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enzo011
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Re: Boeing to accelerate 787 production, increases accounting block

Fri Sep 15, 2017 8:32 am

Stitch wrote:
The truly ironic bit about all misinformation over the Accounting Quantities is that if Boeing had executed perfectly with the first deliveries in 2008 and were on track to have 109 delivered by the end of 2009, the Initial Accounting Quantity still would have been over 1000 units because by the end of 2008, they had 910 orders and instead of seeing cancellations over the following few years, they likely would have secured significant positive orders due to a smooth EIS and production ramps.

So by now we'd probably see an Accounting Quantity north of 1500 units and people would be congratulating Boeing for it as an indication of how strong the program is! :rotfl:


I think everyone knows how the accounting block works Stitch. Its the almost $27billion cost that still need to be recovered on the accounts that has people commenting. Don't know why people are getting frustrated at posters pointing this out. Its not like we caused this to happen. The program will be a success in terms of making money, it will just take longer to get there than anyone would have predicted. Imagine the Y1 and Y3 in development right now. That is the price of the Y2 and the execution of that program.
 
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Momo1435
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Re: Boeing to accelerate 787 production, increases accounting block

Fri Sep 15, 2017 9:35 am

enzo011 wrote:
I think everyone knows how the accounting block works Stitch. Its the almost $27billion cost that still need to be recovered on the accounts that has people commenting. Don't know why people are getting frustrated at posters pointing this out. Its not like we caused this to happen. The program will be a success in terms of making money, it will just take longer to get there than anyone would have predicted. Imagine the Y1 and Y3 in development right now. That is the price of the Y2 and the execution of that program.

You still make the mistake. The program already makes money for Boeing and will only bring in more over the next couple of years.

If you had said, it will take longer then anyone could predict before all the costs are accounted for then you would have been correct. The irony is that because Boeing can only spread it out even longer because they turned the program around from it's initial issues. If they would not have sold so many since the EIS they would already been forced to write off much a much larger part of the deferred costs much earlier. Pointing out that it takes longer is just rehashing the fact that the program had a very bad start. Something that we all know and that nobody is denying. But the fact that the 787 is now successful is usually completely left out of the "the deferred costs are bad" rants.

And I don't think that the 787 cost overruns had the biggest influence on other new programs. It's more the extra time and the fact that it didn't go as smoothly as planned that made Boeing have 2nd thoughts about any new developments. With the 737 and 777 they had to quickly react to new Airbus products. They had to start the MAX and 777X programs as soon as possible, and they couldn't afford any large delays. So they had to do the easiest and quickest way, which is not a completely new development. Otherwise their customers, the airlines, would have gone to the competition. Any cost overruns for any new project would again be spread out over time using program accounting. Making that again an issue for later, with the size of the issue again depending on the success of the program.
 
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Re: Boeing to accelerate 787 production, increases accounting block

Fri Sep 15, 2017 9:49 am

The 787 program is currently generating profits even though the 787-10 is still in development.

Considering the 10 is the largest and most expensive model of the 787 family, you would have to think the 787 program will start to generate substantial profits once the aircraft starts being delivered to customers.

Even though Boeing may be recording book losses for some parts of the program, other parts of the Boeing business could well be generating positive incomes.

As such the Net Present Value of the 787 could be far greater than the deferred production cost sum suggests
 
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Re: Boeing to accelerate 787 production, increases accounting block

Fri Sep 15, 2017 9:55 am

Momo1435 wrote:
enzo011 wrote:
I think everyone knows how the accounting block works Stitch. Its the almost $27billion cost that still need to be recovered on the accounts that has people commenting. Don't know why people are getting frustrated at posters pointing this out. Its not like we caused this to happen. The program will be a success in terms of making money, it will just take longer to get there than anyone would have predicted. Imagine the Y1 and Y3 in development right now. That is the price of the Y2 and the execution of that program.

You still make the mistake. The program already makes money for Boeing and will only bring in more over the next couple of years.



It's cash positive per frame but it's not making money yet. Not till the accounting block is cleared.
 
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Re: Boeing to accelerate 787 production, increases accounting block

Fri Sep 15, 2017 10:31 am

Momo1435 wrote:
enzo011 wrote:
I think everyone knows how the accounting block works Stitch. Its the almost $27billion cost that still need to be recovered on the accounts that has people commenting. Don't know why people are getting frustrated at posters pointing this out. Its not like we caused this to happen. The program will be a success in terms of making money, it will just take longer to get there than anyone would have predicted. Imagine the Y1 and Y3 in development right now. That is the price of the Y2 and the execution of that program.


You still make the mistake. The program already makes money for Boeing and will only bring in more over the next couple of years.

