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scbriml
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Boeing takes $2bn in charges

Thu Jul 21, 2016 10:57 pm

Boeing announces $2bn in charges for the 787, 747 and KC-46 programs.

It appears they've written off two more of the original six first production 787s as unsaleable. The planned production increase for the 747 to 1/month in 2019 has been cancelled.

https://leehamnews.com/2016/07/21/boein ... w-charges/
In total, the company will record an after-tax earnings impact of $2.1 billion. On a pretax basis at the segment level, Boeing Commercial Airplanes will now record an earnings impact totaling $2.78 billion and the Boeing Military Aircraft segment of Boeing Defense, Space & Security will report an earnings impact of $219 million.
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PacificBeach88
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Re: Boeing takes $2bn in charges

Thu Jul 21, 2016 11:47 pm

Actually, according to your link it looks like $3 billion. I liked this comment the best: “This is Boeing,” one aerospace analyst said. “Everything is fine until it’s not fine. That’s so typical Boeing that I almost laugh about it.”
 
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Stitch
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Re: Boeing takes $2bn in charges

Thu Jul 21, 2016 11:57 pm

Official Boeing Statement: http://boeing.mediaroom.com/2016-07-21- ... r-Earnings

LN005 evidently needs far too much work to make it deliverable (even as a green frame to an outfitter) and I am guessing LN004 also would need significant refurbishment and perhaps even a maintenance check (though they could do that at the same time). There was speculation that the two 787-8 VIPs ordered in mid-2015 might have been for these frames, but now it looks like they will be new builds which will offset some of that $847 million charge.

With the production cut, the 747-8 likely moved into a Forward Loss position so they had to - literally - account for that with an $814 million charge.

And Boeing has been building KC-46As without a firm contract and had to perform additional testing, so that is likely the source of the $393 million charge. On the plus side, the KC-46 has now met all the criteria for Boeing to be awarded the 18 frame LIRP contract so they can start delivering birds to the USAF and collecting checks.
 
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LAX772LR
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Re: Boeing takes $2bn in charges

Fri Jul 22, 2016 12:41 am

I'd love to be able to study the accounting that applies to the 747.

Unless they were selling each unit for its weight in gold, I'm just astonished that they can justify continued production... especially taking the opportunity cost of the real estate into account, as well as these charges.
I myself, suspect a more prosaic motive... ~Thranduil
 
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seabosdca
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Re: Boeing takes $2bn in charges

Fri Jul 22, 2016 12:45 am

Stitch wrote:
LN005 evidently needs far too much work to make it deliverable (even as a green frame to an outfitter) and I am guessing LN004 also would need significant refurbishment and perhaps even a maintenance check (though they could do that at the same time).


LN5 had begun the rework process, but only to the extent of removing components that needed replacement or modification. It's now in a somewhat stripped state. LN4, while still flyable, had not undergone any work at all. As I said in the other thread, I wonder if Boeing might benefit from keeping it around as a R&D/test aircraft, the way Airbus does. Rumor on Twitter has it that LN 4 will be donated like the first three frames, though.

Stitch wrote:
There was speculation that the two 787-8 VIPs ordered in mid-2015 might have been for these frames, but now it looks like they will be new builds which will offset some of that $847 million charge.


I have a feeling those orders might have been for LN 4 and 5 -- but Boeing might have come to the conclusion that, accounting for the PR benefit of the ability to write off some DPCs without really saying so, and the likely more profitable/less troublesome support for standard frames, it was more financially attractive to build two more 787-8 frames for 2018 delivery than to rework the two test frames. Or, one of the frames might now be LN 19, which is undergoing active rework despite not currently having a customer.

PacificBeach88 wrote:
Actually, according to your link it looks like $3 billion. I liked this comment the best: “This is Boeing,” one aerospace analyst said. “Everything is fine until it’s not fine. That’s so typical Boeing that I almost laugh about it.”


