T773ER
Topic Author
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787 Break Even Point?

The cost of the 787 is said to be around 8 billion, and with 471 orders and commitments, one would have to guess that it is already profitable. But what was the actual break even point?

Also, does any one know what Boeing's forecast has in store for the 787 as far as numbers are concerned?

[Edited 2007-01-20 00:40:29]

[Edited 2007-01-20 00:40:51]

EvilForce
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RE: 787 Break Even Point?

I would guesstimate "breakeven" around 200 - 225 airframes.

Assuming of course there are no major issues in getting it launched. Of course this doesn't include paying it's contribution towards fixed overhead.

[Edited 2007-01-20 01:18:59]
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osiris30
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RE: 787 Break Even Point?

Average widebody discount is around 40% of list, so it's not too hard to math out.. if all ordered 787s (using your number of 471) are delivered then the actually value to Boeing would be approximately:

471 * \$150M (roughly the middle point of 787 pricing) * 0.6 = \$42.3B

So as long as the varibale costs for each aircraft are below 80% of the sale price (which is a reasonable assumption I think) then the 787 is past the breakeven point.

If not, it would be very very close.
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KFLLCFII
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RE: 787 Break Even Point?

 Quoting Osiris30 (Reply 2):then the 787 is past the breakeven point.

Pardon my ignorance, but to date, has a launch aircraft ever passed its breakeven point before a single aircraft had even been delivered?

Or for that matter, has a launch aircraft ever passed its breakeven point before a single assembled hull had even taken to the sky?
"About the only way to look at it, just a pity you are not POTUS KFLLCFII, seems as if we would all be better off."

siromega
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RE: 787 Break Even Point?

 Quoting T773ER (Thread starter): Also, does any one know what Boeing's forecast has in store for the 787 as far as numbers are concerned?

IIRC, the market for widebodies is about 3000 units over the next 20 years, and its estimated that Boeing will get 2000 orders out of that 3000.

jacobin777
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RE: 787 Break Even Point?

 Quoting KFLLCFII (Reply 3): Pardon my ignorance, but to date, has a launch aircraft ever passed its breakeven point before a single aircraft had even been delivered? Or for that matter, has a launch aircraft ever passed its breakeven point before a single assembled hull had even taken to the sky?

None in modern history..if ever.....

The 787 is the fastest selling widebody in aviation history....
"Up the Irons!"

osiris30
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RE: 787 Break Even Point?

 Quoting KFLLCFII (Reply 3):Pardon my ignorance, but to date, has a launch aircraft ever passed its breakeven point before a single aircraft had even been delivered? Or for that matter, has a launch aircraft ever passed its breakeven point before a single assembled hull had even taken to the sky?

While I can't speak for props, this is the first *commercial* jet aircraft that has achieved such a feat.
I don't care what you think of my opinion. It's my opinion, so have a nice day :)

WingedMigrator
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RE: 787 Break Even Point?

 Quoting Jacobin777 (Reply 5):The 787 is the fastest selling widebody in aviation history....

That's the one true fact.

As pointed out so much more rapidly in other threads discussing matters of break-even and return on investment:

a) the frames indeed have to be delivered, which means break-even won't occur until late 2012 or early 2013

b) when break-even is reached, return on investment will be zero. In order to reach a decent (say 15-20%) ROI it will be another few years from there.

And another consideration often ignored:

c) such an unprecedented level of risk sharing naturally comes with a high level of profit sharing, so even if a good RoI is reached, less of the profit goes to Boeing than for previous models.

Not that any of this should be a problem, of course!

 Quoting SirOmega (Reply 4):IIRC, the market for widebodies is about 3000 units over the next 20 years

Boeing predicts over 6200 frames in the twin-aisle category. Airbus predicts 5600 frames. If as you say, Boeing only captures 2000 of those, they will have done poorly. Which leads to another Leahy gem: "I'm willing to give up, regretfully, the first 400 to them, and I'll catch up on the next 5,200"

JayinKitsap
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RE: 787 Break Even Point?

The breakeven point occurs when sufficient planes are DELIVERED. The number of orders currently is about the anticipated BE point, but so far only the initial deposits have been paid.

