phxa340
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WSJ : Boeing Needs To Sell 1100 787s To Break Even

Fri Aug 31, 2012 3:18 am

http://www.forbes.com/sites/ycharts/...-have-to-deliver-to-turn-a-profit/

Looks like the delays really ate into Boeing's profits. I see no reason that in the long run Boeing passes this number easily. As production stabilizes, I also see its costs for production being reduced. With that being said, I am wondering if the break even factor for new projects at A and B are going to continue to rise.

I was a little surprised that the number was 1,100.
 
col
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RE: WSJ : Boeing Needs To Sell 1100 787s To Break Even

Fri Aug 31, 2012 3:26 am

I do not see the concern. Break even will be later, same as 380, but they will make money. 1100 is not really a surprise, I was thinking 1200 for 787 and 500 for 380 by the time all the dust has settled.

The life of both programs (787 and 380) is still young and so much potential.
 
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RE: WSJ : Boeing Needs To Sell 1100 787s To Break Even

Fri Aug 31, 2012 3:26 am

Considering that they have 859 firm orders after 8 years on offer, and the very successful 767 took nearly 22 years to achieve that many orders, I have little doubt that they will hit 1,100 planes pretty quick (relatively speaking).
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RE: WSJ : Boeing Needs To Sell 1100 787s To Break Even

Fri Aug 31, 2012 3:33 am

The breakeven point depends, amongst a lot of other things, upon what you include on the cost side.

I think the best guess would be "an awfull lot" , and 1100 may be the figure, but I think at best would be an intelligent guess.

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RE: WSJ : Boeing Needs To Sell 1100 787s To Break Even

Fri Aug 31, 2012 3:35 am

Quoting Dreadnought (Reply 2):

They actually have already sold over 1100 787s to date. However, there have been over 200 cancelations to date as well. I am curious to know if they kept any money and how much from those 200+ cancelations and if that money will have any affect on the actual 1100 frames or if that 1100 is already including any said money.
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RE: WSJ : Boeing Needs To Sell 1100 787s To Break Even

Fri Aug 31, 2012 6:17 am

Quoting phxa340 (Thread starter):
I was a little surprised that the number was 1,100.

Management was wrong to sell the 787 program as some kind of slam-dunk profit machine. It was a huge program designed to take Boeing Commercial into a new generation. It's not all about 787 revenues. There are many potential future revenues that arguably will come from 787 R&D costs.

Could it have been done more cheaply? I would argue not. The question was tested; Boeing was not capable of achieving 787 faster.
 
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RE: WSJ : Boeing Needs To Sell 1100 787s To Break Even

Fri Aug 31, 2012 7:00 am

Quoting col (Reply 1):
1100 is not really a surprise, I was thinking 1200 for 787 and 500 for 380 by the time all the dust has settled.

yeah I was expecting well over 1300 for the 787.

Quoting Flighty (Reply 5):
Could it have been done more cheaply? I would argue not. The question was tested; Boeing was not capable of achieving 787 faster.

Well when you have something as revolutionary as the 87, you are gonna have design flaws and delays from creating something pretty much outta scratch. I think (of course I'm not an aviation industry expert but bear with me here) that if Boeing didn't really set such a huge, concrete EIS date until the first test frame had it's parts delivered to the particular preliminary assembly factories, then the "delays" wouldn't have happened.

Of course investors hate it when companies aren't concrete on their plans.......nor do they like it when they keep delaying stuff.....it's a huge bind for the aviation industry that, in a sucky economy, is very difficult to escape.

Good luck Boeing. I think eventually they can do it. If the 777 can sell 1000, then I think the 787 shouldn't have a problem getting to 1100.
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RE: WSJ : Boeing Needs To Sell 1100 787s To Break Even

Fri Aug 31, 2012 10:23 am

Quoting PHX787 (Reply 6):

Investors aren't the main issue when it comes to EIS. If you spend $150m on an airplane, you sure as hell want to know when you're getting it. Contracts exist for a reason, and simply leaving the delivery timeline listed as "when we get around to it" doesn't really fly (literally).

You might be able to argue that the EIS and delivery dates could have been more conservative to account for the labor and technical problems incurred during the 787 design and testing, but that would be stupid. Having "less concrete" dates on the timeline and a more conservative delivery schedule could have cost them potential sales which could have exceeded the delay compensation.


As for break-even, that number should drop as they come closer to full production, which will hopefully happen by 2014-15. Considering the success of literally every single Boeing family since the 707, reaching and exceeding break-even should be cake.
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RE: WSJ : Boeing Needs To Sell 1100 787s To Break Even

Fri Aug 31, 2012 10:29 am

Quoting col (Reply 1):

I do not see the concern

LOL ... seriously ...
If you invested in a program that should have made profits after 100 units produced, but because of delays caused it to extend the expected profit making until 1100 units produced.
Would you not be concerned? Here I am not even taking into account that you still need 300 units more on order before reaching that goal.
 
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RE: WSJ : Boeing Needs To Sell 1100 787s To Break Even

Fri Aug 31, 2012 11:19 am

  
Here we go with the 1,100 myth again.
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RE: WSJ : Boeing Needs To Sell 1100 787s To Break Even

Fri Aug 31, 2012 11:40 am

Quoting phxa340 (Thread starter):

I was a little surprised that the number was 1,100.