Close to $3B pretax, $2.1B after tax.
 
mjoelnir
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Re: Boeing takes $2bn in charges

Fri Jul 22, 2016 12:54 am

What is remarkable is, that the two 787 frames were valued at 847 million USD. If this frames would have been sold, we would have seen a hefty addition to deferred cost somewhere between 700 to 800 million USD. Will that be the last extra forgotten alligator coming out of the swamp before Boeing starts cleaning up the 32 billion USD mess?
At least it is a start on writing the stuff to loss instead keeping to defer it.
 
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piotrg
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Re: Boeing takes $2bn in charges

Fri Jul 22, 2016 1:25 am

seabosdca wrote:
Stitch wrote:
LN005 evidently needs far too much work to make it deliverable (even as a green frame to an outfitter) and I am guessing LN004 also would need significant refurbishment and perhaps even a maintenance check (though they could do that at the same time).


LN5 had begun the rework process, but only to the extent of removing components that needed replacement or modification. It's now in a somewhat stripped state. LN4, while still flyable, had not undergone any work at all. As I said in the other thread, I wonder if Boeing might benefit from keeping it around as a R&D/test aircraft, the way Airbus does. Rumor on Twitter has it that LN 4 will be donated like the first three frames, though.

Back in 2013, 4 frames were assigned for Transaero
LN11 ZA800
LN12 ZA801
LN14 ZA802
LN22 ZA803

When they dropped order, 3 of them had been undergoing re-work (LN11, LN14 and LN22), LN5 begun re-work in October 2013 and work was going on until January when Transaero cancelled deal. Boeing had 3 frames in EMC without customer, and LN11 was the most advanced in process. Later LN11 was assigned as ZA841 for Korean Air and LN5 pulled out of the EMC, mothballed and moved to storage. LN14 and LN22 re-work pace was slowed down to minimum and put on hold when traveled work issue popped out. Meanwhile Boeing lost customer for another 5 terrible teens - Lion Air cancelled order too.
LN11 finished re-work in late October 2014, but delivery was postponed to end of March 2015. Greenpoint Technologies started outfitting of LN11 in August 2015 - right on time, when LN5 would be originally re-worked and delivered.

seabosdca wrote:
I have a feeling those orders might have been for LN 4 and 5 -- but Boeing might have come to the conclusion that, accounting for the PR benefit of the ability to write off some DPCs without really saying so, and the likely more profitable/less troublesome support for standard frames, it was more financially attractive to build two more 787-8 frames for 2018 delivery than to rework the two test frames. Or, one of the frames might now be LN 19, which is undergoing active rework despite not currently having a customer.

These 2 frames were indeed assigned with BBJ as customer in Boeing's firing order system.
I agree that Boeing written off them due to cost - either lower sell price than re-work bill or building new frames would be more profitable for Boeing. I'm sure that many parts of LN5 are already sold as spares, she had GEnx-1B PIP2 engines so they are probably sold long time ago.
 
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Stitch
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Re: Boeing takes $2bn in charges

Fri Jul 22, 2016 1:54 am

mjoelnir wrote:
What is remarkable is, that the two 787 frames were valued at 847 million USD. If this frames would have been sold, we would have seen a hefty addition to deferred cost somewhere between 700 to 800 million USD.


They should already be included in the deferred cost as they are considered production frames at the moment. So moving them from production to R&D should reduce the deferred cost by almost 1 billion.

Their deferred cost would have gone up if Boeing had spent money to get them to a deliverable state.
 
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Finn350
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Re: Boeing takes $2bn in charges

Fri Jul 22, 2016 2:43 am

mjoelnir wrote:
What is remarkable is, that the two 787 frames were valued at 847 million USD. If this frames would have been sold, we would have seen a hefty addition to deferred cost somewhere between 700 to 800 million USD. Will that be the last extra forgotten alligator coming out of the swamp before Boeing starts cleaning up the 32 billion USD mess?
At least it is a start on writing the stuff to loss instead keeping to defer it.


