abba
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Will The 787 Break Even? And When?

Thu Jun 07, 2012 6:25 pm

It has now been discussed - for God knows how many times - when and if the A380 program will break even.

But what about the 787?

The implementation of that program was screwed up much more dramatically than the A380 program! And it is also rumored that the early frames were sold at previously unseen deep discounts. The early frames - it is also said - did not live up to what Boeing has promised and, therefore, Boeing has to pay airlines huge compensations.

Rumors also have it that even if Boeing from now on manage to produce and deliver - to spec. - the entire backlog of orders on the program they will not - especially if cost of capital is included - have earned as much as a cent!

What is myth and what is fact in all of this?
 
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Stitch
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RE: Will The 787 Break Even? And When?

Thu Jun 07, 2012 6:28 pm

I am 100% positive the 787 will break even and generate a healthy profit for Boeing. I expect a minimum of 2000 deliveries over the life of the program, which is double the current accounting block.
 
sweair
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RE: Will The 787 Break Even? And When?

Thu Jun 07, 2012 6:31 pm

Much of the sunk RnD could be used in other projects, like cfrp barrels, bleed-less system etc How much of the A380 is useful for other smaller aircraft?

I guess the wings of the 777X taking a few hints from the 787 project.
 
ikramerica
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RE: Will The 787 Break Even? And When?

Thu Jun 07, 2012 7:04 pm

Likely after 1000 frames delivered, and they will get there by end of the decade.

Not nearly as profitable as was projected, but surely not a failure.

The other thread was supposed to be about if the A380 is a cash cow for airlines, not Airbus, something NOT discussed ad nauseum because we hadn't had enough in service or enough time to consider it.
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par13del
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RE: Will The 787 Break Even? And When?

Thu Jun 07, 2012 7:28 pm

Well to follow the logic that has been applied to other frames, you need to define your break even figures.
Which cost are you including, everything from day one, items that Boeing have or have not written off, current cost to produce a frame versus sales price, include a portion of RD, write-off and compensation in each frame until that number reaches zero, etc etc.

Unfortunately, a consensus of how A.Net should calculate break even was never settled in the A380 threads, so I expect many more of these threads before the 787 slips into the great beyond.
 
sweair
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RE: Will The 787 Break Even? And When?

Thu Jun 07, 2012 7:39 pm

767 sold a thousand, 757 sold a thousand, 787 will probably sell more than these combined.
 
abba
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RE: Will The 787 Break Even? And When?

Thu Jun 07, 2012 7:40 pm

Quoting sweair (Reply 2):
How much of the A380 is useful for other smaller aircraft?



Very much of the A380 is on the A350. The high pressure hydraulic system just to mention one thing. But many many more could also be mentioned.
 
Eagleboy
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RE: Will The 787 Break Even? And When?

Thu Jun 07, 2012 7:44 pm

Quoting sweair (Reply 5):
767 sold a thousand, 757 sold a thousand, 787 will probably sell more than these combined.
Quoting sweair (Reply 2):
Much of the sunk RnD could be used in other projects, like cfrp barrels, bleed-less system etc .......

I think these 2 points support the idea that, Yes the B787 will turn a profit for Boeing.
 
sweair
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RE: Will The 787 Break Even? And When?

Thu Jun 07, 2012 7:53 pm

I think of the 2 787 has a better chanse to

Quoting EagleBoy (Reply 7):
I think these 2 points support the idea that, Yes the B787 will turn a profit for Boeing.

Well it has a lot of aircraft to replace, the 752, 767 and some A330..That is quite a big segment. I would rather see a true 757 replacement..
 
airfrnt
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RE: Will The 787 Break Even? And When?

Thu Jun 07, 2012 7:57 pm

Unlike the A380, there is actually a decent market for the 787. It's not the insane world-beating 707 or 747 success that it could have been, but it will still be north of the 757 and 767 in commercial success terms.
 
abba
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RE: Will The 787 Break Even? And When?

Thu Jun 07, 2012 8:40 pm

Quoting airfrnt (Reply 9):
Unlike the A380, there is actually a decent market for the 787. It's not the insane world-beating 707 or 747 success that it could have been, but it will still be north of the 757 and 767 in commercial success terms.



