 10Q filing unamortized tooling for the 747-8 were in the low millions (or even the high hundreds of thousands).


WIederling wrote:
what I wondered: is the 748 bookkeeping wise a stand alone project or is it an extension of the classic 747 ( and thus the accounting block ) ?


For purposes of public financial reporting, the 747-8 is folded into the overall 747 Accounting Block. Internally, it has its own Accounting Block and in 2016 Boeing took around $1.4 billion in charges to clear it as the program was in a formal Forward Loss position.


par13del wrote:
Ok, so I thought Boeing already wrote off the development cost similar to what Airbus did with the A380, in Boeing's case it occurred when the program went into a forward loss position, am I wrong? if we no longer hold development cost against the A380 program why do so with the 748? As far as I know, what Boeing has now with Program Accounting with the 748 program is the production cost.


The 747-8's R&D costs were booked in the quarters they were charged so they have all been accounted for (pun). What remained was Unamortized Tooling and Other Non-Recurring Cost and Deferred Production Cost. The former is now down to a handful of millions and the latter was accounted for via the 2016 charges.


mjoelnir wrote:
It seems that Boeing friends often forget that the losses that were not booked are real and have to be accounted for some day.


And they were accounted for in two charges taken in January and June 2016 that together was close to $1.4 billion.
 
mjoelnir
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Re: 747-8 Currently Cash Positive?

Tue Feb 12, 2019 4:12 pm

Stitch wrote:

And Boeing enemies often forget to check the Boeing financial reports because in the case of the 747-8, they were accounted for in two charges taken in January and June 2016 that together was close to $1.4 billion.


That charge is not the whole deferred cost. Only the part that Boeing could in no way explain how they would be able to recoup it.

In Boeing Q10 filling Q3 2018, the last one available, deferred costs are not detailed for the 737, 747, 767 and 777 programs, only for the 787. For the 747 and 787 unamortized tooling cost are detailed.

I have followed the Q10 filings for quite a while, deferred cost for the single programs have often not been detailed in inventories. The deferred cost have simply been a part of the whole numbers. The unusual high numbers for the 787 deferred cost has lead Boeing to give details.
 
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Stitch
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Re: 747-8 Currently Cash Positive?

Tue Feb 12, 2019 4:33 pm

mjoelnir wrote:
That charge is not the whole deferred cost. Only the part that Boeing could in no way explain how they would be able to recoup it.


Boeing has been recording charges against the 747-8 as their assumptions about future sales have not panned out and therefore their ability to recover the entire Deferred Production Costs accrued through future sales were not possible. The latest was in June 2016 when Boeing reduced the Program Accounting Quantity for the 747-8 by an additional 19 frames (from 1574 to 1555). At the time they reduced the AQ, the 747 historical order book stood at 1534 - 40 frames short of the projected AQ prior to it being cut and 21 short post-cut. Deliveries stood at 1522. Between 12 and 23 frames was deemed not enough to cover the remaining Deferred Production Cost so this triggered a Reach-Forward Loss (explicitly outlined as such by Boeing)

Since that time, Boeing has recorded 42 new orders / re-sales. The current 747 historical order book stands at 1572 frames with 1548 deliveries, leaving 24 deliveries to be made and Boeing has subsequently raised the 747 accounting quantity to 1570 as of the latest quarter.
Last edited by Stitch on Tue Feb 12, 2019 4:54 pm, edited 2 times in total.
 
mxaxai
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Re: 747-8 Currently Cash Positive?

Tue Feb 12, 2019 4:35 pm

kitplane01 wrote:
seabosdca wrote:
I think we have the answer on a current basis in the fact that Boeing hasn't already stopped selling and planned for program shutdown. If cash flow from sales wasn't covering the cost of producing each incremental frame, Boeing would not have bothered to go out and pound the pavement and get the UPS order, or firm up Volga-Dnepr orders.


mxaxai wrote:
The simple indication that it is still in production and that Boeing is still accepting orders. The 747 has no future; there is no '747-8max' or '747-9x' waiting out there. Neither is there an Emirates just waiting to place an order for 100 frames. So Boeing has no interest to stretch the production at a loss until some new technology or order comes along. They can choose to only accept profitable orders or alternatively end production and use the resources on something more worthwhile.



You both are assuming that Boeing would not build 748's without making a profit, but we already know Airbus is doing exactly that. Boeing's motive to produce loss making 748s cannot reasonably be to wait for a NEO, like the A380 hypothetically might get. But it could be other things ... (1) Damage Airbus's economics (2) Pride (3) Wanting to keep the line open for Air Force One (accomplished) (4) some internal Boeing reason.

Airbus has said out loud for all to hear that the A380 is loss making going forward.