That cost was already included in the deferred production cost. It was now reclassified, i.e. removed from the deferred production cost and written off as a development cost, generating $847 million after-tax charge (and more before tax).

The 747 program accounting quantity was lowered, and the program was determined to be in a forward-loss position (i.e. the deferred production cost was no longer expected to be recovered from the frames remaining in the program accounting quantity). That generated an additional $814 million after-tax charge.
 
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Finn350
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Re: Boeing takes $2bn in charges

Fri Jul 22, 2016 2:44 am

Stitch wrote:
mjoelnir wrote:
What is remarkable is, that the two 787 frames were valued at 847 million USD. If this frames would have been sold, we would have seen a hefty addition to deferred cost somewhere between 700 to 800 million USD.


They should already be included in the deferred cost as they are considered production frames at the moment. So moving them from production to R&D should reduce the deferred cost by almost 1 billion.

Their deferred cost would have gone up if Boeing had spent money to get them to a deliverable state.


That is correct.
 
Someone83
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Re: Boeing takes $2bn in charges

Fri Jul 22, 2016 6:25 am

At least it shaves of sine of the defered cost on the 747 and 787 programs, making their numbers a little more realistic.....
 
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Channex757
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Re: Boeing takes $2bn in charges

Fri Jul 22, 2016 6:40 am

LAX772LR wrote:
I'd love to be able to study the accounting that applies to the 747.

Unless they were selling each unit for its weight in gold, I'm just astonished that they can justify continued production... especially taking the opportunity cost of the real estate into account, as well as these charges.

There is also the revenue of a lifetime's branded parts and supplies to consider. Manufacturers can make buttons on a sale but recoup it all over the lifetime of an aircraft.

Those Boeing branded aerosol cans for instance....or a myriad of patented parts...but it's the cans I recall being outrageously priced (a windscreen preparation) compared to an equivalent auto brand because it was grey and had the Boeing logo on it. Consumables is where the money is in aircraft these days.
 
StTim
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Re: Boeing takes $2bn in charges

Fri Jul 22, 2016 6:50 am

Channex757 wrote:
LAX772LR wrote:
Consumables is where the money is in aircraft these days.



Becomming more and more like the printer market you mean.


So these two frames were in the deferred costs at $800 + million and even if sold would have recovered maybe $100m at most. So some $700million or so would have been left in the deferred costs for the other frames to recover. Shows the craziness of this accounting method. They should really have only ever been in the books at cost or realistic expected revenue (whichever is lower).
 
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seahawk
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Re: Boeing takes $2bn in charges

Fri Jul 22, 2016 6:53 am

Probable a preparation for the MoM launch.
 
captainmeeerkat
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Re: Boeing takes $2bn in charges

Fri Jul 22, 2016 7:02 am

seahawk wrote:
Probable a preparation for the MoM launch.


Don't be silly! Probably in preparation of a management bonus for better financial performance for making debt simply disappear ;)

Edit: spelling
Last edited by captainmeeerkat on Fri Jul 22, 2016 8:44 am, edited 1 time in total.
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mjoelnir
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Re: Boeing takes $2bn in charges

Fri Jul 22, 2016 8:27 am

Stitch wrote:
mjoelnir wrote:
What is remarkable is, that the two 787 frames were valued at 847 million USD. If this frames would have been sold, we would have seen a hefty addition to deferred cost somewhere between 700 to 800 million USD.


They should already be included in the deferred cost as they are considered production frames at the moment. So moving them from production to R&D should reduce the deferred cost by almost 1 billion.

Their deferred cost would have gone up if Boeing had spent money to get them to a deliverable state.


The production cost is deferred when a frame is sold, so no it should not lower already deferred cost. But having used this frames for testing the bulk of their cost should have been written to development a long time ago. IMO another way of holding cost in limbo for a while, a process Boeing seems to have honed to perfection. But we could see the beginning of cleaning out the Augean stables.

We also see how "clear sighted" Boeing management has been in the past, having now to take a 814 million USD charge on the 747 because production rate will stay at rate .5 per month in 2019.
 