You and me both..... As I posted a couple of weeks ago...

in line with Boeings own figures published in the third quarter performance review at the end of 2011 (available here the project has cost them 18 Billion USD. I don't believe this figure includes R+D costs and some of it has already been written off/ accounted for. In fact several aviation journalists have estimated the figure to be as much as 32 billion USD, however for the purpose of this example I'm going to stick with Boeings own figures to avoid any dispute.

Now around the same period Boeing also published the 787's accounting block, this is nothing more than a point in time from which they can calculate figures such as their margin on the program - It has absolutely nothing to do with when the program will break even or make a true profit in terms of program costs, it just an accountancy tool. - For example; It is estimated that the margin on the first 1100 frames is going to be around 5%, this means that if it costs Boeing $100 to manufacture them, then they can expect to sell them for $105 making a $5 profit.

So, to get an idea of when they will break even and recover the $18 Bn they have spent, we can do some very simple math.

let's say they have managed to sell each of the 787's for 150 M$ each, this is obviously much much higher than what they actually have managed, but again in order to avoid dispute and being anti-Boeing i'll go with it, just to prove the point.

So, at the end of 2011 they had 821 orders for the 787. If they expect to make 5% on each of these frames we have $7.5 M$ x 821 - Giving us a grand total of 6,157,500,000 - Just over 6 Bn $. If we then deduct this 6 Bn$ from the 18Bn $ they have spent, it means that after selling the entire backlog they are still 12bn $ short of repaying the program costs.

I have obviously simplified this to make a point, and ignored things such as the Time Value of Money. But the point stands, expecting Boeing to break even at 1100 frames is insanity and even if we assume they will make the maximum margin of 10% on the next 1100 frames it's going to be the middle of the next decade around frame 2200 when they will approach the true program break even.
 
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RE: WSJ : Boeing Needs To Sell 1100 787s To Break Even

Fri Aug 31, 2012 11:45 am

Quoting Dreadnought (Reply 2):
Considering that they have 859 firm orders after 8 years on offer

This success is has two edges.
If you have 800 orders and delivers on time then everything is awesome.
But if you have 800 orders and 3 year ++ delays with compensations and cancellations then it's not so awesome.

And not to forget that the B787 programs put several other programs on hold.

That being said ... the B787 surely will create profits, but not for several years, delaying resources that would otherwise been used for other projects.
 
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RE: WSJ : Boeing Needs To Sell 1100 787s To Break Even

Fri Aug 31, 2012 12:06 pm

Quoting Dreadnought (Reply 2):
Considering that they have 859 firm orders after 8 years on offer

It's actually 824 after Qantas dumped another 35. More worryingly, that total has been going in the wrong direction since 2008.

I don't doubt that they'll get there, assuming 1,100 is the correct number, but it could be a lot more difficult than some think.

Quoting cmf (Reply 9):
Here we go with the 1,100 myth again.

If it is a myth, you could offer some help in busting it.
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RE: WSJ : Boeing Needs To Sell 1100 787s To Break Even

Fri Aug 31, 2012 12:15 pm

Quoting scbriml (Reply 12):
but it could be a lot more difficult than some think.

Going from 824 to 1,100? Doubtful.
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RE: WSJ : Boeing Needs To Sell 1100 787s To Break Even

Fri Aug 31, 2012 1:04 pm

Quoting scbriml (Reply 12):
If it is a myth, you could offer some help in busting it.

Done it several times already but here we go again.

1,100 is the initial accounting block.

The accounting block is the number of planes where they can, with high confidence, calculate production cost and revenue.

From this an average cost is calculated and used at cost of goods at time of sales.

This is done because building planes is very different from the type of production standard accounting rules cover. The main differences are low quantities with much higher direct cost for early frames and very long time. With standard rules a new project will take very long time to show profit.

Essentially you "borrow" some of the profits expected to be gained at later frames and show them now. It is a bit controversial because it breaks two important accounting rules; 1) do not take profits early 2) The "unaccounted cost" is shown as inventory. In my mind it is right because it better follows the most fundamental accounting rule: Represent the companies current status.

As you can see R&D is not represented in any way.

Production costs are represented but there is no connection between break even and how the accounting quantity is reached. There is however a secondary calculation stating that if production costs are not covered by the accounting block then a charge must be taken.

This charge is the only connection between accounting block and break even and it does not tell us at what number of planes the break even would have taken place.

Similarly, if there is no charge we know that production cost is covered inside the accounting block but we have no idea at what frame number it takes place.

Boeing's annual reports are the best sources to read up on the details how this is working. Some of them spend more time than others to explain it. One of them much more than others. For some reason I think it is the 2008 report but I am not at all certain.
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RE: WSJ : Boeing Needs To Sell 1100 787s To Break Even

Fri Aug 31, 2012 1:15 pm

Quoting Daysleeper (Reply 10):
If we then deduct this 6 Bn$ from the 18Bn $ they have spent, it means that after selling the entire backlog they are still 12bn $ short of repaying the program costs.
Quoting cmf (Reply 14):
As you can see R&D is not represented in any way.

Wait, are both of you saying that "real" break-even requires a lot MORE than 1,100 planes?
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RE: WSJ : Boeing Needs To Sell 1100 787s To Break Even

Fri Aug 31, 2012 1:39 pm

Quoting PlaneInsomniac (Reply 15):
Wait, are both of you saying that "real" break-even requires a lot MORE than 1,100 planes?

All I said is that the often used 1,100 number is coming from the accounting block size and it has nothing to do with break even.  