Airbus has been waiting for a larger "breakthrough" order for the current A380 that would provide a profit. Continuously increasing passenger numbers gave them hope, as did the potential for a mid-life upgrade à la A380NEO. I'm sure pride also played a role. Who enjoys terminating a program that had first flight less than 15 years ago?
But airlines have made their interest clear, and it seems to me (with the Emirates rumors) that Airbus themselves are interested in closing the line. The A380 is also hampered by the original target for 30+ deliveries a year, which leads to high costs per airframe at the current low rates.

Boeing on the other hand never really got many orders for the 747-8. They probably right-sized the production much earlier.
Re (1), Boeing shouldn't care about Airbus' profits. And I doubt that the 747-8 made any significant dent; the 77W, 787-9 and A350 had much greater impact.
Re (4) the main internal reason is that Boeing has the line set up already and nothing to replace it. However, I expect the resources (workers, tools, real estate, etc.) to get shifted to the 797 or 737 around 2022 - 2025. A (hypothetical) 777-8F would make a fine replacement and should support the relatively thin order book for the 777X.
 
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africawings
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Re: 747-8 Currently Cash Positive?

Tue Feb 12, 2019 4:50 pm

I think the 748i has not being marketed properly. Just like how the 757 found a new life with trans-Atlantic flights, thanks for ETOP modifications; well after it was introduced.. The 748i is meant for true ultra-long haul flights; 350 passengers -London to Sydney flights. No ETOPS restrictions, more fuel loading, 10,500 mile range. That is its selling point...
 
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Stitch
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Re: 747-8 Currently Cash Positive?

Tue Feb 12, 2019 5:08 pm

africawings wrote:
I think the 748i has not being marketed properly. Just like how the 757 found a new life with trans-Atlantic flights, thanks for ETOP modifications; well after it was introduced.. The 748i is meant for true ultra-long haul flights; 350 passengers -London to Sydney flights. No ETOPS restrictions, more fuel loading, 10,500 mile range. That is its selling point...


One problem with that is the 747-8 can only fly 9000nm with no passengers or cargo. :duck:

Boeing marketed the 747-8 for high-traffic routes where its 75-100 extra passengers over the 777-300ER generated sufficient RASM more than covered the higher CASM. The problem with that was if you could fill a 747-8 consistently year-round, you could probably fill an A380-800 consistently year round so you'd make even more money with the A380 than the 747.

Korean Air uses the A380 in a high-premium, low-density configuration and the 747-8 in a low-premium, high-density configuration. Lufthansa has a similar premium configuration on both the A380 and 748, with the A380 having a fair bit more Economy seats.
 
WIederling
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Re: 747-8 Currently Cash Positive?

Tue Feb 12, 2019 5:10 pm

africawings wrote:
I think the 748i has not being marketed properly. Just like how the 757 found a new life with trans-Atlantic flights, thanks for ETOP modifications; well after it was introduced.. The 748i is meant for true ultra-long haul flights; 350 passengers -London to Sydney flights. No ETOPS restrictions, more fuel loading, 10,500 mile range. That is its selling point...

No 757 were bought on that new possibility. It was a repurposing of paid off frames displaced from their original role
by 737 and A320.
Murphy is an optimist
 
WIederling
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Re: 747-8 Currently Cash Positive?

Tue Feb 12, 2019 5:13 pm

Stitch wrote:
Lufthansa has a similar premium configuration on both the A380 and 748, with the A380 having a fair bit more Economy seats.


Premium demand ( business, rich leisure ) is less seasonal than demand for economy, right?
LH tries to right fit their available frames to varying demand ( over season, over time )
Murphy is an optimist
 
musman9853
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Re: 747-8 Currently Cash Positive?

Tue Feb 12, 2019 5:13 pm

Max Q wrote:
Boeing has made a fortune from most of the 747 versions for over fifty years now, a few subtypes like the -SP and 300 series were not runaway successes but they’re all part of the same program


The 8I falls into that same category but it’s way too early to count out the 8F, there’s nothing else that can do the same mission or even come close, I predict Boeing will sell a couple of hundred more to replace the -400F and I believe there’ll be a NG version



It’s so unique it’s irreplaceable


I think 100s is a bit overambitious. There's definitely a long term place for it because of the nose door, but that's a fairly limited market I think
Welcome to the City Beautiful.
 
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Stitch
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Re: 747-8 Currently Cash Positive?

Tue Feb 12, 2019 5:33 pm

WIederling wrote:
Premium demand ( business, rich leisure ) is less seasonal than demand for economy, right? LH tries to right fit their available frames to varying demand ( over season, over time )


That does seem to be the case. :yes:

The A340-600, 747-8 and A380-800 all have similar density premium cabins with the major difference being the size of their Economy cabins. So the three frames look to offer LH that ability to tailor Economy capacity to demand across the seasonal changes during the year.
 
2175301
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Re: 747-8 Currently Cash Positive?