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Re: Boeing takes $2bn in charges

Fri Jul 22, 2016 9:06 am

mjoelnir wrote:
The production cost is deferred when a frame is sold, so no it should not lower already deferred cost. But having used this frames for testing the bulk of their cost should have been written to development a long time ago. IMO another way of holding cost in limbo for a while, a process Boeing seems to have honed to perfection. But we could see the beginning of cleaning out the Augean stables.

We also see how "clear sighted" Boeing management has been in the past, having now to take a 814 million USD charge on the 747 because production rate will stay at rate .5 per month in 2019.


I stand corrected, the costs related to the flight-test aircraft are part of the program inventory of $35.5 billion (as of Q1/2016) as work-in-process, but not part of the deferred production cost of $28.7 billion (as of Q1/2016) as they frames are not delivered. The re-classification lowers program inventory and work-in-process, but not the deferred production cost.
 
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Re: Boeing takes $2bn in charges

Fri Jul 22, 2016 3:14 pm

The 747 program doesn't have enough firm orders to spread the deferred costs over. This charge was expected, though not so soon.

scbriml wrote:
The planned production increase for the 747 to 1/month in 2019 has been cancelled.


Nobody took that seriously anyway. And now we have this:

https://twitter.com/LeehamNews/status/7 ... 6957035520

@Boeing no longer thinks cargo market will recover days after 20/yr cargo forecast released at #FIA16, says Buckingham Research-major shift

Boeing kept upbeating the cargo market, and now faces reality.
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Re: Boeing takes $2bn in charges

Fri Jul 22, 2016 3:14 pm

Slightly off topic, but are there still any early 787 models (similar to the "terrible teens") which could be sold as a VIP aircraft with a good discount? I recently saw a 787 for November 2016 delivery for sale (serial: 35507) - I believe it's LN17. Would be interesting to know the price.
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Stitch
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Re: Boeing takes $2bn in charges

Fri Jul 22, 2016 3:27 pm

cuban8 wrote:
Slightly off topic, but are there still any early 787 models (similar to the "terrible teens") which could be sold as a VIP aircraft with a good discount?


No - they're now all spoken for.


cuban8 wrote:
I recently saw a 787 for November 2016 delivery for sale (serial: 35507) - I believe it's LN17. Would be interesting to know the price.


LN17 is a 787 VIP already. It was purchased by Crystal Air and they are now looking to re-sell it on the open market.
 
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Re: Boeing takes $2bn in charges

Fri Jul 22, 2016 4:56 pm

mjoelnir wrote:
We also see how "clear sighted" Boeing management has been in the past, having now to take a 814 million USD charge on the 747 because production rate will stay at rate .5 per month in 2019.

Ahh well, they thought a lot of 744Fs would be replaced by 748Fs but we see now that belly space and 77Fs are taking most of the business.

Good thing they didn't invest $28B in an all-new four-engine VLA! :D
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mjoelnir
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Re: Boeing takes $2bn in charges

Fri Jul 22, 2016 5:35 pm

Revelation wrote:
mjoelnir wrote:
We also see how "clear sighted" Boeing management has been in the past, having now to take a 814 million USD charge on the 747 because production rate will stay at rate .5 per month in 2019.

Ahh well, they thought a lot of 744Fs would be replaced by 748Fs but we see now that belly space and 77Fs are taking most of the business.

Good thing they didn't invest $28B in an all-new four-engine VLA! :D


I talk about decisions five year back, declaring that the deferred cost of the 747-8 were manageable and would come in over a projected accounting batch. Everybody, but the Boeing management in their hunt for good numbers seem to have realized long ago that the numbers did not add up.
 
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Re: Boeing takes $2bn in charges

Fri Jul 22, 2016 6:07 pm

mjoelnir wrote:
I talk about decisions five year back, declaring that the deferred cost of the 747-8 were manageable and would come in over a projected accounting batch. Everybody, but the Boeing management in their hunt for good numbers seem to have realized long ago that the numbers did not add up.