If you had said, it will take longer then anyone could predict before all the costs are accounted for then you would have been correct. The irony is that because Boeing can only spread it out even longer because they turned the program around from it's initial issues. If they would not have sold so many since the EIS they would already been forced to write off much a much larger part of the deferred costs much earlier. Pointing out that it takes longer is just rehashing the fact that the program had a very bad start. Something that we all know and that nobody is denying. But the fact that the 787 is now successful is usually completely left out of the "the deferred costs are bad" rants.

And I don't think that the 787 cost overruns had the biggest influence on other new programs. It's more the extra time and the fact that it didn't go as smoothly as planned that made Boeing have 2nd thoughts about any new developments. With the 737 and 777 they had to quickly react to new Airbus products. They had to start the MAX and 777X programs as soon as possible, and they couldn't afford any large delays. So they had to do the easiest and quickest way, which is not a completely new development. Otherwise their customers, the airlines, would have gone to the competition. Any cost overruns for any new project would again be spread out over time using program accounting. Making that again an issue for later, with the size of the issue again depending on the success of the program.



Read my post again. "Its the almost $27billion cost that still need to be recovered on the accounts that has people commenting." I acknowledge its on the accounts that the costs need to be recovered. This is dependent on Boeing cutting cost of production and hoping a slow down of deliveries doesn't happen. But they are at least heading in the right way, much better than 5 years ago but not totally out of the woods yet, though I think the chances of a change of circumstances damaging the program and company is receding, there is more room to absorb a shock like the GFC in 2008. I think the main problem going forward is airlines will know what profits Boeing are aiming for per delivery and they should be asking why they are paying that much. If Airbus decides to cut margins on their aircraft it could become messy, then again show two men a way to make some money and a lot of money you can be sure the choice will be to make lots of money.

Again you only look at one part of my post. I posted, "That is the price of the Y2 and the execution of that program." So the execution of the program, i.e. financial and production has caused Boeing to play catch up to Airbus. If Boeing was in the process of delivering the MOM right now and in production of the Y3 Airbus would have been in a world of hurt. Then again had Airbus delivered on the A380 (already profitable on a program basis) and been able to deliver the A350 in 2010 then it would have been interesting as well. Boeing would have been developing the Y3 and Airbus their own MOM right now. Instead we have the 737-10MAX, A330neo and 777X. What could have been.
 
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Re: Boeing to accelerate 787 production, increases accounting block

Fri Sep 15, 2017 10:47 am

I think that there is not much point in commenting on profits if non-accountants or do not understand the GAAP and how profits are calculated,

Boeing were merely trying to apply GAAPs to match revenues to costs and that is why they are carrying forward deferred production costs so that they can be charged to each frame of 787 that is manufactured. The programme is not making profit yet. It may be cash positive at the moment because current direct manufacturing costs is lower than sales revenue, but the deferred costs still need to be charged to the manufactured frame so that total costs of the airplane can be accounted for.
 
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Re: Boeing to accelerate 787 production, increases accounting block

Fri Sep 15, 2017 11:12 am

Glad, Boeing will able to generate cash by selling more 787s.
 
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Revelation
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Re: Boeing to accelerate 787 production, increases accounting block

Fri Sep 15, 2017 11:36 am

flee wrote:
kitplane01 wrote:
flee wrote:
The increase in accounting block has been predicted by many because it is evident that Boeing is not going to be able to cover all the deferred costs without making the 787 selling price uncompetitive.
My gawd I'm sick of seeing this on airliners.net.

The price that maximizes Boeing profit (or minimizes Boeing losses) is independent of the accounting block, and independent of changes to the accounting block. This has been discussed many times on airliners.net. Please see https://en.wikipedia.org/wiki/Sunk_cost

I know what sunk cost is and I agree that there is no effect on cash flows as the money has already been spent.

I also know what Boeing's program accounting involves. All those sunk costs are not written off at the time they are incurred. Instead, they are carried forward as "deferred costs" and capitalised as an asset in Boeing's balance sheet. The asset is then amortised with each 787 frame delivered.

I hope that you now see the big picture!

I'm not sure you see the big picture. The size of the accounting block is determined by the number of aircraft the company is confident it can sell and project a valid cost and return for. It is NOT changed based on their need to "cover all the deferred costs".
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Re: Boeing to accelerate 787 production, increases accounting block

Fri Sep 15, 2017 11:42 am

Both are good for Boeing. The rate increase should reduce the unit cost per deliver frame. The additional frames in the block mean more opportunity to recover the money within the block.

I still seriously doubt at present it would be realistic - but it kicks the can down the road and allows us A-netters more time to discuss it.

It makes no difference to the profitability of Boeing until they point they have zero deferred costs - then the profit accounted for per plane can be increased to the real amount.
 
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Re: Boeing to accelerate 787 production, increases accounting block

Fri Sep 15, 2017 11:49 am

It will always be difficult for people to grasp that making a profit and earning money are not always the same thing. Boeing does make it a bit more difficult with the program accounting, but hey, most of us don't care too much about accounting anyway.
 