Tue Feb 12, 2019 5:51 pm

Lets address the issue of "IF or CAN" Boeing be producing 748F at a current profit, and even potentially recover the previously written off deferred production cost.

Here are the 747 Accounting Quantity (Block) at end of year, based on the Boeing Annual Report for these years:

2010: 1524
2011: 1549
2012: 1574
2013: 1574
2014: 1574
2015: 1574 (write-off to account for future lower production rates: See Quoted Boeing Report Statement below)
2016: 1555 (write-off of now unanticipated production of 19 frames; along with lower expected profit due to producing more of the frames at 6 aircraft a year in the future: See Quoted Boeing Statement below):
2017: 1570
2018; Not yet reported; but Boeing booked 18 net firm orders for 748F in 2018, and there are reports of future interested new 748F clients. Are they going to change the accounting block, or wait for more orders to materialize?


Excerpt from Boeing 2016 Annual Report on the 748:


747 Program
Lower-than-expected demand for large commercial passenger and freighter aircraft and slower-thanexpected
growth of global freight traffic have continued to drive market uncertainties, pricing pressures
and fewer orders than anticipated. As a result, during 2016, we canceled previous plans to return to a
production rate of 1.0 aircraft per month beginning in 2019, resulting in a reduction in the program accounting
quantity from 1,574 to 1,555 aircraft. This reduction in the program accounting quantity, together with lower
anticipated revenues from future sales and higher costs associated with producing fewer airplanes, resulted
in a reach-forward loss of $1,188 in the second quarter. We previously recognized reach-forward losses
of $885 and $70 during the second half of 2015 and the first quarter of 2016, respectively, related to the
prior decision to reduce the production rate to 0.5 per month and lower estimated revenue from future
sales due to ongoing pricing and market pressures. We reduced the rate from 1.0 to 0.5 per month in
September 2016. The adjusted program accounting quantity includes 26 undelivered aircraft, currently
scheduled to be produced through 2019. We continue to have a number of completed aircraft in inventory
as well as unsold production positions and we remain focused on obtaining additional orders and
implementing cost-reduction efforts. If we are unable to obtain sufficient orders and/or market, production
and other risks cannot be mitigated, we could record additional losses that may be material, and it is
reasonably possible that we could decide to end production of the 747.


It is my understanding that the $values reported are in "Millions of $"

If you add all 2015 and 2016 748 write-off of 748 deferred production cost in the above note; it equals $2,143 (millions), or $2.143 Billion

However, that then puts each aircraft produced after these write-offs in 2016 as expected to at least pay off the remaining deferred production backlog cost from initial production cost by frame 1555 (especially as Boeing had firm contracts for almost all - if not all - of these frames and could actually estimate gross production profit); plus whatever profit Boeing expects (and Boeing does expect a profit, and are not reporting a possible future loss in their notes about the 747 in the 2017 report). Frames after 1555 should have NO (Zero) deferred production cost backlog.

According to the 2018 3rd quarter Q10 report; Boeing had 1568 Delivered or Firm orders for the 748. Thus, 13 of the latest UPS Frame order would expected to be at production cost profit without any deferred production cost. Clearly cash flow positive.

Additional orders - if they continue for some years - might even allow for the "Theoretical" recovery of the previously written of deferred production cost.

I will restate my previous statement: Without digging up all the info on R&D. It is my understanding that overall Boeing lost in the $3-$5 Billion range on the 748. There is no hope that they will recover much of the R&D related to the 748.

I hope this helps clarify things.

Have a great day,
 
SC430
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Re: 747-8 Currently Cash Positive?

Tue Feb 12, 2019 6:18 pm

Strato2 wrote:
Snowballs chance of making money at 6/year production. Then there are the write offs and the utter failure of pax version. The 747 has been a financial disaster for Boeing.


I think Strato is confusing the 747-8 with another 4 engine aircraft.

"The development costs for the Boeing 747-8I were $4 billion. Costs were relatively low due to the fact that the Boeing 747-8I is not an all-new aircraft and some of the wing design and engine design is derived from the Boeing 787. Boeing estimated a total market for 260 freighters and 85 intercontinental passenger airliners. As of May 2018 they have 103 freighter orders and 47 passenger and VIP aircraft delivered."

At 60% of list price, the orders referenced above would be worth $36 Billion dollars, and Boeing is still selling freighters. I don't see a financial disaster here.

Now spending 28 Billion to deliver maybe 250 frames for maybe $50 Billion in revenue is a real cluster F***
 
WIederling
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Re: 747-8 Currently Cash Positive?

Tue Feb 12, 2019 6:31 pm

SC430 wrote:
Strato2 wrote:
Snowballs chance of making money at 6/year production. Then there are the write offs and the utter failure of pax version. The 747 has been a financial disaster for Boeing.


I think Strato is confusing the 747-8 with another 4 engine aircraft.