As to your question. I would be very surprised if what you call real break even happens before 1,100 but more importantly it is a number that just doesn't matter. The only time it had some kind of importance was when the project got its original approval and even then it was displayed in other ways.

Since then the only numbers that matter are: NPV, how much money is required to reach positive cash flow and the confidence in those numbers.
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RE: WSJ : Boeing Needs To Sell 1100 787s To Break Even

Fri Aug 31, 2012 2:07 pm

I think the 1100 frames figure is crap. It doesn't take into account parts and other services that the airlines will buy and so forth over the life of the program.
 
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RE: WSJ : Boeing Needs To Sell 1100 787s To Break Even

Fri Aug 31, 2012 2:19 pm

Quoting cmf (Reply 16):
I would be very surprised if what you call real break even happens before 1,100 but more importantly it is a number that just doesn't matter.

  

Just as the "500+" break-even number thrown around for the A380-800 program is a number that just doesn't matter.

The only useful purpose for quoting "break even" numbers seems to be to sling mud at each program, and how useful is that, really?

The vast bulk of these program's costs have been paid for out of cash flow and neither company is mired in debt. The goal now is to get positive cash flow, as cmf noted. The A380 is expected to do that around 2015 and with the projected 787 production rate being in the double-digits by then, chances are it will be CFP at that point, as well.
 
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RE: WSJ : Boeing Needs To Sell 1100 787s To Break Even

Fri Aug 31, 2012 2:51 pm

Thought it would be much higher. Quite good news in all.

Quoting Chiad (Reply 8):
LOL ... seriously ...
If you invested in a program that should have made profits after 100 units produced, but because of delays caused it to extend the expected profit making until 1100 units produced.
Would you not be concerned? Here I am not even taking into account that you still need 300 units more on order before reaching that goal.

The cash flow is what is important to them right now, not the long-term profit of the program. As long as they're pushing frames out of the door, Boeing should be happy.

Boeing knew they weren't going to make a profit "after 100 units produced", partly because no big airliner in recent years has had a break even that low but also because they sold many with huge discounts. It's pretty apparent that the cash flow is what Boeing is after, and that's what they'll get. The "break even point" is fairly academic at the moment; they'll hit it someday, but there's no rush to get there.
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RE: WSJ : Boeing Needs To Sell 1100 787s To Break Even

Fri Aug 31, 2012 2:59 pm

Quoting Stitch (Reply 18):
The only useful purpose for quoting "break even" numbers seems to be to sling mud at each program, and how useful is that, really?

The only useful purpose? Perhaps if you're not a serious investor. Knowing an accurate breakeven point (among other things) allows investors to gauge confidence in the ability of the company's management. The usefulness of this is obvious.

That the programs may be sustained by cash flow (or low costs of financing) is not an excuse to forego detailed analysis, of which breakeven is one (important, IMO) metric. Perhaps you can clarify what you mean, because your post reads as a dismissive hand wave of numbers that matter. The desire to know the commercial viability of the 787 program is legitimate.

Quoting bueb0g (Reply 19):

The cash flow is what is important to them right now, not the long-term profit of the program. As long as they're pushing frames out of the door, Boeing should be happy.

This statement may be correct if you emphasize the word "now" in the first sentence and restrict this to the 787 program. The program has bled billions in cash that it will not recoup soon; thus, the focus on cashflow is appropriate.

As for future programs, profitability projections will play a standard part in determining whether and to what extent those programs exist.

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RE: WSJ : Boeing Needs To Sell 1100 787s To Break Even

Fri Aug 31, 2012 3:08 pm

Quoting ContnlEliteCMH (Reply 20):
The only useful purpose? Perhaps if you're not a serious investor. Knowing an accurate breakeven point (among other things) allows investors to gauge confidence in the ability of the company's management. The usefulness of this is obvious.

When has investors had access to break even numbers for a program?

What will a break even number provide that changes what we know about how the 787 (or any other program for that matter) is doing?

We can discuss if enough information is provided in the annual and quarterly reports. I certainly would love to see more but break even? No that is a number that will be extremely uncertain even if we can agree what numbers should be included in it.
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RE: WSJ : Boeing Needs To Sell 1100 787s To Break Even

Fri Aug 31, 2012 3:13 pm

Quoting bueb0g (Reply 19):
Thought it would be much higher. Quite good news in all.

The trick is, this number - the Accounting Block - will continue to rise as the 787 program secures more orders. That doesn't mean the break-even number rose, because that number isn't Boeing's projection of the number of frames they feel are necessary to break even, but the number of frames they feel they can calculate production cost and revenue across.



Quoting ContnlEliteCMH (Reply 20):
Perhaps if you're not a serious investor. Knowing an accurate breakeven point (among other things) allows investors to gauge confidence in the ability of the company's management. The usefulness of this is obvious.

I'm not a serious investor in Boeing, but I have been continually invested in them for 15 years.

And considering Boeing, to my knowledge, has never released the break even number for any of their jet-age commercial programs, even as an unserious investor, I can't use break-even as a gauge for my confidence in the company's management. I have to use information Boeing does make public (revenues, profits, margin percentage, cash flow, orders, deliveries, etc.).



Quoting ContnlEliteCMH (Reply 20):
Perhaps you can clarify what you mean, because your post reads as a dismissive hand wave of numbers that matter. The desire to know the commercial viability of the 787 program is legitimate.

It is a dismissive hand wave of a number that is not known and will never be known outside of a handful of executives of The Boeing Company.

