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Finn350
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Boeing expects $70M profit per a 787 frame in the future orders

Sat Feb 11, 2017 7:24 am

Boeing has released its 2016 annual report. In the report, Boeing states it expects to recover $7.1 billion of the 787 program deferred productions etc. from the last 100 frames not yet ordered in the program accounting quantity of 1,300.

That is a huge improvement in the program profitability considering the 787 program has just made break-even on a per-frame production cost basis. I wonder if a $70M profit per a 787 frame is realistic.

At December 31, 2016 and 2015, commercial aircraft programs inventory included the following amounts related to the 787 program: $32,501 and $34,656 of work in process (including deferred production costs of $27,308 and $28,510), $2,398 and $2,551 of supplier advances, and $3,625 and $3,890 of unamortized tooling and other non-recurring costs. At December 31, 2016, $23,818 of 787 deferred production costs, unamortized tooling and other non-recurring costs are expected to be recovered from units included in the program accounting quantity that have firm orders and $7,115 is expected to be recovered from units included in the program accounting quantity that represent expected future orders.

During the second quarter of 2016, we determined that it was unlikely we would receive firm orders for two flight test aircraft that were produced in 2009 and accordingly reclassified associated costs of $1,235 from 787 program inventory to research and development expense. The reclassification also impacted 787 deferred production costs, reducing the balance by $1,011 at June 30, 2016.


Source: https://www.sec.gov/Archives/edgar/data ... 6A94A8F244
 
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zeke
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Re: Boeing expects $70M profit per a 787 frame in the future orders

Sat Feb 11, 2017 7:32 am

I don't see Boeing ever getting close to that per airframe. Boeing only gets around 60 million total for a 77W airframe, let alone a 70 million margin. Of the sticker price you see 60 million will go to the engines, 10-20 million for the interior, 10-20 million for avionics, 5-10 million for the APU.

With the A330neo & A350 being a viable competitors Boeing also does not own the market segment, it needs to compete on these orders.
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art
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Re: Boeing expects $70M profit per a 787 frame in the future orders

Sat Feb 11, 2017 7:50 am

zeke wrote:
I don't see Boeing ever getting close to that per airframe. Boeing only gets around 60 million total for a 77W airframe, let alone a 70 million margin. Of the sticker price you see 60 million will go to the engines, 10-20 million for the interior, 10-20 million for avionics, 5-10 million for the APU.

With the A330neo & A350 being a viable competitors Boeing also does not own the market segment, it needs to compete on these orders.


Could push margins up for Airbus, too, if they know Boeing will not cut margins to the bone to get the order.
 
BestWestern
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Re: Boeing expects $70M profit per a 787 frame in the future orders

Sat Feb 11, 2017 7:55 am

All ordered 787s were sold at a loss?
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Finn350
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Re: Boeing expects $70M profit per a 787 frame in the future orders

Sat Feb 11, 2017 8:21 am

BestWestern wrote:
All ordered 787s were sold at a loss?


All thus far delivered 500 frames were sold at a loss, generating around $32 billion deferred production costs etc. From now, Boeing expects to recover the deferred production costs etc. from the remaining 800 frames in the program accounting quantity (700 firm orders and 100 to be ordered).
 
WIederling
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Re: Boeing expects $70M profit per a 787 frame in the future orders

Sat Feb 11, 2017 9:29 am

Finn350 wrote:
BestWestern wrote:
All ordered 787s were sold at a loss?


All thus far delivered 500 frames were sold at a loss, generating around $32 billion deferred production costs etc. From now, Boeing expects to recover the deferred production costs etc. from the remaining 800 frames in the program accounting quantity (700 firm orders and 100 to be ordered).


Boeing has booked into the ( at least in my understanding ) cost basket the outlay for production and a _commanded_ amount of profit per item. About a year ago they announced that they are at break even on _production cost_ alone. ( note the different metric.)
Murphy is an optimist
 
StTim
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Re: Boeing expects $70M profit per a 787 frame in the future orders

Sat Feb 11, 2017 9:34 am

Can someone confirm whether or not the deferred costs attract some sort of interest/capital charges? Otherwise Boeing will be paying back 2010 $ with $ earned in 2020 at the same par value when we all know what inflation does to the value of money over time.
 
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Finn350
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Re: Boeing expects $70M profit per a 787 frame in the future orders

Sat Feb 11, 2017 9:43 am

StTim wrote:
Can someone confirm whether or not the deferred costs attract some sort of interest/capital charges? Otherwise Boeing will be paying back 2010 $ with $ earned in 2020 at the same par value when we all know what inflation does to the value of money over time.


There is no interest for the deferred production costs, as it is an accounting item only. The production costs have been paid out as salaries, subcontractor invoices etc. irrespective of the program cost accounting.
 
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speedbored
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Re: Boeing expects $70M profit per a 787 frame in the future orders

Sat Feb 11, 2017 9:44 am

StTim wrote:
Can someone confirm whether or not the deferred costs attract some sort of interest/capital charges?

No it does not.

StTim wrote:
Otherwise Boeing will be paying back 2010 $ with $ earned in 2020 at the same par value when we all know what inflation does to the value of money over time.

That is one of the benefits of program accounting. You can pay costs incurred with today's high value "money" with the future's lower value "money".