It seems to me you are suggesting that either (a) Boeing management is more stupid than "everybody" or (b) they decided it'd be better for either them or the company or both to push off taking this accounting charge as long as possible in case the very unlikely circumstance that there was a market rebound did happen or even if it didn't happen.
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Wake now, discover that you are the song that the morning brings
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Stitch
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Re: Boeing takes $2bn in charges

Fri Jul 22, 2016 6:24 pm

mjoelnir wrote:
I talk about decisions five year back, declaring that the deferred cost of the 747-8 were manageable and would come in over a projected accounting batch. Everybody, but the Boeing management in their hunt for good numbers seem to have realized long ago that the numbers did not add up.


Five years ago, Boeing was raising the production rate of the 747-8 to two airplanes per month (from the 1.5 per month at the time) and doing so a year ahead of plan due to customer interest and demand for the type.

http://www.industryweek.com/articles/bo ... 21380.aspx
 
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Re: Boeing takes $2bn in charges

Fri Jul 22, 2016 7:15 pm

Revelation wrote:
Good thing they didn't invest $28B in an all-new four-engine VLA! :D



It is a good thing they didn't do that, that is only second worse to telling the market there is no VLA market, your competitor is crazy to think there is one. To then spend billions on said market and having to take charges in future would be just as bad. :lol: :o :D
 
Okie
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Re: Boeing takes $2bn in charges

Fri Jul 22, 2016 8:08 pm

http://www.reuters.com/article/us-boein ... SKCN0ZN1GG

I am surprised no one latched on to this about 2 weeks ago.

Boeing to delay payments to suppliers from 30 day to 90/120 day range.

Okie
 
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SEPilot
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Re: Boeing takes $2bn in charges

Fri Jul 22, 2016 8:30 pm

I think many accountants and observers who know accounting study trees so much that they lose sight of the forest. Yes, the 787 program has been a huge screwup and has cost far more than it should have, and the 748 program likewise was not managed very well and also cost much more than it should have, and it also had far less demand for it than Boeing thought. If these were the only programs Boeing had they would be long bankrupt. But building airliners is a very high-risk high-reward business, and fortunately Boeing has the 737, 767, and 777 that have been able to keep them solvent and able to absorb the losses from these programs. To expect that all projects in this type of business will be financially successful is very optimistic and unrealistic. And I believe that the 787 will ultimately prove to have been worthwhile even if it never shows a profit overall; Boeing has learned a great deal from it that will be invaluable on the next projects. And I have not lost hope that ultimately the 787 project will prove profitable; we have no idea how many of them will ultimately be built. I suspect it will number in the thousands. Its capabilities are incredibly impressive, and it will be in demand for a long, long time.
The problem with making things foolproof is that fools are so doggone ingenious...Dan Keebler
 
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Stitch
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Re: Boeing takes $2bn in charges

Fri Jul 22, 2016 10:00 pm

Okie wrote:
http://www.reuters.com/article/us-boeing-suppliers-idUSKCN0ZN1GG

I am surprised no one latched on to this about 2 weeks ago.

Boeing to delay payments to suppliers from 30 day to 90/120 day range.

Okie


Because we discussed it back then. :)
 
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Re: Boeing takes $2bn in charges

Sat Jul 23, 2016 8:02 am

Okie wrote:
http://www.reuters.com/article/us-boeing-suppliers-idUSKCN0ZN1GG

Boeing to delay payments to suppliers from 30 day to 90/120 day range.


Standard business practice. Surprised they didn't do this years or decades ago.
 
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moo
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Re: Boeing takes $2bn i n charges

Sat Jul 23, 2016 9:36 am

AirlineCritic wrote:
Okie wrote:
http://www.reuters.com/article/us-boeing-suppliers-idUSKCN0ZN1GG

Boeing to delay payments to suppliers from 30 day to 90/120 day range.


Standard business practice. Surprised they didn't do this years or decades ago.