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Re: Boeing to accelerate 787 production, increases accounting block

Fri Sep 15, 2017 12:14 pm

Revelation wrote:
flee wrote:
kitplane01 wrote:
My gawd I'm sick of seeing this on airliners.net.

The price that maximizes Boeing profit (or minimizes Boeing losses) is independent of the accounting block, and independent of changes to the accounting block. This has been discussed many times on airliners.net. Please see https://en.wikipedia.org/wiki/Sunk_cost

I know what sunk cost is and I agree that there is no effect on cash flows as the money has already been spent.

I also know what Boeing's program accounting involves. All those sunk costs are not written off at the time they are incurred. Instead, they are carried forward as "deferred costs" and capitalised as an asset in Boeing's balance sheet. The asset is then amortised with each 787 frame delivered.

I hope that you now see the big picture!

I'm not sure you see the big picture. The size of the accounting block is determined by the number of aircraft the company is confident it can sell and project a valid cost and return for. It is NOT changed based on their need to "cover all the deferred costs".

It is just a different perspective - a bigger accounting block means lower amortisation charges per frame. This, together with increased production rates, lowers the cost per frame. That means that the profit margin is better or more discounts can be granted to important customers.

Another GAAP is "prudence" - previously, Boeing did not have sufficient clarity to declare a 1,400 accounting block because the orders have not reached a certain number that they are comfortable with. They can now see that selling 1,400 frames is no longer a problem and it would now be prudent to extend the block.
 
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Re: Boeing to accelerate 787 production, increases accounting block

Fri Sep 15, 2017 12:16 pm

Momo1435 wrote:
It will always be difficult for people to grasp that making a profit and earning money are not always the same thing. Boeing does make it a bit more difficult with the program accounting, but hey, most of us don't care too much about accounting anyway.

Yes, that is why many people are amazed when supposedly profitable companies are closed down!
 
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Re: Boeing to accelerate 787 production, increases accounting block

Fri Sep 15, 2017 1:22 pm

Momo1435 wrote:
It will always be difficult for people to grasp that making a profit and earning money are not always the same thing. Boeing does make it a bit more difficult with the program accounting, but hey, most of us don't care too much about accounting anyway.
It seems like a.net is obsessed with accounting when I comes to the 787.
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Re: Boeing to accelerate 787 production to 14x per month

Fri Sep 15, 2017 1:26 pm

RickNRoll wrote:
cledaybuck wrote:
MIflyer12 wrote:
For those who might not use the 'Seattle Times' link, here's what may be the bigger news:

'Muilenburg also said Boeing has decided that 787 order prospects are sufficiently healthy that it can spread the deferred cost of the program over 1,400 planes, up from the current assumption of 1,300.'
How is a change in the accounting block bigger news that a change in the production rate?


It means that deferred costs are still a moving target.
No it doesn't. The deferred costs are what they are. It just means they have 100 more frames to recoup them without having to declare a forward loss right now.
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Re: Boeing to accelerate 787 production, increases accounting block

Fri Sep 15, 2017 1:30 pm

flee wrote:
Momo1435 wrote:
It will always be difficult for people to grasp that making a profit and earning money are not always the same thing. Boeing does make it a bit more difficult with the program accounting, but hey, most of us don't care too much about accounting anyway.

Yes, that is why many people are amazed when supposedly profitable companies are closed down!

In the aviation business we should be more amazed how many unprofitable companies somehow can soldier on for years without going bust.
 
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Re: Boeing to accelerate 787 production, increases accounting block

Fri Sep 15, 2017 1:51 pm

Momo1435 wrote:
In the aviation business we should be more amazed how many unprofitable companies somehow can soldier on for years without going bust.

That's because they don't use Program Accounting, if they did, they would be under the scrutiny of A.Net and would have been exposed long ago, especially those that also receive Government Subsidies......
 
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Re: Boeing to accelerate 787 production, increases accounting block

Fri Sep 15, 2017 3:46 pm

Stitch wrote:
flee wrote:
The increase in accounting block has been predicted by many because it is evident that Boeing is not going to be able to cover all the deferred costs without making the 787 selling price uncompetitive.


It's been predicted by many because the 787 remains popular with airlines, who continue to order it in quantities great enough to exceed previous Accounting Quantities.



The truly ironic bit about all misinformation over the Accounting Quantities is that if Boeing had executed perfectly with the first deliveries in 2008 and were on track to have 109 delivered by the end of 2009, the Initial Accounting Quantity still would have been over 1000 units because by the end of 2008, they had 910 orders and instead of seeing cancellations over the following few years, they likely would have secured significant positive orders due to a smooth EIS and production ramps.