But ... it's all just a paper exercise for profit reporting purposes. Actual cash payment of those deferred costs has already happened, using today's high value cash.
Last edited by speedbored on Sat Feb 11, 2017 9:45 am, edited 2 times in total.
 
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Finn350
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Re: Boeing expects $70M profit per a 787 frame in the future orders

Sat Feb 11, 2017 9:44 am

WIederling wrote:
Boeing has booked into the ( at least in my understanding ) cost basket the outlay for production and a _commanded_ amount of profit per item. About a year ago they announced that they are at break even on _production cost_ alone. ( note the different metric.)


In principle yes, but as the program as a whole is considered break-even (for the program accounting quantity), there is no profit to be recorded.
 
StTim
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Re: Boeing expects $70M profit per a 787 frame in the future orders

Sat Feb 11, 2017 9:48 am

speedbored wrote:
But ... it's all just a paper exercise for profit reporting purposes. Actual cash payment of those deferred costs has already happened, using today's high value cash.


You could almost say this of any set of accounts :)
 
81819
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Re: Boeing expects $70M profit per a 787 frame in the future orders

Sat Feb 11, 2017 9:52 am

The problem with discussing 787 costs is that we are often see cost in a single dimension, when in reality there are various components to cost, each with unique attributes that are often treated differently.

For example, one of the dominant costs for a new product is based around facilities, which in many cases are developed from greenfield sites. Normally, the cost of manufacturing facilities are accrued using set periods of time and not number of units produced. As such facilities start incurring costs from the outset. This is why we often see costs blow out with bringing new products to market.

For example, a aluminium wing spar raw material and labour costs would only represent a small part of the components overall costs. The facility, manufacturing equipment and manufacturing process certification costs would initially represent the greater amount. They would also be front loaded. Once these costs have been paid for the cost to manufacture the wing spar would reduce by a considerable amount.

As such new production facilities are a very expensive component of overall 787 costs.

With a good proportion of the 787 facilities being more than ten years old, many of these facilities could be coming to a point in time where they are paid for. Once these facilities are paid for the cost of parts / components for the 787 could come down.

For example, with the delays in bringing the 787 to market, 787 supplier contract conditions could have required Boeing to pay for the cost of the manufacturing facilities even though they were not producing parts for the 787. As such quite a few 787 costs were front loaded. This is probably why we have seen deferred costs blow out the way it has.

As a result this creates an unusual situation where there are large differences in costs to produce parts during different stages of the program.
 
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speedbored
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Re: Boeing expects $70M profit per a 787 frame in the future orders

Sat Feb 11, 2017 9:52 am

Finn350 wrote:
I wonder if a $70M profit per a 787 frame is realistic.

I think it is equally as realistic as all of the other projections that Boeing has made about the 787 accounting block so far :)

Will they manage to achieve $70M production profit per frame in ~ 5-6 year's time? I seriously doubt it. Given the price pressure from Airbus with both the 330 and 350, I can't see Boeing being able to hike up prices that much, so it would require cost cutting on a scale never before seen on any commercial aircraft program. Suppliers are already complaining that their margins are slim to non-existent.
 
WIederling
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Re: Boeing expects $70M profit per a 787 frame in the future orders

Sat Feb 11, 2017 9:58 am

Finn350 wrote:
WIederling wrote:
Boeing has booked into the ( at least in my understanding ) cost basket the outlay for production and a _commanded_ amount of profit per item. About a year ago they announced that they are at break even on _production cost_ alone. ( note the different metric.)


In principle yes, but as the program as a whole is considered break-even (for the program accounting quantity), there is no profit to be recorded.


Boeing doesn't work for just "cost break even" over a full project.
They are a real company and work for profits only. ( all else like building aircraft is just fancy dressing :-)

So the idea behind program accounting is having constant profits over the lifetime of a project.
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enzo011
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Re: Boeing expects $70M profit per a 787 frame in the future orders

Sat Feb 11, 2017 10:47 am

Seems to me that they have projected that the current block will not cover the deferred cost at this point in time and that the 100 aircraft not yet ordered and future orders of the next accounting block will have a $7.1 billion weight to each delivery that still needs to be made up. So they either take a $7 billion charge to erase the deferred cost at the end of the current accounting block, or just keep on deferring and approach each RFP from airlines with one hand tied behind their backs with regards to pricing against the competition. One will allow better profits in 8 years time, the other will be better for executives now, I guess we know which one will be done.
 
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Re: Boeing expects $70M profit per a 787 frame in the future orders

Sat Feb 11, 2017 10:57 am

speedbored wrote:
Finn350 wrote:
I wonder if a $70M profit per a 787 frame is realistic.

I think it is equally as realistic as all of the other projections that Boeing has made about the 787 accounting block so far :)


Zinger! :rotfl:
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WIederling
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Re: Boeing expects $70M profit per a 787 frame in the future orders

Sat Feb 11, 2017 11:54 am

Finn350 wrote:
Boeing states it expects to recover $7.1 billion of the 787 program deferred productions etc. from the last 100 frames not yet ordered in the program accounting quantity of 1,300.


Replace "expect" with "must" or "need to"/"would have to".
Then this projection already appears to be exceptionally rosy.
https://theblogbyjavier.com/2011/10/28/ ... reak-even/
https://theblogbyjavier.com/2011/10/31/ ... reak-even/
https://theblogbyjavier.com/tag/unit-cost/
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scbriml
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Re: Boeing expects $70M profit per a 787 frame in the future orders

Sat Feb 11, 2017 3:54 pm

Finn350 wrote:
Boeing has released its 2016 annual report. In the report, Boeing states it expects to recover $7.1 billion of the 787 program deferred productions etc. from the last 100 frames not yet ordered in the program accounting quantity of 1,300.


