I think we are looking at this wrong: For accounting purposes, every plane gets allocated a certain amount of the development cost. That amount per plane goes down as there are more orders, bringing down the cost per plane.New tooling and new processes have a learning curve as well. The first planes will then get lower prices because of launch discounts. So what this is saying is that Boeing shareholders should expect to have a negative contribution margin on the first 200. And by the delivery of nr 1000, we have the same margin per plane we have today.
Nr 1,000 will not have a $0 development cost allocation. It will just be lower than nr 1-200. But you have to count training of engineers, changing of production facilities and the speed at which the new planes can be made initially as well. It does not start @ $10 million per. It may start @ $60 million for the first 5 development planes. Then go to $30 million for the next 5, then $25 million for the next 40, $22 million for the next 50...
"We expect initial MAX production to come through at lower margins than Boeing is currently booking on NG
, diluting BCA (Commercial Airplanes) margins. The inclusion of lower margin initial MAX production in the 737 block will also negatively impact EPS
relative to expectations as Boeing will need to book a lower average (program) margin on its current 737 deliveries. We expect MAX costs to improve at a fairly rapid pace with our assumed breakeven program quantity at 200 implying that unit margins approach 737 NG
type levels near the end of our assumed 1,000 unit accounting quantity (two years of production)"
|Quoting Cerecl (Reply 16):|
To be honest I do not understand the point of this analysis
So you can run a model to see how much profit to expect in the future for Boeing, giving you an earnings forecast. That's what analysis are supposed to do. So you know if Boeing shares are cheap or expensive given the amount of earnings to expect.