So by now we'd probably see an Accounting Quantity north of 1500 units and people would be congratulating Boeing for it as an indication of how strong the program is! :rotfl:


The only difference of course would have been a non-trivial $25000 (!!) million (!!) dollars in deferred cost that would have been accounted for already, as opposed to today's real life situation (estimating that in your hypothetical perfect execution, Boeing would still be deferring around 2B dollars). And nobody on here would be having any issues whatsoever with that. That would be perfectly in line with any other Boeing program. And would be perfectly in line with the spirit of program accounting. And would be show case demonstration why such financial structure was set-up in the first place.

Most on here were not primarily having issues with the Accounting Quantity itself.
As a result of the humongous deferred cost, combined with the slow learning curve on bringing production cost down, the initial Accounting Block became more and more laughable . . .

What people were/are having real issues with, was/is the humongous amount of deferred cost itself, running close to 30000 million dollars. Or a full magnitude of order bigger than on any other program seen before. Not accounting 30B for (rather than the usual 2 – 3B) of course makes it (much) easier to declare nice company profits, pay out dividends to shareholders, and cash in management bonuses - who are responsible for setting the amount of deferred cost in the first place - talking about irony . . .
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Re: Boeing to accelerate 787 production, increases accounting block

Fri Sep 15, 2017 3:59 pm

We are about to enter the phase where program accounting is going to supress Boeings profits. As they have effectively pulled forward profits from future years they get to the point where to make all things equal they need to see lower current profits whilst the extra goes to pay off the deferred costs.
 
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Re: Boeing to accelerate 787 production, increases accounting block

Fri Sep 15, 2017 4:07 pm

As someone who makes decisions based of financials I don't have issues with how the accounting is done. So long as everyone can understand it and gets the impact of it on profits, cash and the balance sheet it isn't a problem.

For what it's worth I think expressing it this way probably does give one a more useful picture of overall health of the company. The deferred amount was high but Boeing was well positioned from a cash flow and balance sheet perspective to absorb it regardless of the accounting method used. Everyone seriously investing in Boeing understood where things stood.
 
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Re: Boeing to accelerate 787 production, increases accounting block

Fri Sep 15, 2017 4:09 pm

enzo011 wrote:
I think everyone knows how the accounting block works Stitch.


Clearly everyone doesn't since people continue to make posts directly equating the Accounting Quantity with the number of frames needing to be produced to "account for" / "break even on" all outstanding 787 program costs.


StTim wrote:
We are about to enter the phase where program accounting is going to suppress Boeings profits. As they have effectively pulled forward profits from future years they get to the point where to make all things equal they need to see lower current profits whilst the extra goes to pay off the deferred costs.


Well it already has been as LN001-LN005 became prototypes and their billions in production costs were booked as R&D charges. And should the program ever find itself in a Forward Loss position, then there will be a (probably) significant charge to earnings.


bigjku wrote:
For what it's worth I think expressing it this way probably does give one a more useful picture of overall health of the company. The deferred amount was high but Boeing was well positioned from a cash flow and balance sheet perspective to absorb it regardless of the accounting method used. Everyone seriously investing in Boeing understood where things stood.


Plus Boeing Commercial also still publishes their financials in Unit Costs so you can see directly how much money they actually lost or made in a quarter / year. And on a Unit Cost basis, they have been net positive to the tune of billions of dollars on an annual basis since 2015 (and almost so in 2014 with a net loss of only $122 million for the year).

In fact, they actually did better on a Unit Cost basis in 2016 because they took a near $1 billion charge on a Program Accounting basis in 2Q16 whereas the actual Unit Cost loss was near $100 million for that quarter.
 
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Re: Boeing to accelerate 787 production to 14x per month

Fri Sep 15, 2017 4:22 pm

Stitch wrote:
jbs2886 wrote:
I wouldn't take Leeham's pessimism as gospel - not to get into the Leeham debate again though.


And even with all the pessimism we have been hearing about widebody orders, the 787 is already 70% of the way to matching 2016's and 2015's orders with 25% of the year remaining so a slight rate increase doesn't seem to be out of place.

That is huge news to be repeated. The 786 is thriving without some of the anticipated potential orders.

Not to you, but everyone should remember the current backlog is an anomaly for all aircraft. Airlines ready to grow want to grow earlier, not later. Boeing obviously knows something we nor Leeham don't. Someone out there is bidding a surge order and Boeing is going for it.

The A350 and 777X are the only competition and neither could surge in 2019.
Standard Aerospace contracts allow for a 15% surge in production. Depending on the details, Boeing might be just using surge provisions in the contract to go from 144 per year to 165 per year. Thus not obligating themselves to hold the surge for the standard 3 years. Boeing might even tell vendors to surge to 168 or face dual source. The engine vendors will just be given the option to surge. With declining 747, A380, 777, and A330 production,both have capacity with current contracts. The A350 contracts give RR even more wiggle room as RR paid for tooling and has rented floor space at vendors (denying vendors the risk and 20% profit). GE has the capability too.