Even if Boeing somehow manages to acheive this, which I very much doubt, it would still leave them $20billion to account for.
Time flies like an arrow. Fruit flies like a banana!
There are 10 types of people in the World - those that understand binary and those that don't.
 
jomur
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Re: Boeing expects $70M profit per a 787 frame in the future orders

Sat Feb 11, 2017 4:11 pm

Does that mean that airlines now know that Boeing can reduce the cost by several millions then? I know i would expect a bigger discount in future knowing Boeing wants to make that much profit per plane.
 
StTim
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Re: Boeing expects $70M profit per a 787 frame in the future orders

Sat Feb 11, 2017 4:18 pm

jomur wrote:
Does that mean that airlines now know that Boeing can reduce the cost by several millions then? I know i would expect a bigger discount in future knowing Boeing wants to make that much profit per plane.



Spot on!
 
strfyr51
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Re: Boeing expects $70M profit per a 787 frame in the future orders

Sat Feb 11, 2017 4:34 pm

jomur wrote:
Does that mean that airlines now know that Boeing can reduce the cost by several millions then? I know i would expect a bigger discount in future knowing Boeing wants to make that much profit per plane.


All the airlines know is that Boeing can sell them an order for a related cost.. The larger the order? Possibly the lower the Unit cost. But whatever the Unit cost is?
It will NOT be sold at a loss. The time to so that was as a first customer.. Now? They know what they didn't know and they've had time to see the airplane in action and make improvements to the systems for better reliability and adjustments for better performance. Later series of the airplane will have better performance over the earlier models
I wouldn't give that away either!!
 
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Dutchy
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Re: Boeing expects $70M profit per a 787 frame in the future orders

Sat Feb 11, 2017 4:51 pm

jomur wrote:
Does that mean that airlines now know that Boeing can reduce the cost by several millions then? I know i would expect a bigger discount in future knowing Boeing wants to make that much profit per plane.


If I were in the marked for a 787 I would say yeah :D Boeing could reduce my price by 70m ;-)
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moo
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Re: Boeing expects $70M profit per a 787 frame in the future orders

Sat Feb 11, 2017 5:20 pm

scbriml wrote:
Finn350 wrote:
Boeing has released its 2016 annual report. In the report, Boeing states it expects to recover $7.1 billion of the 787 program deferred productions etc. from the last 100 frames not yet ordered in the program accounting quantity of 1,300.


Even if Boeing somehow manages to acheive this, which I very much doubt, it would still leave them $20billion to account for.


Isn't that accounted for by the 700 deliveries before those 100?
 
WIederling
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Re: Boeing expects $70M profit per a 787 frame in the future orders

Sat Feb 11, 2017 5:26 pm

moo wrote:
Isn't that accounted for by the 700 deliveries before those 100?


in theory, yes. ( except they introduce some additional major writeoffs.)

Can we compute assumed learning curve from 700 frames $20b reclaim and the next 100 frames $7.6b reclaim ?

Does Boeing assume that 7810 deliveries change returns strongly? ( they should. nigh zero incremental cost for manufacture and quite the markup in revenue per item. On the other hand interest beyond the loss leader introductoy frames was tepid, mostly.)

Same for 777X as it happens.
Murphy is an optimist
 
texl1649
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Re: Boeing expects $70M profit per a 787 frame in the future orders

Sat Feb 11, 2017 5:26 pm

No. Just as you can't go to the lunch counter and demand that your Coca Cola be reduced to 10 cents, this doesn't give airlines some magical ability to demand lower prices. This is a direct/labor cost of goods produced disclosure. Carbon fiber is probably noticeably cheaper for Boeing relative to going to Alcoa for all of the aircraft grade aluminum they'd need otherwise. At least, that's always been the goal.

Now obviously, the secondary goal (wings and all) is to get this all down from a production standpoint to where it can be commercialized in other products, such as NSA/MoM, without massive losses up front.

It also, oh by the way, indicates that if Boeing decides to stop buying back $10+ billion a year in shares they could do away with this write down relatively quickly and decide not to cede orders for the "cheaper" A330 NEO at any time they feel the market split based on current pricing isn't working out the way they want.
 
WIederling
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Re: Boeing expects $70M profit per a 787 frame in the future orders

Sat Feb 11, 2017 5:36 pm

"... at any time they feel the market split based on current pricing isn't working out the way they want."

That is why they are buying back shares. market share prospects no longer buoy up the share value.
... and the mule from program accounting ( poor beasty) looks a bit haggard too.
Murphy is an optimist
 
mjoelnir
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Re: Boeing expects $70M profit per a 787 frame in the future orders

Sat Feb 11, 2017 5:38 pm

travelhound wrote:
The problem with discussing 787 costs is that we are often see cost in a single dimension, when in reality there are various components to cost, each with unique attributes that are often treated differently.

For example, one of the dominant costs for a new product is based around facilities, which in many cases are developed from greenfield sites. Normally, the cost of manufacturing facilities are accrued using set periods of time and not number of units produced. As such facilities start incurring costs from the outset. This is why we often see costs blow out with bringing new products to market.