It does put Boeing in the catbird seat from a pricing perspective as R &D can be spread over more planes, reducing the average unit costs.

jacobin777
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RE: 787 Break Even Point?

 Quoting JayinKitsap (Reply 8):It does put Boeing in the catbird seat from a pricing perspective as R &D can be spread over more planes, reducing the average unit costs.

It also allows for funding of other products, such as a potential B787-F as well as B787-9ER, B787-10, etc...
"Up the Irons!"

osiris30
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RE: 787 Break Even Point?

Quick note guys:

I see many of you pointing out the money is paid on delivery (and correctly so). You will note the "if" in my initial post on the subject that is basically saying the same thing. However, not ALL moneys are paid on delivery. It is likely Boeing already has well over \$.5B in the bank on the 787 in terms of deposits, etc. for those orders and options currently held. All in all that ain't too shabby for an aircraft which hasn't even been assembled yet
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baron95
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RE: 787 Break Even Point?

It does also allow/justifies Boeing spending more on the baseline 787 (787-8) and derivatives to make it even better. Example is the additional US\$1B in R&D that Boeing announced for the 787 to bring weight down and inprove mannufacturing times. If they had 50 on order they may not have spent the \$\$\$ and would accept the 2-3% over target weight. With 500 on order they can easily justify make the plane even better and shutting the door even further on the competition (A330/350).
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baron95
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RE: 787 Break Even Point?

 Quoting KFLLCFII (Reply 3):Pardon my ignorance, but to date, has a launch aircraft ever passed its breakeven point before a single aircraft had even been delivered?

For this to happen, the deposits on the orders would have to be sufficient to cover all the anticipated development, production tooling, certification, long-lead mannufacturing sub-sontracting of items, etc. If you assume something like US\$10M deposit on firm order per 787, Boing has about US\$4B on hand from deposits. If it is true that risk sharing partners are picking up 50% of the US\$8B development tab, maybe Boeing is even on the program to date (or even a bit ahead).

I somehow doubt it though.

Btw - does anyone know if deposits are held in escrow or if Beoing can make use of the funds? Thanks.
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DfwRevolution
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RE: 787 Break Even Point?

 Quoting EvilForce (Reply 1):I would guesstimate "breakeven" around 200 - 225 airframes.

Break-even will be considerably higher than 200-225 frames.
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jacobin777
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RE: 787 Break Even Point?

 Quoting DfwRevolution (Reply 13):Quoting EvilForce (Reply 1): I would guesstimate "breakeven" around 200 - 225 airframes. Break-even will be considerably higher than 200-225 frames.

400-500 frames..but regardless....Boeing will be reaching that milestone (500) soon enough and upon delivery of that frame #, they will be "breaking even" then start their ROI to the shareholders....
"Up the Irons!"

zvezda
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RE: 787 Break Even Point?

 Quoting EvilForce (Reply 1):I would guesstimate "breakeven" around 200 - 225 airframes.

We don't know the actual sales prices, but any reasonable guess would have to be somewhere in the 300 to 600 range, most likely within or near 400 to 450 range.

Rheinbote
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RE: 787 Break Even Point?

 Quoting Baron95 (Reply 11):additional US\$1B in R&D that Boeing announced for the 787

If I understand correctly, so far only 300m of that 1bn is earmarked for 787 EMD.

leelaw
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RE: 787 Break Even Point?

 Quoting Jacobin777 (Reply 5):The 787 is the fastest selling widebody in aviation history....

Boeing now claims that: "the Dreamliner [is] the most successful commercial airplane launch in history."

See: http://boeing.com/news/releases/2007/q1/070102b_nr.html
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sacamojus
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RE: 787 Break Even Point?

If my memory recalls the formula for net present value breakeven analysis is as follows:

\$0= CF0/(1+i)^1 + CF1/(1+i)^2 + CF2/(1+i)^3 .......

CF= cash flows i= discount rate

The trick is to find the timing of the cash flows, and to see how much positive cash flow you have to take in (discounted at the discount rate) to over come the initial cost of the project. This is a crude model but much better than what I usually see posted.

GEnxPower
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RE: 787 Break Even Point?

What is the definition of "break even point" used here anyways? Are we calling it as the initial amount to cover the cost of research, engineering, development and entry into service?