I'm curious if Leeham will point out how devastating this is for the A330NEO. The advantage of short term slots just went away. With only 204 A330NEO + a dwindling A330CEO backlog, there should be concern. Is there even a know active A330NEO sales campaign?

This will also help Boeing in bids versus the A359. Both by reducing unit costs and availability. 21 to 24 more planes per year should be leveraged quickly into a full year of backlog. If Boeing has enough orders, they'll contractually commit to 3+ years at 168 and reap a small vendor discount. The A350 has the classy problem of too long of a backlog where Airbus must find a deferral to commit to a sale...

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Re: Boeing to accelerate 787 production to 14x per month

Fri Sep 15, 2017 4:26 pm

lightsaber wrote:
I'm curious if Leeham will point out how devastating this is for the A330NEO. The advantage of short term slots just went away. With only 204 A330NEO + a dwindling A330CEO backlog, there should be concern. Is there even a know active A330NEO sales campaign?


Malaysian is saying they're still looking after just placing an MoU for eight 787-9s. They also have been looking at Air Berlin's lease-return A330-200s, however it appears Lufthansa may have already signed an agreement to take them for their own Group's operations.
 
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Re: Boeing to accelerate 787 production to 14x per month

Fri Sep 15, 2017 6:06 pm

jbs2886 wrote:
gwrudolph wrote:
BN727227Ultra wrote:
Working on clearing out the backlog so Boeing can get cracking on the 787MAX? :-)


I admittedly don't know that much about commercial aircraft assembly lines and re-tooling, but could they be accelerating so that they can eventually free-up some line space to create an MOM line in early-mid 2020s?


Highly unlikely. The MOM will either take over 767/747 lines or will be an entirely new line. There is no way Boeing will stop production of the 787 in early-mid 2020s.


I have always guessed that all 787 production would move to South Carolina as the final assembly building would only need 1 spot added to the building to allow for 2 separate lines. That way they could use the Everett line for the new plane.

However it may be difficult with staffing and probably wouldn't happen until after 2021 anyway.
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Re: Boeing to accelerate 787 production to 14x per month

Fri Sep 15, 2017 6:09 pm

smittythepirate wrote:
I have always guessed that all 787 production would move to South Carolina as the final assembly building would only need 1 spot added to the building to allow for 2 separate lines. That way they could use the Everett line for the new plane.

I doubt that would ever happen (all 787 production moved to CHS) as the unions would throw a fit (even if Boeing does bring a new plane in Everett to replace the 787 line there).
 
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Re: Boeing to accelerate 787 production to 14x per month

Fri Sep 15, 2017 6:37 pm

Polot wrote:
I doubt that would ever happen (all 787 production moved to CHS) as the unions would throw a fit (even if Boeing does bring a new plane in Everett to replace the 787 line there).


Plus Boeing's official rationale with putting a second 787 FAL in CHS was to "spread the risk" in the case of a natural disaster. If they move all 787 production to CHS that would show it was done solely as a way to "punish" the IAM and that would almost assuredly trigger a new complaint to the NLRB as well as make the next round of IAM contract negotiations that much more thorny.
 
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Re: Boeing to accelerate 787 production, increases accounting block

Fri Sep 15, 2017 7:02 pm

Interesting to see Boeing's reasoning. The see high replacements "in the next decade.'. They also note every year in Asia, a hundred million people fly who never flew before.

http://www.ainonline.com/aviation-news/ ... -rate-bump

Boeing must have orders we do not know about or extreamly high confidence in new orders to do this... For this forces a commitment if funds to vendors no matter if it is a surge to 165 per year or a true line increase to 168.

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Re: Boeing to accelerate 787 production to 14x per month

Fri Sep 15, 2017 7:03 pm

lightsaber wrote:
Stitch wrote:
jbs2886 wrote:
I wouldn't take Leeham's pessimism as gospel - not to get into the Leeham debate again though.


And even with all the pessimism we have been hearing about widebody orders, the 787 is already 70% of the way to matching 2016's and 2015's orders with 25% of the year remaining so a slight rate increase doesn't seem to be out of place.

That is huge news to be repeated. The 786 is thriving without some of the anticipated potential orders.

Not to you, but everyone should remember the current backlog is an anomaly for all aircraft. Airlines ready to grow want to grow earlier, not later. Boeing obviously knows something we nor Leeham don't. Someone out there is bidding a surge order and Boeing is going for it.

The A350 and 777X are the only competition and neither could surge in 2019.
Standard Aerospace contracts allow for a 15% surge in production. Depending on the details, Boeing might be just using surge provisions in the contract to go from 144 per year to 165 per year. Thus not obligating themselves to hold the surge for the standard 3 years. Boeing might even tell vendors to surge to 168 or face dual source. The engine vendors will just be given the option to surge. With declining 747, A380, 777, and A330 production,both have capacity with current contracts. The A350 contracts give RR even more wiggle room as RR paid for tooling and has rented floor space at vendors (denying vendors the risk and 20% profit). GE has the capability too.