The commercial viability of the 787 program will be determined by how many units are delivered and how long it is in production.

[Edited 2012-08-31 09:07:11]
 
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RE: WSJ : Boeing Needs To Sell 1100 787s To Break Even

Fri Aug 31, 2012 3:13 pm

The number is not a surprise. Albaugh said the 787 will be a drag on the bottom line, just as Enders has said the same for A380 and A440M.
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RE: WSJ : Boeing Needs To Sell 1100 787s To Break Even

Fri Aug 31, 2012 3:42 pm

The number is significant for me in that I now want to know when Boeing will produce 1,100 frames.
My desire - mentioned in another thread - is for them to get all lines - surge or otherwise - running at their full capacity as soon as possible to get the program back on track.
A delay is a delay, the only way to catch up is to increase production, Boeing has invested a ton is securing additional production facilities as well as taking over partners who were failing, flooding the market now with 787's is the only way to recover the situation.
Pretending that the program is now on track could be regarded as "fools gold", until all the clients who ordered the a/c and can claim compensation have the product in hand, the delay and its effects remain.

Will it cost in increased production cost, yes, absolutely, but that's the price to be paid for the slip ups that were made earlier in the program, get out of jail free cards is for Monopoly.  
 
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RE: WSJ : Boeing Needs To Sell 1100 787s To Break Even

Fri Aug 31, 2012 3:57 pm

1100 is no biggie. So they'll hit break-even by the end of the decade (they will go above 10 frames per month in my opinion). And then there will be 20 years of profitable sales.

That's not accounting for the fact that penalties will be reduced if they can get the third line up and running soon and reduce delivery times. And that's not accounting for any higher margins they get if they launch a 787-10.

It's mostly immaterial of course. Most of this is sunk costs. And the program will probably be cash flow positive in a few years.
 
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RE: WSJ : Boeing Needs To Sell 1100 787s To Break Even

Fri Aug 31, 2012 4:26 pm

Quoting PlaneInsomniac (Reply 15):
Wait, are both of you saying that "real" break-even requires a lot MORE than 1,100 planes?

It's going to be significantly higher than 1100 frames, and it's easy to see why;

As I stated above the margin on the first 1100 frames is estimated to be around 5% (mature projects achieve around 10%) so in order for Boeing to make back the 18 Bn$ they have spent, they would have to make 16m $ profit per frame. With a 5% margin this would mean they would have had to sell each frame for an average price of 320 million $   

Disclaimer
I'm obviously using very rough figures intended only to prove or disprove the validity of an estimate.
 
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RE: WSJ : Boeing Needs To Sell 1100 787s To Break Even

Fri Aug 31, 2012 7:26 pm

Just because Forbes thinks it knows the cost structure of Boeing, and thus the number of aircraft that have to be sold to break even, doesn't mean anything. Large companies keep their cost data very secret. Yes, Forbes can make an educated guess, and yes, the delays and other issues has certainly increased the number of aircraft that must be sold to make the program profitable.

But you can't take Forbes' conclusion as certain.
 
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RE: WSJ : Boeing Needs To Sell 1100 787s To Break Even

Fri Aug 31, 2012 7:56 pm

I have difficulty believing the figure is quite that high. Especially as costs to produce will decrease and production will increase. And I have difficulty believing an article seeping with quite so much sarcasm and entertainment (supposedly) value. Seems to me that the writer's intent is to draw more attention to himself than the 787. And the article sites one study. Who did the study, and who paid for it? And where are the details of the study in his article?

Also, a number of airlines cancelled saying it was due to delays, but I would suggest that many of those sited that as a the reason, so they could get out of their contracts, but the actual culprit for many of those orders is the economic downturn and fuel prices, so they don't know when they will have the cash. So I expect many of those orders will come back, or will materialize from other airlines. Moving into the future, the fuel efficient 787 will have no direct competitor, as the 330 and 777 get long in the tooth, and the 350 is larger.

Further, the advances that Boeing has made in composite technology will carry over into future A/C types that they build, which will subsequently not need the same costly amount of R + D.
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RE: WSJ : Boeing Needs To Sell 1100 787s To Break Even

Fri Aug 31, 2012 7:57 pm

Quoting Daysleeper (Reply 26):
As I stated above the margin on the first 1100 frames is estimated to be around 5%

Not trying to be confrontational, just curious where you got the 5% estimated margin from. Is there a specific age or # of years past EIS that you're using for your 'mature' projects 10% avg? Wouldn't the age and margin of a project vary greatly depending on the specific project/company/technology/economy/management involved?

If the media source releasing these projections were Boeing itself, or in bed with Boeing, then I'd be quick to disregard them. However, the WSJ is one of the more trusted/reliable business news sources in the world, so their numbers hold a lot of weight for me.

Quoting Daysleeper (Reply 26):
It's going to be significantly higher than 1100 frames, and it's easy to see why;

As I stated above the margin on the first 1100 frames is estimated to be around 5% (mature projects achieve around 10%) so in order for Boeing to make back the 18 Bn$ they have spent, they would have to make 16m $ profit per frame. With a 5% margin this would mean they would have had to sell each frame for an average price of 320 million $   

Disclaimer
I'm obviously using very rough figures intended only to prove or disprove the validity of an estimate.

Your analysis is very basic from a numbers point of view - obviously you're aware of this as well; but I need more if I'm going to doubt a source like WSJ. They've got (by necessity) some of the best number crunchers around....if the truth were as simple and elementary to calculate as your example, then the WSJ would not have arrived at this breakeven point...but they did. I respect you posting the analysis, but its simplicity doesn't make it very trustworthy relative to the source you're questioning.
 