For example, a aluminium wing spar raw material and labour costs would only represent a small part of the components overall costs. The facility, manufacturing equipment and manufacturing process certification costs would initially represent the greater amount. They would also be front loaded. Once these costs have been paid for the cost to manufacture the wing spar would reduce by a considerable amount.

As such new production facilities are a very expensive component of overall 787 costs.

With a good proportion of the 787 facilities being more than ten years old, many of these facilities could be coming to a point in time where they are paid for. Once these facilities are paid for the cost of parts / components for the 787 could come down.

For example, with the delays in bringing the 787 to market, 787 supplier contract conditions could have required Boeing to pay for the cost of the manufacturing facilities even though they were not producing parts for the 787. As such quite a few 787 costs were front loaded. This is probably why we have seen deferred costs blow out the way it has.

As a result this creates an unusual situation where there are large differences in costs to produce parts during different stages of the program.


The cost deferred with program accounting for cost are production cost, nothing else. Not facilities, you activate them and wright them of over many years. Not tooling, like moulds, you again activate them and write them off over many years. A facility has a bookable worth, tooling has a bookable worth.
The cost you defer you would not be able to activate, it is gone, nothing to show. It is the actual cost to produce those 500 first frames, material, salaries, transport cost and so on. You deduct from that the estimated average production cost and the rest you defer.
 
olle
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Re: Boeing expects $70M profit per a 787 frame in the future orders

Sat Feb 11, 2017 5:44 pm

Anyone nows what is the production cost of a A339 vs B789? In the end of the day the price that Boeing can charge for a 789 will be the premium price an airline want to pay compared to the what Airbus is willing to offer A339 for. Is this price higher then production of 789 + USD 70 million?
 
Chemist
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Re: Boeing expects $70M profit per a 787 frame in the future orders

Sat Feb 11, 2017 6:16 pm

...and just think, with the 787 there are all kinds of cost sharing partners who build all the subassemblies, ship them to Everett, and manufacturing just snaps them together! It is easy and revolutionary! (Story from early 2000s).
 
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moo
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Re: Boeing expects $70M profit per a 787 frame in the future orders

Sat Feb 11, 2017 6:34 pm

texl1649 wrote:
No. Just as you can't go to the lunch counter and demand that your Coca Cola be reduced to 10 cents, this doesn't give airlines some magical ability to demand lower prices.


You can if there's a second lunch counter and both are willing to compete for your business - this gives potential customers information you wouldnt really want them to have in negotiations...
 
81819
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Re: Boeing expects $70M profit per a 787 frame in the future orders

Sat Feb 11, 2017 10:51 pm

mjoelnir wrote:

The cost deferred with program accounting for cost are production cost, nothing else. Not facilities, you activate them and wright them of over many years. Not tooling, like moulds, you again activate them and write them off over many years. A facility has a bookable worth, tooling has a bookable worth.
The cost you defer you would not be able to activate, it is gone, nothing to show. It is the actual cost to produce those 500 first frames, material, salaries, transport cost and so on. You deduct from that the estimated average production cost and the rest you defer.


Yawn!

Boeing and its suppliers can structure their contracts in any way that best suits them. In principal the parties in negotiating the contracts would do so on the basis that they were commercial in nature and minimised risk.

Now I am not too sure about you, but if I was negotiating a contract I would want to make sure costs were properly provisioned through incoming revenues, as this would minimise the risk of a project being a financial drain on the company. We only have to look at the KC46 program where Boeing charged the government a minimal amount for the development of the aircraft and incurred upfront costs. There have been many statements to the market in concern to this.

If we consider the 787 program and Boeing's agreements with its suppliers there would be many elements to a contract. For instance, in many cases the suppliers were responsible for the "development" of the parts they were supplying. As such the contract would have provisioned for this part of the agreement and how costs for "development" would be charged to Boeing.

I'd suggest these costs would have been charged independent of sales and over a set period of time (i.e. progress claims over a 10 year term).

Another part of the contract would have provisioned for "facilities", "tooling" and operational costs for producing parts for the 787. In this instance, there wouldn't be too many suppliers who could finance the development of a greenfield site, including equipment, tooling and overheads for a project where revenues from the sale of parts were delayed for 2-3 years. Again, the agreements Boeing and its suppliers had with each other would have provisioned for such scenarios and how these costs would be paid for if such an event (as it did) occurs.

Another aspect of the agreements Boeing would have with its suppliers is that of Intellectual Property (IP). In some instances the suppliers were licensed to use "IP" owned by Boeing, where in other instances Boeing was licensed to use the "IP" owned by its suppliers. In some instances Boeing had exclusivity rights for "IP" owned by suppliers. As such the agreements Boeing had with its suppliers with regards to "IP" would have been provisioned for in the contract.

Again, the question becomes how "IP" costs were charged to Boeing. It could have been provisioned through a simple percentage of sales (as you assert), a separate IP licensing agreement charge (made independent of sales) or a combination of both.

Your post simply asserts that Boeing has to a treat a cost on the basis of depreciation. The reality is depreciation can be treated many ways and as such should not be used as a guide for how costs should be accounted for in a project environment. For example, my companies manufacturing facility in Australia was able to take advantage of Accelerated Depreciation tax rules when purchasing equipment. This meant we were able to incur higher depreciation costs (reduced taxable incomes), even though the depreciation schedule was not representative of the economic life of the equipment.