"The development costs for the Boeing 747-8I were $4 billion.

Now spending 28 Billion to deliver maybe 250 frames for maybe $50 Billion in revenue is a real cluster F***


Only your numbers are all wrong.

$4b probably reflects what was planned with as much as possible offload to production cost.
MY guess would be closer to $8..10b . Not much stayed unchanged in the remake.
Unplanned for scope expansion and lots of things had to be fixed later on. nothing of that comes cheap.
Murphy is an optimist
 
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Stitch
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Re: 747-8 Currently Cash Positive?

Tue Feb 12, 2019 6:41 pm

When Boeing announced the $885 million (pre-tax) write-down on the 747-8 program in January 2016 to both reflect the rate cut to 0.5 frames per month and to reduce the outstanding Deferred Production cost, they reported that the outstanding Deferred Production cost and tooling expenses after the cut were $1300 million.

They also noted that they expected $342 million to be recovered from planes that it has already sold and $977 million to be recovered from future orders for a total of $1319 million so at the time they felt the remaining DPC would be covered by current and future sales. At the time, AirBridgeCargo had signed an MOU to take up to 20 747-8, though the MoU outlined two deliveries per year between 2016 and 2021 for a total of 14.

Six months on, Boeing recognized these future sales would be weaker than they thought (ABC had firmed 4 frames at the end of March 2016) so they reduced the Accounting Quantity by 19 frames and took an additional $885 million write down, which would have reduced the Deferred Production cost to $415 million. The undelivered part of the Accounting Quantity at the time was 23 frames, which meant Boeing felt they could get $18 million a frame to zero-out the remaining Deferred Production costs plus whatever those 23 frames would add to the DPC.

Boeing has added 38 orders between June 2016 and January 2019 and this has allowed Boeing to raise the Accounting Quantity by 15 frames, which meant each delivery needed to cover $11 million of the remaining DFC (plus any extra they generated). They have delivered 27 during the same period and there are currently 24 unfilled frames left to be delivered.
 
smartplane
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Re: 747-8 Currently Cash Positive?

Tue Feb 12, 2019 6:49 pm

Stitch wrote:
smartplane wrote:
My hunch is LH negotiated a buyback on their 'i' purchases, triggered until a specific age, and / or by events. One of those events is likely keeping production open for a specific number of years. If production ceases then the buyback will apply, with either aircraft handed back for pre-agreed values, or additional credits issued (customer option). As buyback values erode with age and cycles, presumably at some point a crossover is reached, and closing the line will be cost-effective.


Considering how long LH keeps their frames and the fact that they sold so few, if there is a buyback clause, LH would likely have already executed it if they wished. So either there is not one, or they have chosen not to execute it. Let us not forget Boeing was opening talking about shutting down the 747 line in 2016 and took around $1.4 billion in write-downs to clear the remaining deferred production costs because they could no longer presume they would sell enough future frames to cover it.

There were two LH issues - performance / weight and longevity.

Part of the former was addressed by returning one aircraft, obtaining full credit, but still retaining the retrospective credits as if all 20 had been delivered.

The buyback will cut in around Y12, and decay until Y20. Likely two tiered, with a lower value if returned for performance issues, and higher if the condition subsequent issues (model out of production, parts unavailable, parts unavailable at pre-determined cost) have triggered.

The reason talk of closing the line down ceased in 2016, was presumably someone re-read the LH contract Addendum.

Wonder why Airbus isn't talking line closure?
 
SC430
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Re: 747-8 Currently Cash Positive?

Tue Feb 12, 2019 6:58 pm

WIederling wrote:
SC430 wrote:
Strato2 wrote:
Snowballs chance of making money at 6/year production. Then there are the write offs and the utter failure of pax version. The 747 has been a financial disaster for Boeing.


I think Strato is confusing the 747-8 with another 4 engine aircraft.

"The development costs for the Boeing 747-8I were $4 billion.

Now spending 28 Billion to deliver maybe 250 frames for maybe $50 Billion in revenue is a real cluster F***


Only your numbers are all wrong.

$4b probably reflects what was planned with as much as possible offload to production cost.
MY guess would be closer to $8..10b . Not much stayed unchanged in the remake.
Unplanned for scope expansion and lots of things had to be fixed later on. nothing of that comes cheap.


I would GUESS, your guess is way off......... either way the 748-I is not a financial disaster by any definition, which was the question at hand...
 
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Stitch
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Re: 747-8 Currently Cash Positive?

Tue Feb 12, 2019 7:05 pm

WIederling wrote:
$4b probably reflects what was planned with as much as possible offload to production cost.


Except you cannot "offload" R&D costs to production costs. They have to be recorded in the accounting quarter they were spent. In 2009, Boeing took a $1.1 billion charge on the 747-8 program - almost $700 million of that was related to higher production costs of the first frames going into the FAL incurred due to late-term design changes (which were also part of that $700m). Boeing booked them as they billed them - they did not bundle them into the Deferred Production cost and kick it down the road even though I am sure they would have liked to and avoided taking the hit to earnings that quarter.