Well if it is true that the 787 needs more than a 1000 copies delivered on time and to spec. it is possibly safe to say that we will need to wait untill well in to the next decade before the money spend on this program together with cost of capital is recouped.
 
roseflyer
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RE: Will The 787 Break Even? And When?

Thu Jun 07, 2012 9:24 pm

Because of program accounting and many of the concerns and critiques of the process, investors commonly look at the cash flow of aerospace companies rather than specific profit margin. Margin is set on program accounting blocks which are simply forecast amounts to cover the development cost. They are hard to get meaning out of.

The investors in aerospace typically look at cash flow and long term profits posted. Boeing accounting consistently earns a predictable profit every year. Cash flow is also relatively consistent although it did get tight in 2009 when production rates were cut.

If you want some real expert opinions, here are some:
http://seekingalpha.com/article/2775...s-boeing-s-787-dreamliner-not-very
http://www.bloomberg.com/news/2011-1...ility-to-output-of-1-100-jets.html

Aerospace is one of the harder industries for accounting. From an economics standpoint in my opinion the only one harder is the electronics market where development costs are even higher and prices vary far more. With electronics price goes down with time and production costs are low and relatively fixed. With airplanes production costs go down with time. Prices are an upside down U with them peaking somewhere near the middle of the program.

Here's a chart explaining the rationale behind program accounting (source first article)

http://static.seekingalpha.com/uploads/2011/6/29/933684-130938087271252-Brian-Nelson_origin.png

Personally I would not get too focused on the compensation arguments. They are factors, but way overblown in my opinion when talking at a program level. Air India was asking for 30% discounts which were extreme, but I doubt those actually were given. It's easy to get caught up in the hype of underperforming and disastrous delays, but in reality, Boeing is a profitable company. Program accounting helps figure out what the margin actually is, but as a whole Boeing is not losing money. Strong cashflow remained with the 737 and 777 programs and despite contracting the defense industry has a higher profit margin than commercial airplanes.

[Edited 2012-06-07 14:32:57]

[Edited 2012-06-07 14:33:44]
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Revelation
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RE: Will The 787 Break Even? And When?

Thu Jun 07, 2012 9:36 pm

Quoting abba (Thread starter):
Rumors also have it that even if Boeing from now on manage to produce and deliver - to spec. - the entire backlog of orders on the program they will not - especially if cost of capital is included - have earned as much as a cent!

What is myth and what is fact in all of this?

IMHO pretty close to what you state.

One good article is:

http://seattletimes.nwsource.com/htm...echnology/2016612066_boeing27.html

which contains:

Quote:

From the 787's program's inception, "it's probably not a positive investment return," said Barclay's Copeland. "That said, of the substantial costs that the program faced, the majority are sunk and behind the company. Looking forward from here, I think the prospect of it being a positive return on investment is very good."

So, like the other plane under discussion, 787 was a luxury that Boeing was able to pay for out of existing cash flows, but on a program basis, is not at all likely to make any money.

The article contains some very rough and loose calculations that say that for the -8 model alone, it'd need to sell 1800 frames for break even and even more if you add in the -9 and -10.

Pretty sobering numbers.

That being said, IMHO the root causes are different. Boeing seemed to get the market demand prediction right, but botched some design and many more manufacturing aspects of the program. Airbus seemed to be overly optimistic about market demand, but got design and manufacturing mostly right, except for that major screw up with different versions of CATIA. Again, this is all IMHO...
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Daysleeper
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RE: Will The 787 Break Even? And When?

Thu Jun 07, 2012 11:37 pm

Quoting ikramerica (Reply 3):
Likely after 1000 frames delivered, and they will get there by end of the decade.

Where have you got this figure from? Almost all of the estimates I've seen put the break even for the 788 somewhere north of 1600 frames.
 
ltbewr
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RE: Will The 787 Break Even? And When?

Fri Jun 08, 2012 12:10 am

Don't forget that much has been learned and expended in money as to new materials and manufacturing costs on the 787 which may cut the costs of developments of other future model aircraft both civilian and commercial. So the 'break even' of the 787 may require more frames sold than initially expected, but it may lead to lower break even frames numbers as to replacements for the 737 as well as eventually the 747.