I'm thinking, even after "breaking-even", the entire sale price of any additional B787 doesn't automatically become profit. There is a whole bunch of production costs, raw material costs, delivery costs and other over heads. Working in this industry, I know that raw material and manufacturing (labor, technical etc) costs are going to drive up too, not to mention inflation. Remeber B787 parts are transported from all around the world, and that costs more each passing year. Profit from each additional sale of B787 could get less and less.

Raise the price of the plane and sales could get affected, especially with new competition and better and more technologically advanced planes come out.

I guess, my point is that, I don't believe in an early forecast of a certain break even point now. It will defintely flucuate even after going past whatever "break even" point we have defined.

glideslope
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RE: 787 Break Even Point?

 Quoting KFLLCFII (Reply 3):Pardon my ignorance, but to date, has a launch aircraft ever passed its breakeven point before a single aircraft had even been delivered? Or for that matter, has a launch aircraft ever passed its breakeven point before a single assembled hull had even taken to the sky?

No need for concern. This is a Boeing project. It will EIS as scheduled, at weight, and sell over 1,000 airframes + during it's cycle.

So, relax.
To know your Enemy, you must become your Enemy.” Sun Tzu

glideslope
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RE: 787 Break Even Point?

 Quoting Sacamojus (Reply 18):The trick is to find the timing of the cash flows, and to see how much positive cash flow you have to take in (discounted at the discount rate) to over come the initial cost of the project. This is a crude model but much better than what I usually see posted.

It's not really that crude. Cash Flow is a HUGE advantage for Boeing at this point in history. The recent 20+20 LH order, IMO, was a good example of Cash Flow use timing.
To know your Enemy, you must become your Enemy.” Sun Tzu

LHStarAlliance
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RE: 787 Break Even Point?

And of the 748I&F?

filler
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jacobin777
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RE: 787 Break Even Point?

 Quoting Leelaw (Reply 17):Boeing now claims that: "the Dreamliner [is] the most successful commercial airplane launch in history." See: http://boeing.com/news/releases/2007....html

Thank you so kindly Leelaw...

Validates my arguments and then some..
"Up the Irons!"

EvilForce
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RE: 787 Break Even Point?

 Quoting GEnxPower (Reply 19):What is the definition of "break even point" used here anyways? Are we calling it as the initial amount to cover the cost of research, engineering, development and entry into service?

That's the \$64K question. Depending on what everyone "interprets" break-even to be.

Keep in mind Boeing doesn't even have all the information for break-even yet. It has highly educated guesses, but until the production line is ramped up and the "bugs" worked out, they don't know how the line will run. Less/more profit based on early assumptions will impact break-even.
I bought a Venus Fly Trap today and was going to name it "Republican" but the fly trap is beneficial to the environment.

BoomBoom
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RE: 787 Break Even Point?

 Quoting GEnxPower (Reply 19):I know that raw material and manufacturing (labor, technical etc) costs are going to drive up too, not to mention inflation. Remeber B787 parts are transported from all around the world, and that costs more each passing year. Profit from each additional sale of B787 could get less and less. Raise the price of the plane and sales could get affected, especially with new competition and better and more technologically advanced planes come out.

Of course the competition will also subject to the same inflationary pressures, not to mention exchange rate risk, and a less flexible labor market.

Also, there will be a continuous drive to cut costs and improve productivity in the 787. The only competition on the horizon is the A350XWB, which at this time does not appear to be more technologically advanced, and will cost more than the competing 787 models.
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keesje
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RE: 787 Break Even Point?

I think the total investments will wil higher the \$8 Bill, keeping in mind all teh advanced technology and recent addition investments. I think \$10 could be closer.

On the other hand non repayable subsidies in the form of production subsides, R&D funding and tax cust (Washington State \$3.2 billion, Kansas \$0.5 billion, Oklahoma \$0.35 billion, Japan \$1.6 billion, Italy \$0.59 billion) lowers the Boeing own investment to probably \$4Bill.

So if they manage to make a margin of \$10-15 Mill per aircraft, taking into account launch customer discounts (ANA, JAL, QF) about 400-500?

Suppliers have been asked to bring in R&D capital themselves so a break even may be different for the different participants.

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Reggaebird
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RE: 787 Break Even Point?