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Stitch
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RE: WSJ : Boeing Needs To Sell 1100 787s To Break Even

Fri Aug 31, 2012 8:36 pm

Jon Ostrower's original article in the WSJ that Forbes' Contributor YCharts referenced didn't mention "break even". Jon stated that Boeing estimates they will need to deliver 1100 787s before the program is profitable. That is most likely a reference to a statement made in October 2011 by Boeing Chairman and CEO Jim McNerney noting that he believed that over the next decade Boeing would deliver 1100 787s and at least break-even on the production costs of building the lot of them.

Will Boeing ever recover all the R&D costs of the 787? Perhaps they won't. But again, once each 787 delivery starts generating more revenue than the expenses to produce it, then the program is no longer an active financial drain on the company and 787 delivery revenues will help provide the foundation to launch Y1 and Y3.

[Edited 2012-08-31 13:51:53]
 
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RE: WSJ : Boeing Needs To Sell 1100 787s To Break Even

Fri Aug 31, 2012 8:49 pm

From a company standpoint, as long as production is increasing and continues for long enough, break even is irrelevant. The money has already been spent on the program and costs have been spread over the first thousand frames...which as was discussed a while ago, and is different from break even. How much money spent is specific to the 787? Lots of the money spent will be shared, and probably already is being shared, with other programs. How are the costs allocated if they span more than one prograam. Some of that money is also pure research.

Boeing itself is still in the black and every delivery is still money in the bank. It's the same with the 380...break even is a number that no longer means anything...even if it can be calculated. When it comes down to it, you have to look at more than money to calculate the value of a program to a company. The question shouldn't be about break even but overall value to the company...as in, "has/is/will the program be a net benefit for the company?".

The answer to both programs is yes.
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RE: WSJ : Boeing Needs To Sell 1100 787s To Break Even

Fri Aug 31, 2012 9:02 pm

Quoting peanuts (Reply 13):
Going from 824 to 1,100? Doubtful.

In the long-term, no, but the short-term is less convincing - more cancellations than new orders since 2008. Back in 2007, all the Boeing fan-boys were convinced that Boeing would have over 1,000 orders before EIS. That seems like a long time ago now.
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RE: WSJ : Boeing Needs To Sell 1100 787s To Break Even

Fri Aug 31, 2012 9:37 pm

Quoting davs5032 (Reply 29):
Not trying to be confrontational, just curious where you got the 5% estimated margin from. Is there a specific age or # of years past EIS that you're using for your 'mature' projects 10% avg? Wouldn't the age and margin of a project vary greatly depending on the specific project/company/technology/economy/management involved?

Boeing publish the average margin in their financial statements and performance reviews which are available here. I believe the last one was around 8.7%. Also If you go back through the historical reports comparing the margin year on year you will see that it never strays much above or below 10% regardless of how mature the product range was that year. The estimated 5% margin for the first 787 accounting block I think was mentioned on a Boeing webcast, I know on the one I linked too further up the thread they claim it to be "low single digit".

In regards to how the age of a project effects it's margin, well this is essentially what the accounting block is used for, well, one of its uses. I've read various sources which estimate that the first 50 or so frames are going to cost 250M$ each to manufacture, and given that some of these were sold for under 100 M$ Boeing will be selling them at a significant loss. So in order to spread out the cost they average it out over the accounting block, which in the case of the 787 is 1100 frames. So, put simply, this means that later profitable frames are compensating for early loss making ones.

Finally, your post doesn't read as confrontation at all - quite the opposite in fact. As for trusting the figures, well everything I'm using is from Boeing and the rest is very simple math.
 
PlaneInsomniac
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RE: WSJ : Boeing Needs To Sell 1100 787s To Break Even

Fri Aug 31, 2012 10:04 pm

Quoting col (Reply 1):
I do not see the concern.
Quoting cmf (Reply 16):
I would be very surprised if what you call real break even happens before 1,100 but more importantly it is a number that just doesn't matter.
Quoting Stitch (Reply 18):
Just as the "500+" break-even number thrown around for the A380-800 program is a number that just doesn't matter.
Quoting bueb0g (Reply 19):
The cash flow is what is important to them right now, not the long-term profit of the program.
Quoting JoeCanuck (Reply 31):
break even is irrelevant.

Wait a second. What just happened?

Did we not spend the last decade arguing over and over and over again that the only measure of a program's success is that it recoups its entire R&D costs by frame #250 or so?

And by "last decade" I do, in fact, mean up to and including last week:
Will The A380 Ever Be Profitable? Part 2 (by SA7700 Aug 19 2012 in Civil Aviation)

Now, all of a sudden, it appears it has been decided that reaching break-even is not important at all.

I'll just be diplomatic and say it seems the board has matured a lot all of a sudden.

Still, personally, I am really, really amused.
Am I cured? Slept 5 hours on last long-haul flight...
 
JoeCanuck
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RE: WSJ : Boeing Needs To Sell 1100 787s To Break Even

Sat Sep 01, 2012 12:19 am

Quoting PlaneInsomniac (Reply 34):

What has changed is the reality of these programs. They are now so huge, complex, time and money consuming that break even would be impossible to calculate...so whether or not it actually is important is moot.