Two other factors that may affect the 'break-even' are the changes in the making of the 787 as to farming out major airframe components to sub-contractors with them sharing the risks as well as placing a factory in South Carolina, lowering labor costs.
 
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RE: Will The 787 Break Even? And When?

Fri Jun 08, 2012 12:33 am

Quoting abba (Thread starter):
It has now been discussed - for God knows how many times - when and if the A380 program will break even.

But what about the 787?

Right now the numbers are totally on the 788s side--huge backlog, enormous opportunity in terms of network application, and plenty of existing aircraft it can replace. The 380 has none of those things, in spite of both model's disastrous program start.
E pur si muove -Galileo
 
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kanban
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RE: Will The 787 Break Even? And When?

Fri Jun 08, 2012 1:07 am

the other thing to remember is that the plane will mature with models beyond the -9 and -10... so there may never be a point where a true break even occurs...
 
ikramerica
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RE: Will The 787 Break Even? And When?

Fri Jun 08, 2012 1:10 am

Quoting Daysleeper (Reply 13):
Where have you got this figure from? Almost all of the estimates I've seen put the break even for the 788 somewhere north of 1600 frames.

When did that happen? Where are those numbers coming from?
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astuteman
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RE: Will The 787 Break Even? And When?

Fri Jun 08, 2012 4:39 am

Quoting Revelation (Reply 12):
Boeing seemed to get the market demand prediction right, but botched some design and many more manufacturing aspects of the program. Airbus seemed to be overly optimistic about market demand, but got design and manufacturing mostly right

That surprises me.

I would have thought that the one thing it is abundantly clear Airbus did is completely screw the design-to-manufacture aspect of the programme.
The 3 years of delay and slow production ramp up, and many billions of attendant cost overruns, haven't been voluntary.....   

Quoting kanban (Reply 16):
the other thing to remember is that the plane will mature with models beyond the -9 and -10... so there may never be a point where a true break even occurs...

Which could also be said of the big bird across the pond...  
Quoting sweair (Reply 2):
How much of the A380 is useful for other smaller aircraft?

Are you going to be (yet) another one on here who's going to focus on 10% of the plane, and call it the whole picture?
That would be sad

Rgds
 
flightsimer
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RE: Will The 787 Break Even? And When?

Fri Jun 08, 2012 5:39 am

Sometime at the beginning of the year, didn't Boeing report an official unofficial rough number of 1200 for the entire program? Or was that just someone else's estimate?
Commercial Pilot- SEL, MEL, Instrument
 
abba
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RE: Will The 787 Break Even? And When?

Fri Jun 08, 2012 6:00 am

Quoting ltbewr (Reply 14):
Don't forget that much has been learned and expended in money as to new materials and manufacturing costs on the 787 which may cut the costs of developments of other future model aircraft both civilian and commercial. So the 'break even' of the 787 may require more frames sold than initially expected, but it may lead to lower break even frames numbers as to replacements for the 737 as well as eventually the 747.



I am afraid not. New developments will need to improve on the 787 to about the same extent that the 787 improved over the 777. The fact that Boeing did the 787 might be what actually saved them as a major player in civil aviation. This might be - money aside - the most important aspect of the 787.


From the article linked to above, I noticed the following:

Quote:
The positive cash flow will gradually pay back the earlier production costs to finally break even on manufacturing the planes roughly 10 years from now, Boeing said.

This calculation does not take into account the 787 research-and-development costs nor the costs of acquiring the 787 plants in South Carolina from struggling partners.
 
Daysleeper
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RE: Will The 787 Break Even? And When?

Fri Jun 08, 2012 10:30 am

Quoting ikramerica (Reply 17):
When did that happen? Where are those numbers coming from?

From articles in the Seattle PI and various threads here which have discussed the costs of the program.

So, where did you get the 1000 figure from? And are you referring to a production break even point or an actual program break even?

[Edited 2012-06-08 03:37:43]
 
sweair
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RE: Will The 787 Break Even? And When?

Fri Jun 08, 2012 11:11 am

The 787 will be very profitable over time, despite some mishaps at start it will live on and become a success, I am sure. And it wont take 1600 frames 1100 maybe. I think the 787 is the best project since 777 for Boeing.
 
Burkhard
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RE: Will The 787 Break Even? And When?