Standard? Not yet, but its trying to be - its also abhorrent and no supplier should agree to it. It gives Boeing 90-120 days of free parts, payable at the end of the contract rather than on delivery as it is currently.

Seriously. A multi billion dollar business telling smaller businesses "you have to give us 3 months free credit and you basically forego the next 3 - 4 months of bills until the end of the contract"?! Thats disgusting. Boeing can afford it, many small suppliers live hand to mouth and this will cause them undue hardship, while a multibillion dollar business gets to play with the books a bit to look better in its EOY financials.

I had a client try this one last year - a UK retail website that takes in well over £5million a year demanded that I accept 120 day payment terms. In the end, turns out that losing £100,000 a week in sales is harder to eat than paying their £2,000 a month hosting fees on time when I turned off their website. I cant afford to be out £8,000 (because thats essentially what it means - they get the next several months on never ending credit and start paying again in 3 - 4 months).
 
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Re: Boeing takes $2bn in charges

Sat Jul 23, 2016 1:54 pm

Would be fun if an airline was to take delivery of a whole airplane and promise to pay in 120 days…
"When I find out I was wrong, I change my mind. What do you do?" -attributed to John Maynard Keynes
 
StTim
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Re: Boeing takes $2bn in charges

Sat Jul 23, 2016 2:14 pm

Don't give U-Turn more ideas :)
 
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SEPilot
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Re: Boeing takes $2bn in charges

Sat Jul 23, 2016 2:42 pm

AirlineCritic wrote:
Okie wrote:
http://www.reuters.com/article/us-boeing-suppliers-idUSKCN0ZN1GG

Boeing to delay payments to suppliers from 30 day to 90/120 day range.


Standard business practice. Surprised they didn't do this years or decades ago.

My father was an engineering consultant for about 35 years. The only companies he had trouble with were the large ones, who tried stunts like this. Being that he was a one-man operation that did not sit well.
The problem with making things foolproof is that fools are so doggone ingenious...Dan Keebler
 
WIederling
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Re: Boeing takes $2bn in charges

Sat Jul 23, 2016 4:54 pm

Okie wrote:
http://www.reuters.com/article/us-boeing-suppliers-idUSKCN0ZN1GG
I am surprised no one latched on to this about 2 weeks ago.
Boeing to delay payments to suppliers from 30 day to 90/120 day range.

Leeham latched onto PFS 2.0 at the time.

With borrowing cost being low at the moment this will turn into another round of cosmetic quarterly pimping.
( Just like the "customer payments moved left/earlier" campaign last year. More cash for a quarter or two. Then back to the old numbers.)
Murphy is an optimist
 
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Re: Boeing takes $2bn in charges

Sun Jul 24, 2016 9:11 am

SEPilot wrote:
Standard business practice. Surprised they didn't do this years or decades ago.

My father was an engineering consultant for about 35 years. The only companies he had trouble with were the large ones, who tried stunts like this. Being that he was a one-man operation that did not sit well.[/quote]

Selfish I know but us IT guys get more work when the OEMs do this:-
https://en.wikipedia.org/wiki/Global_su ... in_finance

Factoring or giving the banks a % in return for early payment means suppliers end up paying the banks more % and us IT folk have more bank integrations to build!
Jambrain
 
94717
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Re: Boeing takes $2bn in charges

Sun Jul 24, 2016 11:44 am

Ericsson did this against its consultants a few years ago when they had a major crisis..

From using 30 days we now talks around 90 days.

The winner of this was banks who started factoring services.

Have Boeing a cash flow problem?
 
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JetBuddy
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Re: Boeing takes $2bn in charges

Sun Jul 24, 2016 12:10 pm

SEPilot wrote:
My father was an engineering consultant for about 35 years. The only companies he had trouble with were the large ones, who tried stunts like this. Being that he was a one-man operation that did not sit well.