WIederling wrote:
MY guess would be closer to $8..10b . Not much stayed unchanged in the remake.


I find that number as unbelievable as the $20 billion some throw around for the A380 program.

From Boeing's public statements, they spent around $1 billion more than planned on both the passenger and freighter designs. So if we take the $4 billion as their initial plan, that would put the figure at closer to $5 billion.



WIederling wrote:
Unplanned for scope expansion and lots of things had to be fixed later on. nothing of that comes cheap.


Indeed. For example. they spent an extra $300-400 million to complete the design of the Intercontinental once Lufthansa agreed to order it.
 
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seabosdca
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Re: 747-8 Currently Cash Positive?

Tue Feb 12, 2019 7:17 pm

smartplane wrote:
The buyback will cut in around Y12, and decay until Y20. Likely two tiered, with a lower value if returned for performance issues, and higher if the condition subsequent issues (model out of production, parts unavailable, parts unavailable at pre-determined cost) have triggered.

The reason talk of closing the line down ceased in 2016, was presumably someone re-read the LH contract Addendum.


Let's assume for the sake of argument that your description of the LH deal is accurate.

It's hard to imagine that the buyback amount for all of the frames, in the very worst-case scenario (Boeing shuts the line and stops selling all parts), would be more than $1 billion.

Would a $1 billion potential charge, quite likely ameliorated by a 779 order for replacements, really be enough to cause Boeing to keep building money-losing $200M airplanes indefinitely? I don't see it.

smartplane wrote:
Wonder why Airbus isn't talking line closure?


Seems to me like they are. They're "in discussions" with EK and are systematically clearing the decks of all other orders.
 
WPvsMW
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Re: 747-8 Currently Cash Positive?

Tue Feb 12, 2019 7:46 pm

Two important corollaries, and a hypothetical, given recent developments for the Big Bus.
1) There will be no A380F, since there will be no more A380s. This means no competition for the 748F... the line stays open, and PIPs keep the Queen competitive with the 777F. Nosedoor vincit.
2) Even if no further 748i models are produced, continued production of the 748F will make the overall 748 program profitable. Boeing vincit.
H) Continued production of the 748F gives Boeing the option to develop a 749F... whatever that may be. Higher MTOW with new LG and wingbox??
 
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Stitch
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Re: 747-8 Currently Cash Positive?

Tue Feb 12, 2019 7:54 pm

WPvsMW wrote:
Two important corollaries, and a hypothetical, given recent developments for the Big Bus.
1) There will be no A380F, since there will be no more A380s. This means no competition for the 748F... the line stays open, and PIPs keep the Queen competitive with the 777F. Nosedoor vincit.


There will not be an A380-800F regardless of whether or not the passenger model stays in production. And the only PiPs the 747-8F can expect are to the GEnx2B engine, and only then due to GE developing them for the 787's GEnx1B. And even then, depending on the amount of work involved, it may or may not be worth porting that PIP to the GEnx2B


WPvsMW wrote:
2) Even if no further 748i models are produced, continued production of the 748F will make the overall 748 program profitable. Boeing vincit.


The $4 billion development figure comes from financial analysts. On top of that, we have almost another $4 billion in write-downs between 2008 and 2016 to reflect additional design work, production issues and forward losses due to low sales. With 152 orders to date, each 747-8 would need to recover $52 million to cover the R&D and the write-downs.

I can believe that Boeing is making money on the UPS and ABC orders they have been delivering since 2016, but the overall program does not strike me as being a profitable one when the final 747-8 is delivered and Boeing closes the line.


WPvsMW wrote:
H) Continued production of the 748F gives Boeing the option to develop a 749F... whatever that may be. Higher MTOW with new LG and wingbox??


There is no way Boeing will sink any more R&D money into the 747 program.
 
WPvsMW
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Re: 747-8 Currently Cash Positive?

Tue Feb 12, 2019 8:01 pm

IMO, PIPs and a "749" all depend upon the market for cargo frames, and the 748F has capabilities the 777F lacks. So, I don't see the line closure as imminent.
 
bigjku
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Re: 747-8 Currently Cash Positive?

Tue Feb 12, 2019 8:02 pm

Stitch wrote:
WPvsMW wrote:
Two important corollaries, and a hypothetical, given recent developments for the Big Bus.
1) There will be no A380F, since there will be no more A380s. This means no competition for the 748F... the line stays open, and PIPs keep the Queen competitive with the 777F. Nosedoor vincit.