Once these things are in production, the big money has already been spent so regardless of break even, they will keep cranking them out for as long as anybody wants them...and maybe even longer. The cash is gone...might as well make as much of it back as possible.

Also, both of these companies are so huge and they have their mitts in so many pies, it's also impossible to track the source of R&D. In theory, there is supposed to be limitations on how much military research goes into civilian programs but with the same people working on both, thinks leak.

Basically the only bottom line that matters in any significant way is the health of the company as a whole.
What the...?
 
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SEPilot
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RE: WSJ : Boeing Needs To Sell 1100 787s To Break Even

Sat Sep 01, 2012 12:39 am

Quoting JoeCanuck (Reply 35):
Basically the only bottom line that matters in any significant way is the health of the company as a whole.

This is true; however, if they embark on too many programs that never break even, let alone make a profit, that health will sooner or later fail. The problem with building airliners is that the costs are so huge that one big flop can destroy the company. While not all Boeing and Airbus programs have been wildly successful, neither has had a major flop in the jet age. And by a major flop I am referring to a financial flop, not a performance one.
The problem with making things foolproof is that fools are so doggone ingenious...Dan Keebler
 
XT6Wagon
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RE: WSJ : Boeing Needs To Sell 1100 787s To Break Even

Sat Sep 01, 2012 12:46 am

Quoting Daysleeper (Reply 10):
If we then deduct this 6 Bn$ from the 18Bn $ they have spent

yes, lets use that $18B from some people who shouldn't be allowed to estimate the tip to leave at a BurgerKing, shall we?

Its fun when you add things that have nothing to do with the 787 into the number (they put 748i costs in there)
Its fun when you double and triple bill things (counting advancedpayments to suppliers, buying suppliers, and production costs)
Its fun when you put capital projects like a new factory as a cost for one program. (Hint: its not a production cost, its something else entirely)

Now, I don't know how any outsider has any hope of getting a grasp on the cost of the 787 as a program, in that many suppliers spent thier money to buy thier share of the program. So unless you track down every supplier, sub-contractor, etc that did this you have no idea. Worse, they assigned the costs they knew to BOEING as if they would have to pay these bills. Nope, for example what the Japanese heavy's spent on 787 development work is thier money, and they did so in order to own more of the potential profit. We also see this 18B figure including all the costs to BUILD a undefined number of 787. Which isn't how you count the cost of development. You can now count the costs for the first 3 planes since they are test only items written off, but no one ever accounts the production costs in the development budget. Worse yet they hit this 2 or 3 times compounding the stupid. Boeing made some advanced payments to suppliers in trouble due to the delays. Normaly they get paid when the plane delievers, with this delay and Boeing requesting continued production finances got tight for *some* of the companies who make 787 parts. Instead of a cost, they should at worst be thought of as loans, or pre-buying supplied materials. These companies will see little to no money when the early planes are delievered. We get triple score when we look at them adding in the cost for Boeing to buy out some suppliers. Which is beyond me how they justify this. In at least one case it largely amounted to Boeing getting some serious assets and lowered future costs as they paid very little to take over a working factory with its very expensive assets, avoid future payments under risk sharing, and in general recieve a good deal. Yet we see the value of the parts these companies made being put under costs. We see the advanced payments being put under costs. Then the Trifecta hits when they put the cost to buy a company also under costs.

If we did the A380 R&D program accounting like this, We'd need scientific notation to keep track of the numbers. The A380 would be on the hook for the entire Airbus UK buyout from BAE. Could add in lots of other fun stuff not to do with the A380 program too. A320 factories? A400M stuff? sure, why not after all its A380 related in that we can vaguely justify it by it was required offset to change how the A380 production was setup and changed over time and these were the quid pro quo items to get the benifit for the A380.
 
Daysleeper
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RE: WSJ : Boeing Needs To Sell 1100 787s To Break Even

Sat Sep 01, 2012 1:52 am

Quoting XT6Wagon (Reply 37):
yes, lets use that $18B from some people who shouldn't be allowed to estimate the tip to leave at a BurgerKing, shall we?

18 billion $ is the figure given out by Boeing at the end of last year, it relates SOLEY to the 787 project.


The rest of your post is nothing but an irrelevant rant.
 
XT6Wagon
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RE: WSJ : Boeing Needs To Sell 1100 787s To Break Even

Sat Sep 01, 2012 4:59 am

Quoting Daysleeper (Reply 38):

The rest of your post is nothing but an irrelevant rant.
http://seattletimes.com/html/busines...echnology/2016310102_boeing25.html

ah here is a nutjob cost, dunno if its the one that A.net was tossing around like pure fact...

but I'd LOVE to see a link to where Boeing said what the R&D cost was for the 787. Since as far as I know they have never admitted to what any program cost, even for "easy" to track things like the pure R&D.
 
Daysleeper
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RE: WSJ : Boeing Needs To Sell 1100 787s To Break Even

Sat Sep 01, 2012 9:32 am

Quoting XT6Wagon (Reply 39):
but I'd LOVE to see a link to where Boeing said what the R&D cost was for the 787. Since as far as I know they have never admitted to what any program cost, even for "easy" to track things like the pure R&D.

Its mentioned in the webcast I linked too in my first post to this thread.... "Love"
 
sweair
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RE: WSJ : Boeing Needs To Sell 1100 787s To Break Even

Sat Sep 01, 2012 10:05 am

They took a 3 bn write off on RnD on the first 3 frames. That leaves 15bn if that is really a correct sum, we don't know, we can only guess.
 