Different countries have different tax laws!

In reality all we know is that in 2017 the 787 program has "Deferred" costs of ~$27 billion and that the Boeing board (in their wisdom) continually inform the market about how deferred costs are tracking against a program accounting method.

From this perspective, all we can do is assume costs have been properly provisioned for..........regardless of a logic chain focusing on the basic principles of depreciation.
 
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QuarkFly
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Re: Boeing expects $70M profit per a 787 frame in the future orders

Sun Feb 12, 2017 12:06 am

What B should do is stop trying to fool everybody...take a write down for some of the $27+ billion in deferred cost, to put it at a reasonable level. Yes, maybe that means less share buybacks. Current big earnings B is reporting are an illusion...everybody knows they will never cover the deferred for decades, if ever. It is no admission of failure...the 787 is turning into an industry workhorse, initial tech issues long past -- both 787 and A350 will eventually sell 3000+ units....

...But B will be lucky to clear $15 margin million per plane in the future competitive environment and the day will come when the production rate drops and they will have even less margin per plane. Accounting in the US at least, is somewhat corrupt...laws should not allow that much deferred costs in program accounting...both gov't and shareholders should demand changes. Sadly, it won't happen -- B is using the deferred cost as a big tax advantage.
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mjoelnir
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Re: Boeing expects $70M profit per a 787 frame in the future orders

Sun Feb 12, 2017 1:19 am

travelhound wrote:
mjoelnir wrote:

The cost deferred with program accounting for cost are production cost, nothing else. Not facilities, you activate them and wright them of over many years. Not tooling, like moulds, you again activate them and write them off over many years. A facility has a bookable worth, tooling has a bookable worth.
The cost you defer you would not be able to activate, it is gone, nothing to show. It is the actual cost to produce those 500 first frames, material, salaries, transport cost and so on. You deduct from that the estimated average production cost and the rest you defer.


Yawn!

Boeing and its suppliers can structure their contracts in any way that best suits them. In principal the parties in negotiating the contracts would do so on the basis that they were commercial in nature and minimised risk.

Now I am not too sure about you, but if I was negotiating a contract I would want to make sure costs were properly provisioned through incoming revenues, as this would minimise the risk of a project being a financial drain on the company. We only have to look at the KC46 program where Boeing charged the government a minimal amount for the development of the aircraft and incurred upfront costs. There have been many statements to the market in concern to this..

If we consider the 787 program and Boeing's agreements with its suppliers there would be many elements to a contract. For instance, in many cases the suppliers were responsible for the "development" of the parts they were supplying. As such the contract would have provisioned for this part of the agreement and how costs for "development" would be charged to Boeing.

I'd suggest these costs would have been charged independent of sales and over a set period of time (i.e. progress claims over a 10 year term).

Another part of the contract would have provisioned for "facilities", "tooling" and operational costs for producing parts for the 787. In this instance, there wouldn't be too many suppliers who could finance the development of a greenfield site, including equipment, tooling and overheads for a project where revenues from the sale of parts were delayed for 2-3 years. Again, the agreements Boeing and its suppliers had with each other would have provisioned for such scenarios and how these costs would be paid for if such an event (as it did) occurs.

Another aspect of the agreements Boeing would have with its suppliers is that of Intellectual Property (IP). In some instances the suppliers were licensed to use "IP" owned by Boeing, where in other instances Boeing was licensed to use the "IP" owned by its suppliers. In some instances Boeing had exclusivity rights for "IP" owned by suppliers. As such the agreements Boeing had with its suppliers with regards to "IP" would have been provisioned for in the contract.

Again, the question becomes how "IP" costs were charged to Boeing. It could have been provisioned through a simple percentage of sales (as you assert), a separate IP licensing agreement charge (made independent of sales) or a combination of both.

Your post simply asserts that Boeing has to a treat a cost on the basis of depreciation. The reality is depreciation can be treated many ways and as such should not be used as a guide for how costs should be accounted for in a project environment. For example, my companies manufacturing facility in Australia was able to take advantage of Accelerated Depreciation tax rules when purchasing equipment. This meant we were able to incur higher depreciation costs (reduced taxable incomes), even though the depreciation schedule was not representative of the economic life of the equipment.

Different countries have different tax laws!

In reality all we know is that in 2017 the 787 program has "Deferred" costs of ~$27 billion and that the Boeing board (in their wisdom) continually inform the market about how deferred costs are tracking against a program accounting method.

From this perspective, all we can do is assume costs have been properly provisioned for..........regardless of a logic chain focusing on the basic principles of depreciation.


If you need to be right keep spouting nonsense. Program accounting for cost is not something what you imagine it could be, but it is exactly defined. Read up on program for cost accounting on the internet, it is all there. It is that different from normal accounting. It is not aloud in most countries that I know of. It is banned according to IFRS. It is aloud in US GAAP just for certain industries. Even in US GAAP it is grandfathered, nobody new can take it up. It is that obscure that people like you get crazy ideas about what it really means.
I am really getting tired of the people trying to make something else out of this cost deferrals of Boeing than what it really is. It is exactly just plain production cost that are deferred; NOTHING ELSE whatever you imagine it could be. You are just showing that you have no idea of accounting and no idea what program for cost accounting is all about.
 