There will not be an A380-800F regardless of whether or not the passenger model stays in production. And the only PiPs the 747-8F can expect are to the GEnx2B engine, and only then due to GE developing them for the 787's GEnx1B. And even then, depending on the amount of work involved, it may or may not be worth porting that PIP to the GEnx2B


WPvsMW wrote:
2) Even if no further 748i models are produced, continued production of the 748F will make the overall 748 program profitable. Boeing vincit.


The $4 billion development figure comes from financial analysts. On top of that, we have almost another $4 billion in write-downs between 2008 and 2016 to reflect additional design work, production issues and forward losses due to low sales. With 152 orders to date, each 747-8 would need to recover $52 million to cover the R&D and the write-downs.

I can believe that Boeing is making money on the UPS and ABC orders they have been delivering since 2016, but the overall program does not strike me as being a profitable one when the final 747-8 is delivered and Boeing closes the line.


WPvsMW wrote:
H) Continued production of the 748F gives Boeing the option to develop a 749F... whatever that may be. Higher MTOW with new LG and wingbox??


There is no way Boeing will sink any more R&D money into the 747 program.


This. Boeing lost lots on the 748. Now they probably are selling the current 747-8F for more than it cost to build it today but that’s after writing all that stuff off. There is no reason to build them if not because the other option for cargo airlines is the 777F so you wouldn’t keep this line open at a loss on a per frame basis.
 
WPvsMW
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Re: 747-8 Currently Cash Positive?

Tue Feb 12, 2019 8:10 pm

??? Today, each frame is profitable. Sunk costs are sunk costs. At some point, the overall program will break even, but even if it didn't, the prudent manufacturer would continue to sell a profitable (monopoly) product.
(I can't parse the grammar of your last sentence, but I think I understand your point, thus my reply.)
 
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N328KF
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Re: 747-8 Currently Cash Positive?

Tue Feb 12, 2019 8:15 pm

RJMAZ wrote:
2175301 wrote:
I also understand that at this point that the entire 748 program is at a "loss" stage; but, if they continue to sell freighters to sustain 6 per year production rates for another 5+ years they may actually achieve break-even on the program. The write-off was because they could no longer predict enough sales to meet the "then current" production block; and had to write off the expected cost recover on "x" amount of frames that represented the difference between the older production block estimate and the new estimate. Continued sales of the freighters would push the production block size back to the original number - and perhaps higher (which would recover the written of money - assuming the average profit per aircraft produced is the same).

Spot on.

Also the write-off was most likely for tax reduction purposes.

As Boeing has had two years of massive company profits they can write-off the 747-8 development costs to reduce the tax bill.

The 797 will most likely have massive costs during ramp up which will keep the tax bill low for quite some years. So with the 787 bringing in massive profits it was the perfect opportunity to write-off the 747-8 development costs.

This also means any future 747-8 sale now has a larger profit in that financial year.

Strato2 wrote:
The 747 has been a financial disaster for Boeing.


The 747-8 successfully prevented Airbus from charging high prices for the A380. That low profit then caused the A380 to be a financial disaster for Airbus.

One could say the 747-8 helped kill the A380. That in my mind makes the 747-8 a raging success.


The 747-8 certainly killed the A380F, but for the passenger side, I think the credit goes to the 787-10, A350, and 777X in terms of operating costs.
When they call the roll in the Senate, the Senators do not know whether to answer 'Present' or 'Not guilty.' -Theodore Roosevelt
 
UA444
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Re: 747-8 Currently Cash Positive?

Tue Feb 12, 2019 8:24 pm

Couldn’t Boeing just wait out long enough for Airbus to kill the 380 and then develop a newer passenger version as well as F model? Even if the market is small, there is a niche and airlines will only have the 747 to go to after the 380 is gone.
 
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Stitch
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Re: 747-8 Currently Cash Positive?

Tue Feb 12, 2019 8:30 pm

WPvsMW wrote:
??? Today, each frame is profitable. Sunk costs are sunk costs. At some point, the overall program will break even, but even if it didn't, the prudent manufacturer would continue to sell a profitable (monopoly) product.


I fully expect Boeing's MoU with AirBridgeCargo and orders with UPS were priced at a point that earned Boeing a profit on delivery. Any future sales prospects will also need to be priced profitably or Boeing will likely not accept them, even if that means they have to close the line due to no orders.

Boeing has been consistently over-optimistic in their view of the air cargo market for the past two decades and this has cost them billions to develop the 747-8 and more billions in write-downs because it did not sell nearly as well as they thought it would. By now, they should be conservative enough in their beliefs that they will not take a loss-making order to keep the line open in the hopes that a recovery "is just around the corner" and they will be able to build scores of frames at a nice profit to recover those losses.


UA444 wrote:
Couldn’t Boeing just wait out long enough for Airbus to kill the 380 and then develop a newer passenger version as well as F model? Even if the market is small, there is a niche and airlines will only have the 747 to go to after the 380 is gone.