Yep. We experience the same thing in the company I work for. Large businesses will try to stretch the terms in any way they can, more than smaller ones. And that includes delayed or deferred payment. Our standard contracts demand payment within 14 days. We allow up to 30 days for government contracts, and sometimes up to 45 if it's a good reason. 60 days or more is unacceptable.

Large businesses can do this if they know they're the bread and butter for the smaller company.
 
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Stitch
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Re: Boeing takes $2bn in charges

Sun Jul 24, 2016 4:34 pm

olle wrote:
Have Boeing a cash flow problem?


Cash and Cash Equivalents in 2015 was down a bit under a half billion from 2014, but that was due to an almost 2 billion drop in net income from investments. Total Cash Flow From Operating Activities was up over a half billion over 2014.
 
chiad
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Re: Boeing takes $2bn in charges

Sun Jul 24, 2016 4:55 pm

Boeing has proposed several new programs that (they claim) can be launched before year-end if customers "want it".
These include: B737MAX-10, MOM and B777X-10.
Ongoing programs are B737-7/8/9, B777X-8/9 and B787-10.
At the same time they are laying off several thousand engineers.
With this huge charge, and surely many more to come, I wonder if these new proposed programs are just hypes to smokescreen a crisis at Boeing.
 
StTim
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Re: Boeing takes $2bn in charges

Sun Jul 24, 2016 5:05 pm

Stitch wrote:
olle wrote:
Have Boeing a cash flow problem?


Cash and Cash Equivalents in 2015 was down a bit under a half billion from 2014, but that was due to an almost 2 billion drop in net income from investments. Total Cash Flow From Operating Activities was up over a half billion over 2014.



True but how much was by customers paying deposits etc early, which we know Boeing has been doing, presumably at a long term cost to Boeing as there must be some benefit to those airlines paying early.
 
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KarelXWB
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Re: Boeing takes $2bn in charges

Tue Jul 26, 2016 8:47 am

Regarding the delayed payments discussion above, now the follow article popped up:

In a rare public dust-up between two of the biggest collaborators in the aerospace industry, a major supplier to Boeing Co. said the world’s largest plane maker was behind on tens of millions dollars in payments due at the end of last month.

“Boeing is delinquent and Boeing has contributed to some of our underperformance here this quarter in cash flow, which is disappointing, but we’re working that with them,” said Kelly Ortberg, chief executive of Rockwell Collins Inc., during a call discussing the company’s third-quarter results Monday.

Rockwell’s chief financial officer, Patrick Allen, said Boeing owes the aerospace electronics company $30 million to $40 million that was due in the quarter ended June 30.


http://www.wsj.com/articles/boeing-is-d ... 1469490610
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Amiga500
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Re: Boeing takes $2bn in charges

Tue Jul 26, 2016 11:29 am

Oh.
Question is - is it some sharp-suited wordsmith trying to be clever in the BCA accounts dept. or is there a real problem.


IMO, asking suppliers for credit beyond 30 days should be illegal. It would stop the multinationals bullying the SMEs that form the backbone of business (and typically aren't into the immoral and borderline illegal financial manoeuvring that the multi-nationals get up to).
 
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GCT64
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Re: Boeing takes $2bn in charges

Tue Jul 26, 2016 2:23 pm

I just saw the Rockwell-Boeing harsh words pop up on my news feed too:

'Boeing has been accused by aerospace supplier Rockwell Collins of being delinquent in its payments, stating the planemaker is behind on $30M-$40M that was due in the quarter ended June 30. "That's abnormal to history," said Rockwell CEO Kelly Ortberg. "I hope it’s just a blip." In response, a Boeing spokeswoman said the company is "in the process of adjusting the payment terms of suppliers" and "adheres to all signed contracts."'

Glad I don't supply anything to Boeing (I do supply products to Rockwell and they are very good at paying on time).
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speedbored
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Re: Boeing takes $2bn in charges

Tue Jul 26, 2016 2:50 pm

GCT64 wrote:
a Boeing spokeswoman said the company is "in the process of adjusting the payment terms of suppliers"

So, reading between the lines, I'm guessing that events went something like this:

Rockwells payment terms are 30 days
Boeing asked Rockwell to extend those terms to 90 or 120 days
Rockwell refused
Boeing just did it anyway

Seems a strange way to do business. I can only see it leading to higher prices for Boeing next time they go looking for suppliers.