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EPA001
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RE: WSJ : Boeing Needs To Sell 1100 787s To Break Even

Sat Sep 01, 2012 10:48 am

Quoting PHX787 (Reply 6):
Well when you have something as revolutionary as the 87, you are gonna have design flaws and delays from creating something pretty much outta scratch.

Maybe so, but 90% of the problems of the program were management issues, mostly in development and production ramp-up.  .

Quoting cmf (Reply 9):
Here we go with the 1,100 myth again.

And we will continue to go again with this number for quite some time. A-net mantra's die very, very slowly, if ever at all.

Quoting Daysleeper (Reply 10):
in line with Boeing's own figures published in the third quarter performance review at the end of 2011 (available here the project has cost them 18 Billion USD. I don't believe this figure includes R+D costs and some of it has already been written off/ accounted for. In fact several aviation journalists have estimated the figure to be as much as 32 billion USD, however for the purpose of this example I'm going to stick with Boeing's own figures to avoid any dispute.

I agree with you on this one.

Quoting Daysleeper (Reply 10):
o, at the end of 2011 they had 821 orders for the 787. If they expect to make 5% on each of these frames we have $7.5 M$ x 821 - Giving us a grand total of 6,157,500,000 - Just over 6 Bn $. If we then deduct this 6 Bn$ from the 18Bn $ they have spent, it means that after selling the entire backlog they are still 12bn $ short of repaying the program costs.

I have obviously simplified this to make a point, and ignored things such as the Time Value of Money. But the point stands, expecting Boeing to break even at 1100 frames is insanity and even if we assume they will make the maximum margin of 10% on the next 1100 frames it's going to be the middle of the next decade around frame 2200 when they will approach the true program break even.

They real number is floating in the wind. And we will probably never really know it. Especially since further R&D efforts are still being poured into the program (for modifications, improvements and new versions of the B787)

Quoting cmf (Reply 14):
Done it several times already but here we go again.

I guess you have done so.  . But some things on A-net need to be repeated at least a 1,000 times before they stick.  .

Quoting cmf (Reply 16):
All I said is that the often used 1,100 number is coming from the accounting block size and it has nothing to do with break even

True.

Quoting Stitch (Reply 18):
Just as the "500+" break-even number thrown around for the A380-800 program is a number that just doesn't matter.

The only useful purpose for quoting "break even" numbers seems to be to sling mud at each program, and how useful is that, really?

It is not. But the focus on break even is appaerantly so important for many people following suchs programs that every now and then we will continue to have threads about the break even/profit truning points of new airliner programs. We never see those threads about the B767 or B777. Or about the A300, A310 or A330 for that matter.

Quoting Stitch (Reply 18):
The vast bulk of these program's costs have been paid for out of cash flow and neither company is mired in debt. The goal now is to get positive cash flow, as cmf noted. The A380 is expected to do that around 2015 and with the projected 787 production rate being in the double-digits by then, chances are it will be CFP at that point, as well.

True. And as long as the general financial data of the company is sound, and in this case both Airbus and Boeing show very sound results and cash reserves, the program and the company are not at any risk at all. So all this debating will have no impact on the way this program is developing, just as it did not have any influence on the A380. And boy, did we have a number of threads about her over the years on A-net.

Maybe in the end one could say, financially the program did not live up to expectations. But so many other things come into play when assessing such issues for an OEM which make even that statement imho virtually impossible to make.

Quoting PlaneInsomniac (Reply 34):
Now, all of a sudden, it appears it has been decided that reaching break-even is not important at all.

It is, and it is not. Just depends on how you look at the issues. Like always there are people attacking or fiercely defending the program, and the programs numbers. The last is not always that realistic, but "fans" will do anything to defend their favorite airliner program from their favorite aircraft manufacturer or to attack the high profile program from a competitor manufacturer.
 
PlaneInsomniac
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RE: WSJ : Boeing Needs To Sell 1100 787s To Break Even

Sat Sep 01, 2012 11:00 am

Quoting JoeCanuck (Reply 35):
What has changed is the reality of these programs.

I disagree with you on that point. These same basic truths that are being discussed here now have been pointed out time and again for years here on a.net. The difference is that, when these same arguments were made "from the other side", they were generally - and viciously - attacked as being irrelevant distractions.

The truth is, I think it is time we acknowledge a certain pattern now regularly appearing in these forums: As with the delays, technical difficulties, cost overruns, systematic corporate misinformation, and overly positive praise by early customers, the very same events which were met with enormous amounts of derision and/or outrage on these boards in the "other case", now all of a sudden lead to widespread calls for moderated and balanced discussions based on sophisticated and detailed analyses.

I certainly welcome the more mature and level-headed approach to discussing new airplane programs on a.net.

But when seen in historical context, I have to say that from my point of view the credibility in here has dropped to almost zero.
Am I cured? Slept 5 hours on last long-haul flight...
 
astuteman
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RE: WSJ : Boeing Needs To Sell 1100 787s To Break Even

Sat Sep 01, 2012 11:22 am

Quoting PlaneInsomniac (Reply 34):
Still, personally, I am really, really amused.

You do get some some posters that are consistent, and resonable with their arguments regarding both of the major programmes. But it IS fascinating to see those who will poke massive fingers at one whilst avoiding the like reality of the other like the plague

Quoting JoeCanuck (Reply 35):
Basically the only bottom line that matters in any significant way is the health of the company as a whole.