I'm curious if Leeham will point out how devastating this is for the A330NEO. The advantage of short term slots just went away. With only 204 A330NEO + a dwindling A330CEO backlog, there should be concern. Is there even a know active A330NEO sales campaign?

This will also help Boeing in bids versus the A359. Both by reducing unit costs and availability. 21 to 24 more planes per year should be leveraged quickly into a full year of backlog. If Boeing has enough orders, they'll contractually commit to 3+ years at 168 and reap a small vendor discount. The A350 has the classy problem of too long of a backlog where Airbus must find a deferral to commit to a sale...

Lightsaber


Could be some options are going to be exercised and as was stated airlines want planes sooner, not later. Could also be EK is ready to commit to the 787.
 
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Re: Boeing to accelerate 787 production to 14x per month

Fri Sep 15, 2017 7:36 pm

cheapgreek wrote:
Could be some options are going to be exercised and as was stated airlines want planes sooner, not later. Could also be EK is ready to commit to the 787.


Well they just publicly announced they're not ready to commit to either the 787 or the A350, so either it's a feint to make a 787 order announcement at the Dubai Air Show a surprise or they're really not yet ready to commit.
 
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Re: Boeing to accelerate 787 production to 14x per month

Fri Sep 15, 2017 7:50 pm

lightsaber wrote:
I'm curious if Leeham will point out how devastating this is for the A330NEO. The advantage of short term slots just went away. With only 204 A330NEO + a dwindling A330CEO backlog, there should be concern. Is there even a know active A330NEO sales campaign?

Interesting point. In my view A330NEO does not seem to be a factor in some campaigns I thought it should or might, such as MH. In that case it seems have range for KUL-Europe without restriction is the issue.
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Re: Boeing to accelerate 787 production, increases accounting block

Fri Sep 15, 2017 8:10 pm

It could be that B is just doing this for a cash intake spike for a few years and a quick stock price shot in the arm. So 24 more aircraft per year, lets estimate $20 to 25 million cash cleared per frame by 2020...this brings in at least $500 million more cash per year.

After appropriate executive stock options are exercised -- comes the unavoidable widebody order and delivery slowdown after 2020 due to low fuel prices and higher interest rates (and global instability?). Big production cuts come after 2020 long after execs have pocketed their stock gains. All this is a more reasonable explanation for the production increase.
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Re: Boeing to accelerate 787 production, increases accounting block

Fri Sep 15, 2017 8:20 pm

QuarkFly wrote:
It could be that B is just doing this for a cash intake spike for a few years and a quick stock price shot in the arm. So 24 more aircraft per year, lets estimate $20 to 25 million cash cleared per frame by 2020...this brings in at least $500 million more cash per year.

After appropriate executive stock options are exercised -- comes the unavoidable widebody order and delivery slowdown after 2020 due to low fuel prices and higher interest rates (and global instability?). Big production cuts come after 2020 long after execs have pocketed their stock gains. All this is a more reasonable explanation for the production increase.


See also: Reply 29 ( viewtopic.php?f=3&t=1373721#p19813301 )...
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mjoelnir
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Re: Boeing to accelerate 787 production, increases accounting block

Fri Sep 15, 2017 8:45 pm

travelhound wrote:
The 787 program is currently generating profits even though the 787-10 is still in development.

Considering the 10 is the largest and most expensive model of the 787 family, you would have to think the 787 program will start to generate substantial profits once the aircraft starts being delivered to customers.

Even though Boeing may be recording book losses for some parts of the program, other parts of the Boeing business could well be generating positive incomes.

As such the Net Present Value of the 787 could be far greater than the deferred production cost sum suggests


Development cost has nothing to do with deferred cost. Development cost are directly written to cost, no way to defer them. The 787-10 can only add to deferred cost, when frames start to get delivered.
 
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Re: Boeing to accelerate 787 production, increases accounting block

Fri Sep 15, 2017 8:49 pm

Cashflow could be an argument, but while you have lots of contracts at silly, low prices, they will underpin project profitability for a few more years.

Could the 788 be closer to being dropped? Boeing won't want to pay customers compensation for cancelling the model, or allow free model hopping at even greater cost.

And could there be upgrades to the remaining models forthcoming? Again, Boeing will not want to reward customers already with deep discounts.
 
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Re: Boeing to accelerate 787 production to 14x per month

Fri Sep 15, 2017 10:10 pm

Revelation wrote:
lightsaber wrote:
I'm curious if Leeham will point out how devastating this is for the A330NEO. The advantage of short term slots just went away. With only 204 A330NEO + a dwindling A330CEO backlog, there should be concern. Is there even a know active A330NEO sales campaign?

Interesting point. In my view A330NEO does not seem to be a factor in some campaigns I thought it should or might, such as MH. In that case it seems have range for KUL-Europe without restriction is the issue.