Fri Jun 08, 2012 11:25 am

This strongly depends if Boeing can get th eproduction costs per frame really down to where they sold the aircraft - this is work still to be done. I read a remark that they hopw to have the costs per plane below 150 Mio $ end of 2014 - which means they only loose about 40-50 Mio per frame they deliver.
Do they get the costs down below 120Mio. I expect this to be the case, question is how fast.
Can they sell the aircraft at realistic 140-150Mio net? 787 sales were slow the last few years, but eventuelly we will overcome the crises created by greedy bankers and will come back to sane economy, and then sales willbe there again.

So I expect that over the total time of the project, that I see until 2050, yes they will get their money back, and yes 3000-4000 planes will be built, but the break even will be far later then 2020 I expect. The interests for the money spent by now alone eats the cash for 10 frames - is this counted for?
 
abba
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RE: Will The 787 Break Even? And When?

Fri Jun 08, 2012 11:48 am

Quoting Burkhard (Reply 23):
787 sales were slow the last few years,



This is most likely due to uncertainty as to when one would be able to get one. When production is up and running and credible predictions as to delivery dates can be given in a not too distant future, sales will pick up again. This is the same problem the A380 has at the moment.

However, I do not believe that the 787 will be able to keep until 2050...
 
panais
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RE: Will The 787 Break Even? And When?

Fri Jun 08, 2012 11:59 am

I think that the 787-8 will never break even, while the 787-9 and the 787-10 will because more of them will be built.

The 787-8 has been discounted more than expected based on the false information of the supply chain working as designed on paper, while the 787-9 will probably sell closer to the upper side of list price and be more desirable because of performance.
 
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par13del
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RE: Will The 787 Break Even? And When?

Fri Jun 08, 2012 1:28 pm

Quoting panais (Reply 25):
I think that the 787-8 will never break even, while the 787-9 and the 787-10 will because more of them will be built.

So a question, if the 787-9 and if made the 787-10 uses plants, lines, workers hired for the 787-8 and other companies that Boeing bought out to get the 787-8 designed and into production, does any of that cost get added to the sale price and program cost of 787-9 / 10 frame?
Dual use facilities, do they split the numbers to assign a portion between the frames or does it all go to the 787-8, and when we talk about the program breaking even, are we talking about all models or just the initial?
 
solarflyer22
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RE: Will The 787 Break Even? And When?

Fri Jun 08, 2012 1:36 pm

Quoting Daysleeper (Reply 13):
Where have you got this figure from? Almost all of the estimates I've seen put the break even for the 788 somewhere north of 1600 frames.

There is no way its 1600 planes even with the 2.5 years of delays and weight issues. I'd be shocked if its more than 1000. Remember, alot of the expense was put on the sub-contractors too so its spread across many companies. They're also almost done with a second production line in South Carolina. I think their production cost will come down faster than EADS as Boeing actually is well known for managing actual production (if not design) very well. Unfortunately for them, they rely on CFRP which is tied to Oil prices which have been rising.
 
oldeuropean
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RE: Will The 787 Break Even? And When?

Fri Jun 08, 2012 1:38 pm

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

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

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

And what's about other airlines?

[Edited 2012-06-08 06:39:40]
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ikramerica
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RE: Will The 787 Break Even? And When?

Fri Jun 08, 2012 1:42 pm

Quoting Daysleeper (Reply 21):

No links just memories?
Of all the things to worry about... the Wookie has no pants.
 
sweair
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RE: Will The 787 Break Even? And When?

Fri Jun 08, 2012 1:49 pm

Quoting par13del (Reply 26):
So a question, if the 787-9 and if made the 787-10 uses plants, lines, workers hired for the 787-8 and other companies that Boeing bought out to get the 787-8 designed and into production, does any of that cost get added to the sale price and program cost of 787-9 / 10 frame?

All models share the 787 project, income and loss of the total. I don't think you value each model separately, you value the total project combined. There were probably loss making models of the 767 and 757, 737,777, A340, A300 etc etc

But all those projects were successful in the end. The tricky part is if a project is just one single model, if it is a dud the whole project is a dud. It would be wise to cover the risk with more models.
 
abba
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RE: Will The 787 Break Even? And When?

Fri Jun 08, 2012 1:52 pm

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



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

Quoting Revelation (Reply 12):


http://seattletimes.nwsource.com/htm....html
 
ikramerica
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RE: Will The 787 Break Even? And When?