 Quoting LHStarAlliance (Reply 22):And of the 748I&F? filler

I have no idea what the breakeven point would be for the 748I & F but it will be significantly lower and more attainable than that of the A380 (P&F), wouldn't you agree?

Reggaebird

KFLLCFII
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RE: 787 Break Even Point?

 Quoting Glideslope (Reply 20):No need for concern. This is a Boeing project. It will EIS as scheduled, at weight, and sell over 1,000 airframes + during it's cycle.

No concern here for profitability, I simply sparked the question to find out where this launch project matches up against the rest at this stage in development, in terms of booked orders vs. anticipated breakeven point.

By the way, I appreciate everyone's input thus far, it has truly been enlightening.
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JayinKitsap
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RE: 787 Break Even Point?

 Quoting Keesje (Reply 26):On the other hand non repayable subsidies in the form of production subsides, R&D funding and tax cust (Washington State \$3.2 billion, Kansas \$0.5 billion, Oklahoma \$0.35 billion, Japan \$1.6 billion, Italy \$0.59 billion) lowers the Boeing own investment to probably \$4Bill.

If Boeing had located in Texas or Alabama where all Businesses have very low State & Local taxes would that be a subsidy? When Airbus enjoys low wages in China, is that a subsidy? Not really.

Washington did change how it did Workmen's comp, unemployment, and sales taxes to just one industry, instead of all Businesses. This industry now has State taxes like that in AL that D-C enjoys in auto production.

BoomBoom
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RE: 787 Break Even Point?

 Quoting Keesje (Reply 26):I think the total investments will wil higher the \$8 Bill, keeping in mind all teh advanced technology and recent addition investments. I think \$10 could be closer. On the other hand non repayable subsidies in the form of production subsides, R&D funding and tax cust (Washington State \$3.2 billion, Kansas \$0.5 billion, Oklahoma \$0.35 billion, Japan \$1.6 billion, Italy \$0.59 billion) lowers the Boeing own investment to probably \$4Bill.

So is it \$10 billion or \$4 billion? You seem confused by your own propaganda.

The Washington tax breaks are available to any aerospace company that sets up shop there. Furthermore, people who live in glass houses shouldn't throw stones:

 Quote:•The city of Hamburg did site preparation work for Airbus at a cost of approximately Euro 751,000,000. Hamburg also subsidized Airbus by sharing the costs to construct the A380 assembly facilities. Germany also provided DM 50 million in infrastructure subsidies to Airbus in Bremen. •In June 2002, the parliament of the German land of Lower Saxony approved a Euro 6,000,000 grant to Airbus to help underwrite a Euro 49,000,000 expansion of Airbus’s production facility in Nordenham. •In 1998, the German government allowed Deutsche Airbus to pay DM 1,735,000,000 to “settle” its DM 9,400,000,000 debt. The government forgave the remaining DM 7,700,000,000. •On September 24, 2000, the Welsh Assembly announced that it had agreed to provide a £19,500,000 grant package to BAE Systems in support of its A380 wing production work in Broughton. •French authorities expended Euro 200,000,000 to transform agricultural land next to Airbus’s Toulouse headquarters and the Blagnac airport into the “AéroConstellation” site – an aeronautics industrial park that French authorities described as a “tailor-made solution for the A380.” •In April 2001, the Spanish Ministry of Economics issued an order approving regional grants of Euro 2,200,000 to EADS-CASA at Sevilla and Euro 814,000 to EADS-CASA at La Rinconada, Sevilla. •In March 2003, the Spanish Ministry of Economics approved a Euro 37,900,000 grant to Airbus España. •In July 2003, the Spanish Ministry of Economics issued an order approving another regional grant, this time in the amount of Euro 43,100,000, to EADS-CASA at La Rinconada, in Sevilla. •In July 2003, the Spanish Ministry of Economics issued an order approving a Euro 5,900,000 grant to EADS-CASA at Puerto de Santa Maria, in Cadiz. •In July 2001, the government of the Spanish region of Andalusia provided a Euro 8,600,000 grant to CASA for a new production and maintenance facility in El Puerto de Santa Maria, in Cadiz. •In July 2002, the government of Andalusia authorized a grant of Euro 35,700,000 for an investment by EADS-CASA in Sevilla. The grant was 75 percent financed by the European Regional Development Fund and 25 percent financed by the Andalusian government. •In March 2004, the government of Castilla-La Mancha approved a Euro 7,600,000 grant to Airbus España for the expansion and modernization of Airbus’ parts and components production site in Illescas, in Toledo. •In October 2004, the government of Andalusia authorized a grant of Euro 61,900,000 for an investment project by EADS-CASA in the municipalities of Sevilla and La Rinconada, Sevilla.