The A330NEO should be making news. At least in terms of airlines negotiating in the press.

Something is also up at Boeing. The 787 had far far too long of a backlog at the end of 2013. I posted then into 2016 that Boeing would have to increase production to sell. Now that the backlog has been reduced by about 230 and we're in a widebodies glut. By glut I mean that used widebodies that should be finding 2nd homes are instead going to the desert. The A330NEO has a backlog Airbus could fill in 2 years and one month! You can find older posts of mine noting the A330NEO would struggle, but I posted 300 to 350 orders by this point with RR eventually selling about a thousand T7000. IIRC, I estimated 400 to 600 A330NEO.

Ugh... Over-estimated...

So why is Boeing surging? Vendors will earn penalties if Boeing doesn't sell more 787s. So this implies sales. Who?

Indigo?
SpiceJet?
Turkish?
I'm going to assume Sir Clark of EK didn't misdirect with 'off the table' meaning something else...

Applying a little game theory...
Could Airbus meet the demands of the Indian airlines with the A350? In my opinion no. Late edit:. By demands I mean delivery rate and pricing.
Could the A339 meet their performance demands and need for cheap leasing? Unlikely due to a perceived faster depreciation rate, but not to be ruled out. The A338 hasn't sold as it's CASM wouldn't interest these airlines and the A339 hasn't the range in a high density configuration. Not to mention the A359 and 787-10 just have better CASM.
Would Boeing offer 789s and 787-10s at a price to meet their needs? Yes.

I believe this is due to a SpiceJet or Indigo order, if not both.

Lightsaber

PS, late edit
I believe the poor widebody resale market and shift to the lowest CASM frames is indicative of how brutally competitive long haul is today.
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RickNRoll
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Re: Boeing to accelerate 787 production to 14x per month

Sat Sep 16, 2017 12:22 am

2175301 wrote:
Strato2 wrote:
Why should Boeing get a free "get out of jail" card for a financial disaster that is the 787 program when Airbus has been shred to pieces here on A380 and A400 problems.


The Accounting Block is nothing more than the current anticipated production numbers based on existing orders and projected orders in the next few years. It changes over the entire life of the program. The 737 is currently in the range of 10,000 (I posted the actual number earlier this year on another thread... and its history of changes since the introduction of the 737). My memory is that Boeing reduced the Accounting Block on the 747 several years ago when it became apparent that the 747-8 was not going to sell as well as expected.

I predict you will see the 787 Accounting Block exceed 2000 eventually.

It has absolutely "Zero" to do with financial success, or lack of, of an aircraft family. It's just an anticipated production number that can be defended.

With that, I am surprised that the change is not at least to 1500.

Have a great day,

An Accounting Block has nothing to do with accounting? I don't think so,.
 
Siddar
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Re: Boeing to accelerate 787 production, increases accounting block

Sat Sep 16, 2017 1:00 am

I think they did what everyone expected them to do with the accounting block.

The only news is the production increase.
 
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Re: Boeing to accelerate 787 production, increases accounting block

Sat Sep 16, 2017 1:14 am

Planesmart wrote:
Could the 788 be closer to being dropped? Boeing won't want to pay customers compensation for cancelling the model, or allow free model hopping at even greater cost.

And could there be upgrades to the remaining models forthcoming? Again, Boeing will not want to reward customers already with deep discounts.

You definitely are seeing the same things I am.

The 787-8 will become a big problem for Boeing. The 787-8 has the least commonality in the family. As the orders dry up the economy of scale reduces. The cost of production will exceed the larger 787-9.

Boeing will be better off ending production and giving free upgrades to the larger variants. This may come much sooner than people expect.

However this surge in production actually points to an upgraded 787-8 that will be launched with more new sales. There are a lot of design inefficiencies in the 787-8 that were fixed for the 787-9. An empty weight reduction by as much as 10% could be a achievable. This would explains the 787-3 rumours going around, not one with clipped wings but a fully optimised lighter version.

With an empty weight 10T lighter the 787-8 would kill the A330NEO. Max takeoff weight could be reduced a full 20T while still being able to carry the same payload the same distance.

Carbon fibre is great material as you can remove or add layers. Keep it thick where the loads are high and thin it out where loads become low. No extra tooling is required either. Simply run a Finite element analysis on everything for a lighter total weight and reprogram the robots that lay up the carbon fibre. The fuselage of the 787-8 is overbuilt. If the maximum takeoff weight is reduced a few layers could also be removed from the wing skins.

Add an engine PIP and it will perform so efficient at medium haul that it would kill the business case for the MOM.

As the engine would be derated below 60,000lb thrust an even better option would be a brand new higher bypass ratio engine. This could be the MOM engine we are hearing about. Make this engine single engine option for the new 787 light.
 