They could, but they will not because the market is not there for them to do so.

NLA (New Large Airplane) was intended to be the replacement for the 777 and 747 families, but Boeing has never really spoken about it, preferring instead to launch the 747-8 (and later, the 777-9). And if they are spending any money on internal NLA studies, it has to be minimal.

For better or for worse, the 747-8 and 777-9 will be Boeing's offering in the large freighter and passenger space until they stop selling and only then will Boeing start to look at NLA.
 
Bongodog49
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Re: 747-8 Currently Cash Positive?

Tue Feb 12, 2019 9:33 pm

Bongodog49 wrote:
As to the development costs, the cost of the floor space which could probably be used for something more profitable, and the jigs and tooling, I can't see any way this is going to be paid off.


Buildings 40-21, 40-22 and 40-23 have been paid off for decades as has almost all the tooling in them. The 747-8 specific tooling has also been almost entirely paid off - as per the last 10Q filing unamortized tooling for the 747-8 were in the low millions (or even the high hundreds of thousands).

[/quote]

The thing is though, that its just like your own house, even once its paid for it still costs money to maintain it every year, even more so for buildings that are now 50 years old. The annual upkeep must run to millions.
 
brindabella
Posts: 544
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Re: 747-8 Currently Cash Positive?

Tue Feb 12, 2019 10:30 pm

WPvsMW wrote:
??? Today, each frame is profitable. Sunk costs are sunk costs. At some point, the overall program will break even, but even if it didn't, the prudent manufacturer would continue to sell a profitable (monopoly) product.
(I can't parse the grammar of your last sentence, but I think I understand your point, thus my reply.)


:checkmark:

Quite logical. Supported by the lucid framework as provided above by Stitch and others.

And I would assume those per-frame cash profits will also act to defray any eventual loss when the program (eventually) winds-down.

Or improve any eventual profit, as the case may be.

cheers
Billy
 
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Stitch
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Re: 747-8 Currently Cash Positive?

Wed Feb 13, 2019 12:50 am

Bongodog49 wrote:
The thing is though, that its just like your own house, even once its paid for it still costs money to maintain it every year, even more so for buildings that are now 50 years old. The annual upkeep must run to millions.


I'm sure it does, but it costs money to keep the entire Everett complex running so...
 
steeler83
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Re: 747-8 Currently Cash Positive?

Wed Feb 13, 2019 1:54 am

N328KF wrote:
RJMAZ wrote:
2175301 wrote:
I also understand that at this point that the entire 748 program is at a "loss" stage; but, if they continue to sell freighters to sustain 6 per year production rates for another 5+ years they may actually achieve break-even on the program. The write-off was because they could no longer predict enough sales to meet the "then current" production block; and had to write off the expected cost recover on "x" amount of frames that represented the difference between the older production block estimate and the new estimate. Continued sales of the freighters would push the production block size back to the original number - and perhaps higher (which would recover the written of money - assuming the average profit per aircraft produced is the same).

Spot on.

Also the write-off was most likely for tax reduction purposes.

As Boeing has had two years of massive company profits they can write-off the 747-8 development costs to reduce the tax bill.

The 797 will most likely have massive costs during ramp up which will keep the tax bill low for quite some years. So with the 787 bringing in massive profits it was the perfect opportunity to write-off the 747-8 development costs.

This also means any future 747-8 sale now has a larger profit in that financial year.

Strato2 wrote:
The 747 has been a financial disaster for Boeing.


The 747-8 successfully prevented Airbus from charging high prices for the A380. That low profit then caused the A380 to be a financial disaster for Airbus.

One could say the 747-8 helped kill the A380. That in my mind makes the 747-8 a raging success.


The 747-8 certainly killed the A380F, but for the passenger side, I think the credit goes to the 787-10, A350, and 777X in terms of operating costs.

I second that. I wish more airlines could've ordeeed the 747-8i, but I have sincere doubts it will happen. UA and DL have 773ERs in their fleet (and I think the A350s) which can do the same things the 748 could. So, when the 744s went, they went.

I so badly want to fly on one of these birds before they're gone, and I can see I'm quickly running out of time. :(
Do not bring stranger girt into your room. The stranger girt is dangerous, it will hurt your life.
 
WayexTDI
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Re: 747-8 Currently Cash Positive?

Wed Feb 13, 2019 2:47 am

steeler83 wrote:
N328KF wrote:
RJMAZ wrote:
Spot on.

Also the write-off was most likely for tax reduction purposes.

As Boeing has had two years of massive company profits they can write-off the 747-8 development costs to reduce the tax bill.

The 797 will most likely have massive costs during ramp up which will keep the tax bill low for quite some years. So with the 787 bringing in massive profits it was the perfect opportunity to write-off the 747-8 development costs.

This also means any future 747-8 sale now has a larger profit in that financial year.