Fri Jun 08, 2012 2:05 pm

Quoting abba (Reply 31):

That's not the same thing though.

That article says about 1100 before profit which sounds plausible.
Of all the things to worry about... the Wookie has no pants.
 
Airboe
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RE: Will The 787 Break Even? And When?

Fri Jun 08, 2012 2:13 pm

Quoting ikramerica (Reply 3):
Likely after 1000 frames delivered, and they will get there by end of the decade.

Not nearly as profitable as was projected, but surely not a failure.

I agree, - it will have break even - at some point. I don't know if it will be at 800 or 3.650 unit's as I have seen also.

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

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


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


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

But if they do it rights this time it will break even.
keep it free of the propellers
 
sweair
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RE: Will The 787 Break Even? And When?

Fri Jun 08, 2012 2:17 pm

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

If you concentrate on cost maybe, but I can at least think of a few things that this project has developed for the future of aviation, what is the value of all the new tech derived from this project? The electric architecture, the bleed-ess engines, cfrp barrels etc

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

Fri Jun 08, 2012 2:21 pm

Quoting panais (Reply 25):
I think that the 787-8 will never break even, while the 787-9 and the 787-10 will because more of them will be built.

It doesn't really matter if an individual model within the family breaks even, as long as the family as a whole breaks even.

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



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

[Edited 2012-06-08 07:22:45]
 
Daysleeper
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RE: Will The 787 Break Even? And When?

Fri Jun 08, 2012 2:26 pm

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

I've asked you more than once now where you go the 1000 figure from and both times you have evaded answering by posting a question.

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

So, for the third time; What are you basing your estimate on? And is this a production break even, or a project break even?
 
sweair
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RE: Will The 787 Break Even? And When?

Fri Jun 08, 2012 2:41 pm

And one thing we forget, parts and services. Its the same with cars, the profit of the vehicle is small but the parts and services pays for that in the long run.

Air framers make a lot even on old planes, all those spares and consulting...
 
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Stitch
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RE: Will The 787 Break Even? And When?

Fri Jun 08, 2012 2:45 pm

Boeing's Accounting Block for the 787 is 1100 frames, so that's when they expect to have amortized all the production costs (R&D have already been accounted for in previous income statements).
 
airbazar
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RE: Will The 787 Break Even? And When?

Fri Jun 08, 2012 2:46 pm

Quoting MaverickM11 (Reply 15):
Right now the numbers are totally on the 788s side--huge backlog, enormous opportunity in terms of network application, and plenty of existing aircraft it can replace. The 380 has none of those things, in spite of both model's disastrous program start.

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

Fri Jun 08, 2012 3:00 pm

Will the first 789 get assembled this year? How much of certification will it need? Its mostly a stretched 788?
 
mham001
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RE: Will The 787 Break Even? And When?

Fri Jun 08, 2012 3:39 pm

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

Any guess you have is no better than anybody else unless you have real data and a sound basis. I'm quite sure you don't, first and foremost because few bother to consider this....

Quoting sweair (Reply 37):
parts and services.


[Edited 2012-06-08 08:39:46]
 
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moo
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RE: Will The 787 Break Even? And When?

Fri Jun 08, 2012 3:57 pm

As an aside, why is the projected sales for the 787 so high? A lot of people mention expected overall sales of north of 2,000, when no other widebody in existence has yet come close to that:

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

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

Whats different enough about the 787 to expect exceptional final sales performances from the very start of the campaign?
 
cmf
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RE: Will The 787 Break Even? And When?

Fri Jun 08, 2012 4:17 pm

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

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

Quoting Roseflyer (Reply 11):
From an economics standpoint in my opinion the only one harder is the electronics market where development costs are even higher and prices vary far more.

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

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

Quoting Revelation (Reply 12):
So, like the other plane under discussion, 787 was a luxury that Boeing was able to pay for out of existing cash flows, but on a program basis, is not at all likely to make any money.

The 787 was not a luxury. It was a requirement for Boeing to stay in business. Without new products your dead man walking.

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

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

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

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

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

   Why separating R&D and production is so important.