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Revelation
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Re: Boeing expects $70M profit per a 787 frame in the future orders

Sun Feb 12, 2017 1:43 am

QuarkFly wrote:
What B should do is stop trying to fool everybody...take a write down for some of the $27+ billion in deferred cost, to put it at a reasonable level. Yes, maybe that means less share buybacks. Current big earnings B is reporting are an illusion...everybody knows they will never cover the deferred for decades, if ever. It is no admission of failure...the 787 is turning into an industry workhorse, initial tech issues long past -- both 787 and A350 will eventually sell 3000+ units....

...But B will be lucky to clear $15 margin million per plane in the future competitive environment and the day will come when the production rate drops and they will have even less margin per plane. Accounting in the US at least, is somewhat corrupt...laws should not allow that much deferred costs in program accounting...both gov't and shareholders should demand changes. Sadly, it won't happen -- B is using the deferred cost as a big tax advantage.


Yes, everybody knows, especially the investment community that chooses to buy Boeing stock, and these transactions set the value of the stock. If no one buys it at the asking price because the accounting misrepresents the value of the company the price would fall, but program accounting has been going on for decades so it's all factored in to the price by now.

Basically it's a non-issue that some seem to get perverse joy out of raising as often as possible.
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cledaybuck
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Re: Boeing expects $70M profit per a 787 frame in the future orders

Sun Feb 12, 2017 2:02 am

Revelation wrote:
QuarkFly wrote:
What B should do is stop trying to fool everybody...take a write down for some of the $27+ billion in deferred cost, to put it at a reasonable level. Yes, maybe that means less share buybacks. Current big earnings B is reporting are an illusion...everybody knows they will never cover the deferred for decades, if ever. It is no admission of failure...the 787 is turning into an industry workhorse, initial tech issues long past -- both 787 and A350 will eventually sell 3000+ units....

...But B will be lucky to clear $15 margin million per plane in the future competitive environment and the day will come when the production rate drops and they will have even less margin per plane. Accounting in the US at least, is somewhat corrupt...laws should not allow that much deferred costs in program accounting...both gov't and shareholders should demand changes. Sadly, it won't happen -- B is using the deferred cost as a big tax advantage.


Yes, everybody knows, especially the investment community that chooses to buy Boeing stock, and these transactions set the value of the stock. If no one buys it at the asking price because the accounting misrepresents the value of the company the price would fall, but program accounting has been going on for decades so it's all factored in to the price by now.

Basically it's a non-issue that some seem to get perverse joy out of raising as often as possible.

They are not even trying to fool anybody. Boeing publishes unit cost vs. program accounting on their own website.
As we celebrate mediocrity, all the boys upstairs want to see, how much you'll pay for what you used to get for free.
 
mjoelnir
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Re: Boeing expects $70M profit per a 787 frame in the future orders

Sun Feb 12, 2017 3:15 am

cledaybuck wrote:
They are not even trying to fool anybody. Boeing publishes unit cost vs. program accounting on their own website.


Exactly, but that does not change the numbers coming out of program accounting, or what program accounting means. There is a huge difference in profits at Boeing depending on what accounting method you look at.

https://www.bloomberg.com/gadfly/articl ... g-question
 
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Re: Boeing expects $70M profit per a 787 frame in the future orders

Sun Feb 12, 2017 3:30 am

cledaybuck wrote:
Revelation wrote:
Yes, everybody knows, especially the investment community that chooses to buy Boeing stock, and these transactions set the value of the stock. If no one buys it at the asking price because the accounting misrepresents the value of the company the price would fall, but program accounting has been going on for decades so it's all factored in to the price by now.

Basically it's a non-issue that some seem to get perverse joy out of raising as often as possible.

They are not even trying to fool anybody. Boeing publishes unit cost vs. program accounting on their own website.


They are trying to fool people, by indicating this $27 billion deferred production cost is to be worked off in a 1300 (I believe) aircraft production block. Over 500 frames already delivered, so for the remaining 800...that comes out to $34 million margin for each 787 on average up to number 1300. No way! The days of that kind of margin like 744 and 77W are over, competition will not allow it. Boeing gives all current earnings as dividends and share buybacks (at record high share price), pretends there will be no future write-down and that he 1300 frame block will not go up (way up!)...all the while getting the tax breaks that come with this huge deferred cost.

I do actually believe if accounting rules were different, the share price would be lower, taxpayers would be better off...and B would even be better prepared to finance new products which will be necessary to take on A321 and the middle market gap they have. Also a market turndown will eventually come...see how these finances and share buybacks look when 787 ls delivered at less than 5 a month rate.
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Planesmart
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Re: Boeing expects $70M profit per a 787 frame in the future orders

Sun Feb 12, 2017 4:55 am

Revelation wrote:
QuarkFly wrote:
What B should do is stop trying to fool everybody...take a write down for some of the $27+ billion in deferred cost, to put it at a reasonable level. Yes, maybe that means less share buybacks. Current big earnings B is reporting are an illusion...everybody knows they will never cover the deferred for decades, if ever. It is no admission of failure...the 787 is turning into an industry workhorse, initial tech issues long past -- both 787 and A350 will eventually sell 3000+ units....

...But B will be lucky to clear $15 margin million per plane in the future competitive environment and the day will come when the production rate drops and they will have even less margin per plane. Accounting in the US at least, is somewhat corrupt...laws should not allow that much deferred costs in program accounting...both gov't and shareholders should demand changes. Sadly, it won't happen -- B is using the deferred cost as a big tax advantage.