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EvilForce
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RE: 787 Break Even Point?

Both Boeing and Airbus hold their respective locales, municipalities, and countries feet to the fire to offer them the best subsidies, tax rebates, and the like. Boeing gets tax breaks, Airbus gets launch aid. I'm sure Bombardier and Embraer are guility too. It makes smart business to ask for these financial incentives. No one held a gun to these govt agenices "head" to give it.
I bought a Venus Fly Trap today and was going to name it "Republican" but the fly trap is beneficial to the environment.

LHStarAlliance
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RE: 787 Break Even Point?

 Quoting Reggaebird (Reply 27):I have no idea what the breakeven point would be for the 748I & F but it will be significantly lower and more attainable than that of the A380 (P&F), wouldn't you agree?

Yes sure as the 748 is an evolution of an other existing A/C
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astuteman
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RE: 787 Break Even Point?

 Quoting Baron95 (Reply 12):If you assume something like US\$10M deposit on firm order per 787, Boing has about US\$4B on hand from deposits. If it is true that risk sharing partners are picking up 50% of the US\$8B development tab, maybe Boeing is even on the program to date (or even a bit ahead).

It's without doubt a great achievement. On the cashflow side, however, I'd suggest that a consequence of the large order backlog, and consequent rapid production ramp-up is the need to ramp up the supply chain, which usually involves cash.
So, kudos to B and the 787, but I suspect the bulk of the deposit money will at this time be being put to good use "buying stuff"..

Regards

zvezda
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RE: 787 Break Even Point?

 Quoting Astuteman (Reply 33):I suspect the bulk of the deposit money will at this time be being put to good use "buying stuff".

... and then some. I'm sure the deposit money won't cover all the "buying stuff."

Stitch
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RE: 787 Break Even Point?

 Quoting EvilForce (Reply 31):Both Boeing and Airbus hold their respective locales, municipalities, and countries feet to the fire to offer them the best subsidies, tax rebates, and the like. Boeing gets tax breaks, Airbus gets launch aid. I'm sure Bombardier and Embraer are guilty too. It makes smart business to ask for these financial incentives. No one held a gun to these govt agency's "head" to give it.

Yup. It's really counterproductive to trot one or the other out to bolster one's argument since the other side can just respond in kind. The fact is the entire aerospace industry, to say nothing of the companies, benefits from these types of direct and indirect "subsidies" and the aerospace industry is not the only industry around the world that enjoys this type of "support".

leelaw
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RE: 787 Break Even Point?

 Quoting Stitch (Reply 35):Yup. It's really counterproductive to trot one or the other out to bolster one's argument since the other side can just respond in kind. The fact is the entire aerospace industry, to say nothing of the companies, benefits from these types of direct and indirect "subsidies" and the aerospace industry is not the only industry around the world that enjoys this type of "support".

As I've said before, both of the OEMs sit in front of the governmental trough as much as possible in numerous ways, and neither comes to the "subsidies" debate with "clean hands." IMO, any attempt to sort out or adjudicate which OEM has cleaner hands with regard to governmental aid/subsidies is truly a fool's errand; the ultimate case of chasing one's own tail. In short, a real circle jerk.
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ikramerica
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RE: 787 Break Even Point?

 Quoting Keesje (Reply 26):and tax cust (Washington State \$3.2 billion, Kansas \$0.5 billion, Oklahoma \$0.35 billion, Japan \$1.6 billion, Italy \$0.59 billion) lowers the Boeing own investment to probably \$4Bill.

You don't understand tax cuts, maybe because the EU doesn't believe in them?

Seriously, Boeing does not get this money up front. They get a discount on taxes they would otherwise pay over the life of the project assuming the project doesn't fold. Thus you can't take the money out of Boeing's investment capital. They still have to raise all of it.