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



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

1,100 is the number of frames Boeing has high confidence in that they will be able to deliver and predict costs and revenues for. Because they did not take a charge when they announced the number we know it will create positive (or at least break even) result on production cost. We do not know if this happens at the 1,100 frame or at some frame earlier than that.
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RE: Will The 787 Break Even? And When?

Fri Jun 08, 2012 4:47 pm

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

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

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

Quoting ltbewr (Reply 14):
Don't forget that much has been learned and expended in money as to new materials and manufacturing costs on the 787 which may cut the costs of developments of other future model aircraft both civilian and commercial. So the 'break even' of the 787 may require more frames sold than initially expected, but it may lead to lower break even frames numbers as to replacements for the 737 as well as eventually the 747.

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

Quoting astuteman (Reply 18):
I would have thought that the one thing it is abundantly clear Airbus did is completely screw the design-to-manufacture aspect of the programme.
The 3 years of delay and slow production ramp up, and many billions of attendant cost overruns, haven't been voluntary.....

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

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

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

Quoting panais (Reply 25):
I think that the 787-8 will never break even, while the 787-9 and the 787-10 will because more of them will be built.

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

Quoting solarflyer22 (Reply 27):
There is no way its 1600 planes even with the 2.5 years of delays and weight issues. I'd be shocked if its more than 1000.
Quoting ikramerica (Reply 32):
That article says about 1100 before profit which sounds plausible.
Quoting Stitch (Reply 38):
Boeing's Accounting Block for the 787 is 1100 frames, so that's when they expect to have amortized all the production costs (R&D have already been accounted for in previous income statements).

The meat of the ST article is here:

Quote:

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

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

The positive cash flow will gradually pay back the earlier production costs to finally break even on manufacturing the planes roughly 10 years from now, Boeing said.

This calculation does not take into account the 787 research-and-development costs nor the costs of acquiring the 787 plants in South Carolina from struggling partners.

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

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

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

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

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

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

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

The reality for both A's VLA and B's new widebody twin is that the big spending is done and paid for, and now it's all about making the product quickly, cheaply and correctly, which is never easy, but both vendors are expected to be able to pull it off.
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RE: Will The 787 Break Even? And When?

Fri Jun 08, 2012 5:09 pm

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

Yes, but how do you account for it, Boeing has a contract with the contractor and vice versa, those are the numbers Boeing has to account for, excess cost that contractors may incur because of Boeing is covered by the contract, those by the vendor are not Boeings responsibility and may not have to be reported to Boeing, so who and how are those accounted for and shared across the sale of final product?
 
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RE: Will The 787 Break Even? And When?

Fri Jun 08, 2012 6:03 pm

The contractors will get more revenue by Airbus contracting them to do the work the 787 started. This way the 787 even benefits the A350 in some way. The contractors got skilled by doing the 787 parts, now they can use that skill to supply for A350.

How many frames will pay for the A350? When we are at it..
 
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RE: Will The 787 Break Even? And When?

Fri Jun 08, 2012 6:09 pm

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

Yes, you are right.

The point I was trying to make is that the cost overruns were paid off out of cash flow, as opposed to other situations where a given company just could not survive if they had overruns of such immense magnitude.

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

Do you know that, or are you making a supposition? Wouldn't such costs be capped to some degree? Keep in mind most vendors had to bid to get Boeing's business.
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RE: Will The 787 Break Even? And When?

Fri Jun 08, 2012 7:58 pm

Interest rates are low. Because of that, Boeing is certain at some point to turn to a profit on the 787. If interest rates were higher at the onset of debt accumulation, then we would have a different discussion. But interest rates are low and likely to remain there until more than enough of the debt has been paid off.

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

Quoting Stitch (Reply 1):
I am 100% positive the 787 will break even and generate a healthy profit for Boeing. I expect a minimum of 2000 deliveries over the life of the program, which is double the current accounting block.

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

Quoting ikramerica (Reply 3):
Likely after 1000 frames delivered, and they will get there by end of the decade.

Not nearly as profitable as was projected, but surely not a failure.

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

Quoting moo (Reply 42):

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

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

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


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RE: Will The 787 Break Even? And When?

Fri Jun 08, 2012 8:02 pm

I see one major problem with more and more earthlings flying, energy cost. We are even now struggling to meet demand, how on earth will we meet that growth?