Yes, everybody knows, especially the investment community that chooses to buy Boeing stock, and these transactions set the value of the stock. If no one buys it at the asking price because the accounting misrepresents the value of the company the price would fall, but program accounting has been going on for decades so it's all factored in to the price by now.

Basically it's a non-issue that some seem to get perverse joy out of raising as often as possible.

It has been a non-issue with other models in the past. But with the magnitude of 787-related dollars and unit volumes we are most certainly in uncharted territory.

The share buyback helps prop up the share price.

Boeing is certainly working in a new paradigm financially, with price negotiability (less), and order deferral and model hopping penalties (enforced) being two examples.

Airbus is most certainly following on the bandwagon, padding already very healthy A330 and A320 margins, the former allowing the A350vA330 gap to be narrowed (for now).
 
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Re: Boeing expects $70M profit per a 787 frame in the future orders

Sun Feb 12, 2017 8:50 am

QuarkFly wrote:
What B should do is stop trying to fool everybody...take a write down for some of the $27+ billion in deferred cost, to put it at a reasonable level. Yes, maybe that means less share buybacks. Current big earnings B is reporting are an illusion...everybody knows they will never cover the deferred for decades, if ever. It is no admission of failure...the 787 is turning into an industry workhorse, initial tech issues long past -- both 787 and A350 will eventually sell 3000+ units....


One has to remember that the deferred production costs is an accounting item only not affecting cash flow. Basically during next 5-6 years Boeing has (according to its own estimates) free cash flow of over $30 billion from the 787 program (the expected production profit from the next 800 frames it expects to offset the production loss of the first 500 frames). The production profit is not visible in the company P&L statement, as it is used recovering the deferred production cost, but the cash can be used to buy shares back. That is also the reason that Boeing management is talking about free cash flow, not company profitablity.
 
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Re: Boeing expects $70M profit per a 787 frame in the future orders

Sun Feb 12, 2017 9:50 am

Finn350 wrote:
One has to remember that the deferred production costs is an accounting item only not affecting cash flow. Basically during next 5-6 years Boeing has (according to its own estimates) free cash flow of over $30 billion from the 787 program (the expected production profit from the next 800 frames it expects to offset the production loss of the first 500 frames). The production profit is not visible in the company P&L statement, as it is used recovering the deferred production cost, but the cash can be used to buy shares back. That is also the reason that Boeing management is talking about free cash flow, not company profitablity.


And they are smoking something! ...If they think they are going to be taking $ 35 to 40 million cash above production cost for each 787 over the next 5-6 years for 800 aircraft. The prices for the aircraft in the backlog are not going higher, competition will keep future order prices down. At the present 12-per-month rate, little remaining cost reduction is available. That's a reason why there have been no 787-10 orders in a few years (until the recent SIA LOI) or many 787 orders of any kind...nobody wants to pay the price to help reduce the deferred costs.

On top of that, the A330 NEO keeps a lower ceiling on prices for 787 sized aircraft. This is where B is not leveling with everybody on their estimates.
Always take the Red Eye if possible
 
WIederling
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Re: Boeing expects $70M profit per a 787 frame in the future orders

Sun Feb 12, 2017 9:55 am

Revelation wrote:
Yes, everybody knows, especially the investment community that chooses to buy Boeing stock, and these transactions set the value of the stock. If no one buys it at the asking price because the accounting misrepresents the value of the company the price would fall, but program accounting has been going on for decades so it's all factored in to the price by now.

Basically it's a non-issue that some seem to get perverse joy out of raising as often as possible.


In the shareholder economy "The competent investor/market participant" is afaics fully fictional.

If that really were the case nobody in that domain would accept comparing Quarterlies from Airbus and Boeing side by side.

But they do.
Murphy is an optimist
 
WIederling
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Re: Boeing expects $70M profit per a 787 frame in the future orders

Sun Feb 12, 2017 10:03 am

cledaybuck wrote:
They are not even trying to fool anybody. Boeing publishes unit cost vs. program accounting on their own website.


And they put it right in context : non GAAP numbers that those strange foreign investors insist on.
How dare they! Real bookkeepers only use GAAP! :-)

Same with floating rumors 3 days ahead of the NTSB battery report that "Air Berlin will buy further 787-9 frames".
( If anything they wanted to convert or cancel completely their 788 order.)
Murphy is an optimist
 
mjoelnir
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Re: Boeing expects $70M profit per a 787 frame in the future orders

Sun Feb 12, 2017 10:21 am

Finn350 wrote:
QuarkFly wrote:
What B should do is stop trying to fool everybody...take a write down for some of the $27+ billion in deferred cost, to put it at a reasonable level. Yes, maybe that means less share buybacks. Current big earnings B is reporting are an illusion...everybody knows they will never cover the deferred for decades, if ever. It is no admission of failure...the 787 is turning into an industry workhorse, initial tech issues long past -- both 787 and A350 will eventually sell 3000+ units....


One has to remember that the deferred production costs is an accounting item only not affecting cash flow. Basically during next 5-6 years Boeing has (according to its own estimates) free cash flow of over $30 billion from the 787 program (the expected production profit from the next 800 frames it expects to offset the production loss of the first 500 frames). The production profit is not visible in the company P&L statement, as it is used recovering the deferred production cost, but the cash can be used to buy shares back. That is also the reason that Boeing management is talking about free cash flow, not company profitablity.