The 747-8 successfully prevented Airbus from charging high prices for the A380. That low profit then caused the A380 to be a financial disaster for Airbus.

One could say the 747-8 helped kill the A380. That in my mind makes the 747-8 a raging success.


The 747-8 certainly killed the A380F, but for the passenger side, I think the credit goes to the 787-10, A350, and 777X in terms of operating costs.

I second that. I wish more airlines could've ordeeed the 747-8i, but I have sincere doubts it will happen. UA and DL have 773ERs in their fleet (and I think the A350s) which can do the same things the 748 could. So, when the 744s went, they went.

I so badly want to fly on one of these birds before they're gone, and I can see I'm quickly running out of time. :(

DL doesn't have 777-300ER's; only 777-200ER's (8 of them) and 777-200LR's (10 of them)
UA doesn't have A350's yet.
 
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kitplane01
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Re: 747-8 Currently Cash Positive?

Wed Feb 13, 2019 3:31 am

jeffrey0032j wrote:
kitplane01 wrote:
flyingclrs727 wrote:

At 6 orders per year, Boeing can deter Airbus from developing a large long rang freighter based on the A350. Any order large enough to encourage Airbus to build a long range freighter based on the A350 could easily be undercut by Boeing offering 748F or 777F with short lead times. A big enough order of
748F could get Boeing to either increase 748F production rates or negotiatiate with UPS to defer some of its deliveries to free up earlier delivery slots.


Actually, I would assume the A350F would have much better economics than the 748F.

The 777F already has better economics than the 748F, but there is still a trickle of demand for the 748F due to unique configurations no other A or B planes can do commercially (ie not in house Beluga/Dreamlifter).


Why do you think the 777F has better economics than the 747-8? The 747-8 has better/more modern engines.

Can you cite a source? I politely don't believe you (but am willing to be educated by a relevant source).
 
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kitplane01
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Re: 747-8 Currently Cash Positive?

Wed Feb 13, 2019 3:33 am

Max Q wrote:
Boeing has made a fortune from most of the 747 versions for over fifty years now, a few subtypes like the -SP and 300 series were not runaway successes but they’re all part of the same program


The 8I falls into that same category but it’s way too early to count out the 8F, there’s nothing else that can do the same mission or even come close, I predict Boeing will sell a couple of hundred more to replace the -400F and I believe there’ll be a NG version



It’s so unique it’s irreplaceable


I think the 777F can do everything the 747-8 can do (except nose loading, which is rare and there are already enough planes around to do that).
Now it might take 1.3 777's to replace a 747-8 ...
 
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Stitch
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Re: 747-8 Currently Cash Positive?

Wed Feb 13, 2019 4:34 am

kitplane01 wrote:
I think the 777F can do everything the 747-8 can do (except nose loading, which is rare and there are already enough planes around to do that). Now it might take 1.3 777's to replace a 747-8 ...


Well a 747-8 will lift 30,000kg / 200 cubic meters more payload so it can generate a fair bit more revenue per flight.

And if you need three 777Fs to carry the load of two 747-8Fs, well there goes any efficiency advantage of the 777F had. Boeing's own marketing gives the 747-8 a 2% better operating cost advantage than the 777F, but that does take into account the 30% greater lifting capacity of the 747-8.
 
jagraham
Posts: 710
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Re: 747-8 Currently Cash Positive?

Wed Feb 13, 2019 5:22 am

musman9853 wrote:
Max Q wrote:
Boeing has made a fortune from most of the 747 versions for over fifty years now, a few subtypes like the -SP and 300 series were not runaway successes but they’re all part of the same program


The 8I falls into that same category but it’s way too early to count out the 8F, there’s nothing else that can do the same mission or even come close, I predict Boeing will sell a couple of hundred more to replace the -400F and I believe there’ll be a NG version



It’s so unique it’s irreplaceable


I think 100s is a bit overambitious. There's definitely a long term place for it because of the nose door, but that's a fairly limited market I think


The customer currently buying the most 748fs is UPS. Which is definitely not using the nose door.
 
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seabosdca
Posts: 6125
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Re: 747-8 Currently Cash Positive?

Wed Feb 13, 2019 5:41 am

Stitch wrote:
Well a 747-8 will lift 30,000kg / 200 cubic meters more payload so it can generate a fair bit more revenue per flight.


:checkmark:

The 747-8F's trump card isn't the nose door; it's the 140 t payload. That makes its economics unbeatable for super-heavy cargo even with empty weight and engine SFC coming up a bit short of promises.

The 777F is limited to 103 t payload, and it's hard to imagine any way the inevitable 777-8F could improve that beyond 115 t or so even with a MTOW increase, which won't be a trivial job. Granted, such a payload improvement might tip the balance in favor of trading 3 748Fs for 4 778Fs, at least for high-utilization operators.

Edit: Pretty critical typo...

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