What Boeing does get is the right to keep more of each dollar they earn on sales. But without selling the product, they don't get any break. But the tax breaks help provide a higher ROI...
Of all the things to worry about... the Wookie has no pants.

N328KF
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RE: 787 Break Even Point?

 Quoting Stitch (Reply 35):It's really counterproductive to trot one or the other out to bolster one's argument since the other side can just respond in kind.

 Quoting Leelaw (Reply 36):In short, a real circle jerk.

I think the only manufacturers that you can grant this to are the pure-civil players--this includes airframers that only sell a small portion of their products to governments.

Why is it you two always wind up involved in the same discussions? I dub thee Leelaw and Stitch:

When they call the roll in the Senate, the Senators do not know whether to answer 'Present' or 'Not guilty.' -Theodore Roosevelt

astuteman
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RE: 787 Break Even Point?

 Quoting Zvezda (Reply 34):and then some. I'm sure the deposit money won't cover all the "buying stuff."

That said, just before the ramp-up to full production is probably where cashflow is at its most critical (you've paid for the development, and are now buying at full tilt, whilst deliveries are still relatively small in number).

I'm guessing the 787 probably has the best cash position of any widebody ever, even if it is still negative.

Airbus, in the meantime, managed to freeze the A380 programme at just this point, with cash outgoings ramped up significantly, but deliveries delayed/suspended. The WIP value must be horrendous.

Regards

leelaw
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RE: 787 Break Even Point?

 Quoting N328KF (Reply 38):Why is it you two always wind up involved in the same discussions? I dub thee Leelaw and Stitch:

Personally, I'd look pretty scary "dragged-up" in a two-piece, mumu, or grass skirt.
Lex Ancilla Justitiae

Stitch
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RE: 787 Break Even Point?

 Quoting N328KF (Reply 38):Why is it you two always wind up involved in the same discussions? I dub thee Leelaw and Stitch:

10 points, sir.

Reggaebird
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RE: 787 Break Even Point?

 Quoting LHStarAlliance (Reply 32):Quoting Reggaebird (Reply 27): I have no idea what the breakeven point would be for the 748I & F but it will be significantly lower and more attainable than that of the A380 (P&F), wouldn't you agree? Yes sure as the 748 is an evolution of an other existing A/C

I agree. Boeing was able to make a financially viable and modern solution out of a 38 year-old model but Airbus couldn't do the same with a 14 year-old model (failed A330-based proposed response to the 787). Funny that!

Stitch
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RE: 787 Break Even Point?

 Quoting Reggaebird (Reply 42):Boeing was able to make a financially viable and modern solution out of a 38 year-old model but Airbus couldn't do the same with a 14 year-old model (failed A330-based proposed response to the 787). Funny that!

To be fair, "sixth time" was the charm for the 747 as much as it was for the A350.

B747: 744X, 745, 746, 74X, 74A, 748I
A350: A330X/A3501, A3502, A3503, A3504, A3505, A350XWB

luvflng
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RE: 787 Break Even Point?

 Quoting Sacamojus (Reply 18):If my memory recalls the formula for net present value breakeven analysis is as follows: \$0= CF0/(1+i)^1 + CF1/(1+i)^2 + CF2/(1+i)^3 ....... CF= cash flows i= discount rate

This is just a pure NPV of all cash flows that a company may expect from the project/product. There is no implication of any break even point in terms of how many products need to be sold. In order to see when you get NPV of 0 you have to run a sensitivity analysis.

Here is the formula that gives you true break even point using NPV:

EAC (Equivalent Annual Cost) = (Initial Investment)/( i - Annuity factor of r)

i = assumed life cycle of the project
r = Investment opportunity rate if the company has not chosen to invest in this project/product

[EAC + Fixed Costs*(1-Tc) - Depreciation*Tc]/[(Sales Price - Variable Costs)*(1-Tc)]
Tc = Tax rate
Radar Contact Terminated, Squawk VFR

burnsie28
Posts: 5096
Joined: Mon Aug 02, 2004 1:49 am

RE: 787 Break Even Point?

 Quoting DfwRevolution (Reply 13):Break-even will be considerably higher than 200-225 frames.

Really, then why is the A380's BEP around 250 frames or at once was?

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