Be interesting to see what would happen if Rockwell decide to play Boeing at their own game and stop shipping parts until the outstanding amounts have been paid. :)
 
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scbriml
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Re: Boeing takes $2bn in charges

Tue Jul 26, 2016 3:41 pm

speedbored wrote:
Seems a strange way to do business.


No, it's Partnering for Success. :roll:

It looks like Boeing is doing everything it can to encourage customers to pay early, while delaying unreasonably the paying of their suppliers. Bit of a one-way street it seems to me.
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glbltrvlr
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Re: Boeing takes $2bn in charges

Tue Jul 26, 2016 4:05 pm

speedbored wrote:
GCT64 wrote:
a Boeing spokeswoman said the company is "in the process of adjusting the payment terms of suppliers"

So, reading between the lines, I'm guessing that events went something like this:

Rockwells payment terms are 30 days
Boeing asked Rockwell to extend those terms to 90 or 120 days
Rockwell refused
Boeing just did it anyway


Yep. That's exactly how it works.
 
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Stitch
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Re: Boeing takes $2bn in charges

Tue Jul 26, 2016 4:48 pm

speedbored wrote:
Seems a strange way to do business. I can only see it leading to higher prices for Boeing next time they go looking for suppliers.

Be interesting to see what would happen if Rockwell decide to play Boeing at their own game and stop shipping parts until the outstanding amounts have been paid. :)


In either case, I would imagine Rockwell-Collins would not be the recommended supplier of components to Boeing, which would probably not be good for RC.

Boeing's doing this because they can - the 800 pound gorilla sits where he wants.
 
StTim
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Re: Boeing takes $2bn in charges

Tue Jul 26, 2016 4:57 pm

The 800 pound Gorilla sits where it wants until there is no one willing to play its game by bringing food to its enclosure. At that point it has to either change or it will starve.

It may also find that previous suppliers are none too willing to come back to doing business with it.

Boeing appear to be ploughing a short term strategy to improve their cash flow and profitability at the expense of suppliers. At the same time as increasing payment terms and driving down what they will pay they are looking to skim all the high margin parts business from their suppliers. How long before one takes an early bath and leaves Boeing in a hole.

When I was at business school all the talk was about the way that German and Japanese businesses partner for success by being a real partnership. Boeing is going back to the ultra capitalist approach of you need me more than I need you so play my game. They did it to Washington state when negotiating the tax breaks. They did it to the workforce and now they are doing it to suppliers.

Very sad really,
 
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speedbored
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Re: Boeing takes $2bn in charges

Tue Jul 26, 2016 5:00 pm

Stitch wrote:
In either case, I would imagine Rockwell-Collins would not be the recommended supplier of components to Boeing, which would probably not be good for RC.
Boeing's doing this because they can - the 800 pound gorilla sits where he wants.

I'm not so sure.

Given the very public way that Boeing are doing this, I can see every potential supplier increasing their prices on future Boeing contracts in order to cover the cost of such extended payment terms. Seems to me that Boeing will be exchanging one-off short-term gains for repeating long-term losses.

Even if that proves not to be the case, I still can't see how the relatively small (to Boeing) one-off gain is worth the huge loss of supplier goodwill that will ensue.

To me it looks like yet another exercise in increasing bonuses for the current Boeing management at the expense of the long-term.
 
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Stitch
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Re: Boeing takes $2bn in charges

Tue Jul 26, 2016 5:26 pm

speedbored wrote:
Even if that proves not to be the case, I still can't see how the relatively small (to Boeing) one-off gain is worth the huge loss of supplier goodwill that will ensue.


Because Boeing is run by MBAs now and they only look at the bottom line and how they can improve it.

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