Do people really think those deferred cost are an illusion? Not real or something? Removing the deferred cost means lower profits. Lower profits means lower dividends, lower bonuses and less possibilities of share buy backs in the future. If you have no equity you do not own the cash, it is just on loan. Boeing's equity has been used up and to grow equity you need profits and those you need to remove the deferred cost. Do you think deferring cost the last years and therefore showing higher profits and paying out those profits as higher dividends, higher bonus and using them to buy shares back, has no future consequences?
 
sciing
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Re: Boeing expects $70M profit per a 787 frame in the future orders

Sun Feb 12, 2017 10:24 am

So will Boeing will be able to keep the price level or will it below the planned cost. So in the end they account for example -30 mill. loss per frame but get 40 mill. cash or 40 mill. non-GAAP profit.
This will be fun for the sales team especially with the pressure to fill the line.
BTW: The thread title is nonsense and shows again a complete lack in understanding what cost and what profit are.
 
mjoelnir
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Re: Boeing expects $70M profit per a 787 frame in the future orders

Sun Feb 12, 2017 10:29 am

If Boeing does not fool anybody with using program accounting, the only company known to still use it, why do they use it? They could have used unit accounting, showing lower profits and even losses in the last years. That would have lead to lower dividends and no share buy backs. Of course every investor would have understood that that would make Boeing more profitable in the future and all investors would have understood to think long term.
 
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Finn350
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Re: Boeing expects $70M profit per a 787 frame in the future orders

Sun Feb 12, 2017 10:51 am

sciing wrote:
So will Boeing will be able to keep the price level or will it below the planned cost. So in the end they account for example -30 mill. loss per frame but get 40 mill. cash or 40 mill. non-GAAP profit.
This will be fun for the sales team especially with the pressure to fill the line.
BTW: The thread title is nonsense and shows again a complete lack in understanding what cost and what profit are.


BTW: The thread title is completely accurate, and it reflects Boeing management expectation for the 787 production profit for the last 100 frames in the current program accounting quantity. Although deferred production costs is an accounting item only, it has to be recovered by real production profit (and it was accumulated by real production loss).
 
SteinarN
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Re: Boeing expects $70M profit per a 787 frame in the future orders

Sun Feb 12, 2017 11:50 am

To make some simple math. Boeing expects to produce 140 787's a year for a total profit (which I assumes is about the same as free cash flow and not booked profit) of 70 million times 140 copies a year for a grand total of 9.8B US$. This for one single wide body program. This seems totally in break with what have been even remotely acheivable on any other aircraft program up until now. What was the total profit on each 77W delivered some years ago when it was on top? 40 million? And the 77W had no real competitor, compare this to today where the 787 faces stiff competition from both the A330neo and the A350.

If this is not fantasy land, I dont know what counts as fantasy land.
 
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Re: Boeing expects $70M profit per a 787 frame in the future orders

Sun Feb 12, 2017 12:03 pm

mjoelnir wrote:

I am really getting tired of the people trying to make something else out of this cost deferrals of Boeing than what it really is. It is exactly just plain production cost that are deferred; NOTHING ELSE whatever you imagine it could be. You are just showing that you have no idea of accounting and no idea what program for cost accounting is all about.


Since you are the A-Net resident expert on accounting please advise me how you would account for environmental sustainability. Would you use a system similar to program accounting or accrual accounting?

If you choose program accounting, please advise why it is a legitimate method for environmental sustainability and not industrial projects?
 
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Re: Boeing expects $70M profit per a 787 frame in the future orders

Sun Feb 12, 2017 12:24 pm

mjoelnir wrote:
If Boeing does not fool anybody with using program accounting, the only company known to still use it, why do they use it? They could have used unit accounting, showing lower profits and even losses in the last years. That would have lead to lower dividends and no share buy backs. Of course every investor would have understood that that would make Boeing more profitable in the future and all investors would have understood to think long term.


Presumably for the same reasons Airbus still uses launch aid when they can easily get commercial loans and/or fund development out of cash flow, it works in their favor to use it.
Wake up to find out that you are the eyes of the world
The heart has its beaches, its homeland and thoughts of its own
Wake now, discover that you are the song that the morning brings
The heart has its seasons, its evenings and songs of its own
 
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Finn350
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Re: Boeing expects $70M profit per a 787 frame in the future orders

Sun Feb 12, 2017 12:37 pm

SteinarN wrote:
To make some simple math. Boeing expects to produce 140 787's a year for a total profit (which I assumes is about the same as free cash flow and not booked profit) of 70 million times 140 copies a year for a grand total of 9.8B US$. This for one single wide body program. This seems totally in break with what have been even remotely acheivable on any other aircraft program up until now. What was the total profit on each 77W delivered some years ago when it was on top? 40 million? And the 77W had no real competitor, compare this to today where the 787 faces stiff competition from both the A330neo and the A350.

If this is not fantasy land, I dont know what counts as fantasy land.


For the next 700 frames, the expected profit is $23.8 billion / 700 frames = $34 million per frame. Probably even that is too optimistic, but for the last 100 frames of the program accounting quantity the expected profit is $7.1 billion / 100 frames = $71 million per frame. As you say, that is fantasy land. I presume Boeing will increase the program accounting quantity in its next quarterly report, as the projected profit simply is not sustainable using any credible calculation (the other possibility is that they post a reach-forward loss).

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