Absolutely correct. And THIS is what "investors" will measure..

Quoting XT6Wagon (Reply 37):
Its fun when you add things that have nothing to do with the 787 into the number (they put 748i costs in there)
Its fun when you double and triple bill things (counting advancedpayments to suppliers, buying suppliers, and production costs)
Its fun when you put capital projects like a new factory as a cost for one program. (Hint: its not a production cost, its something else entirely)

I presume that it is this "fun" which causes us to do EXACTLY this whenever the A380 gets discussed

Quoting XT6Wagon (Reply 37):
If we did the A380 R&D program accounting like this,

Don't even dare to suggest that the A380 doesn't suffer AT LEAST as much unreasonable argument as the 787 is on this thread.
It absolutely does.   

Rgds
 
bueb0g
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RE: WSJ : Boeing Needs To Sell 1100 787s To Break Even

Sat Sep 01, 2012 12:56 pm

Quoting scbriml (Reply 32):
In the long-term, no, but the short-term is less convincing - more cancellations than new orders since 2008. Back in 2007, all the Boeing fan-boys were convinced that Boeing would have over 1,000 orders before EIS. That seems like a long time ago now

Yeah, but the current backlog does take them a long way - not saying the cancellations aren't an issue, but it's not as if they're scrambling for new orders.
Roger roger, what's our vector, victor?
 
tdscanuck
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RE: WSJ : Boeing Needs To Sell 1100 787s To Break Even

Sat Sep 01, 2012 2:14 pm

Quoting EPA001 (Reply 42):
Maybe so, but 90% of the problems of the program were management issues, mostly in development and production ramp-up.

Not 90%. At least a full year can be attributed to two basic causes...the side-of-body discovery and the electrical fire. Those were both pure engineering issues.

Tom.
 
cmf
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RE: WSJ : Boeing Needs To Sell 1100 787s To Break Even

Sat Sep 01, 2012 2:21 pm

Quoting PlaneInsomniac (Reply 43):
But when seen in historical context, I have to say that from my point of view the credibility in here has dropped to almost zero.

Have to say that I am disappointed you quote me in making this statement. I know where you're coming from but I do not think my record support your statement. Stich's certainly doesn't, he has been one of the biggest A380 supporters throughout. I have no idea about the other you quoted.
Don’t repeat earlier generations mistakes. Learn history for a better future.
 
justloveplanes
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RE: WSJ : Boeing Needs To Sell 1100 787s To Break Even

Sat Sep 01, 2012 3:22 pm

Quoting cmf (Reply 14):

As you can see R&D is not represented in any way.

Is this Boeing's definition of an accounting block? If so, do you have a source? See comment below on R&D costs.

Quoting SSTsomeday (Reply 28):
Seems to me that the writer's intent is to draw more attention to himself than the 787.

Might just be old news, old speculation, a filler piece. Forbes reporting on the airline industry hasn't seemed too sharp.

Quoting EPA001 (Reply 42):
Quoting Daysleeper (Reply 10):
in line with Boeing's own figures published in the third quarter performance review at the end of 2011 (available here the project has cost them 18 Billion USD. I don't believe this figure includes R+D costs and some of it has already been written off/ accounted for. In fact several aviation journalists have estimated the figure to be as much as 32 billion USD, however for the purpose of this example I'm going to stick with Boeing's own figures to avoid any dispute.

I agree with you on this one.

Lots of potential confusion. The 32 billion number I have heard included a lot of the backlog planes (inventory = assets) that will be sold, not sunk R&D. 18 Billion surely includes R&D and development...what else is it going to be? 18 Billion in penalties? If the inventory, that will be sold and your are looking at cost of interest/capital. It only passes the smell test if R&D is part of the accounting block calculation, $3 billion charge for 3 planes notwithstanding. That $3 billion is probably the closest estimate to the program overrun. Not sure if penalties are included in that 3 Billion.

Some quick calculations:

@40 planes at $100 million Boeing cost = $4 billion in stacked inventory
$3 billion write off in R&D for Za001,2,3
Say another $3 billion in penalties and related losses

Total $10 billion
i
R&D about $8 billion (Boeing's original claim I remember)

= @18 billion dollars.

Where else is the money besides this?
 
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Stitch
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RE: WSJ : Boeing Needs To Sell 1100 787s To Break Even

Sat Sep 01, 2012 3:32 pm

Quoting EPA001 (Reply 42):
We never see those threads about the B767 or B777. Or about the A300, A310 or A330 for that matter.

And the trick is, we just assume all those programs not only broke even, but were wildly profitable.

If you believe the speculation, Boeing has probably spent on the entire 777 program close to what they have spent on the 787 to date (USD15-18 billion). If Boeing needs more than 1100 787s to break even, one wonders if the 1000 777s Boeing have delivered to date have yet to recover all of the costs of that program. But if it hasn't, it sure as heck delivered massive amounts of cash to Boeing.

I can't see how the A340 program has been able to cover it's direct costs (those above and beyond what it shares with the A330 program). And yet those 375 A340-200s, A340-300s, A340-500s and A340-600s have generated tens of billions in revenues to Airbus.

The Boeing of 2012 is not Boeing the Boeing of 1972. They no longer "bet the company" on each commercial airplane launch. SEPilot is correct in noting that you can't afford a string of commercial failures, but a commercial failure can bring in cash to support not just current commercial successes, but fund what is hoped to be a future commercial success.

[Edited 2012-09-01 08:33:20]

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