Siddar
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Re: Boeing to accelerate 787 production to 14x per month

Sat Sep 16, 2017 1:25 am

lightsaber wrote:
Stitch wrote:
jbs2886 wrote:
I wouldn't take Leeham's pessimism as gospel - not to get into the Leeham debate again though.


And even with all the pessimism we have been hearing about widebody orders, the 787 is already 70% of the way to matching 2016's and 2015's orders with 25% of the year remaining so a slight rate increase doesn't seem to be out of place.

That is huge news to be repeated. The 786 is thriving without some of the anticipated potential orders.

Not to you, but everyone should remember the current backlog is an anomaly for all aircraft. Airlines ready to grow want to grow earlier, not later. Boeing obviously knows something we nor Leeham don't. Someone out there is bidding a surge order and Boeing is going for it.

The A350 and 777X are the only competition and neither could surge in 2019.
Standard Aerospace contracts allow for a 15% surge in production. Depending on the details, Boeing might be just using surge provisions in the contract to go from 144 per year to 165 per year. Thus not obligating themselves to hold the surge for the standard 3 years. Boeing might even tell vendors to surge to 168 or face dual source. The engine vendors will just be given the option to surge. With declining 747, A380, 777, and A330 production,both have capacity with current contracts. The A350 contracts give RR even more wiggle room as RR paid for tooling and has rented floor space at vendors (denying vendors the risk and 20% profit). GE has the capability too.

I'm curious if Leeham will point out how devastating this is for the A330NEO. The advantage of short term slots just went away. With only 204 A330NEO + a dwindling A330CEO backlog, there should be concern. Is there even a know active A330NEO sales campaign?

This will also help Boeing in bids versus the A359. Both by reducing unit costs and availability. 21 to 24 more planes per year should be leveraged quickly into a full year of backlog. If Boeing has enough orders, they'll contractually commit to 3+ years at 168 and reap a small vendor discount. The A350 has the classy problem of too long of a backlog where Airbus must find a deferral to commit to a sale...

Lightsaber


The 330 NEO was just an airbus insurance policy in case 350 had the same development problems as 787. In fact it now looks like the only failure of 350 development was the insurance policy of 330 NEO. The market is not willing to support three planes of 787 to 350 size and purpose the results is 330 NEO has been hurting for orders. The 330 NEO should have been targeted as an large MOM plane but instead it was targeted on same long range segment as 787 350.
 
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Re: Boeing to accelerate 787 production to 14x per month

Sat Sep 16, 2017 1:44 am

Siddar wrote:
The 330 NEO was just an airbus insurance policy in case 350 had the same development problems as 787

Sorry, but this sounds like "revisionist history" to me. I was here on a.net throughout all the discussions as the A330neo was being formulated, and I can't even recall the "insurance policy" idea even being floated, never mind it being given credence.

There are lots of markets/routes where the A330neo makes a lot of sense. I can understand that if it gets launched into a stagnant wide body market and doesn't pick up steam that the financial community might stay away from it, but 3 big leasing firms already have a block of 50 a/c on order and the plane hasn't even entered service yet.
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2175301
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Re: Boeing to accelerate 787 production to 14x per month

Sat Sep 16, 2017 2:05 am

RickNRoll wrote:
2175301 wrote:
Strato2 wrote:
Why should Boeing get a free "get out of jail" card for a financial disaster that is the 787 program when Airbus has been shred to pieces here on A380 and A400 problems.


The Accounting Block is nothing more than the current anticipated production numbers based on existing orders and projected orders in the next few years. It changes over the entire life of the program. The 737 is currently in the range of 10,000 (I posted the actual number earlier this year on another thread... and its history of changes since the introduction of the 737). My memory is that Boeing reduced the Accounting Block on the 747 several years ago when it became apparent that the 747-8 was not going to sell as well as expected.

I predict you will see the 787 Accounting Block exceed 2000 eventually.

It has absolutely "Zero" to do with financial success, or lack of, of an aircraft family. It's just an anticipated production number that can be defended.

With that, I am surprised that the change is not at least to 1500.

Have a great day,

An Accounting Block has nothing to do with accounting? I don't think so,.


I never said it had nothing to do with accounting. Just that it has nothing to do with financial success of any program it is used for. Nor does it hide anything either.

Because Boeing uses program accounting; they are required to determine and set an accounting block by the program accounting rules; and there are rules on how that is done (with limited flexibility as the accounting block size must be reasonable and defendable as realistic for the next several+ years).

The accounting block is then used to calculate the financials on the program: be they good, bad, or indifferent.

Given that you cannot set accounting blocks that are unreasonable (remember the rules)... the financial results produced by program accounting are also not an unreasonable refection on what is going on.

Have a great day,
 
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Re: Boeing to accelerate 787 production to 14x per month

Sat Sep 16, 2017 2:31 am

Revelation wrote:
Siddar wrote:
The 330 NEO was just an airbus insurance policy in case 350 had the same development problems as 787

Sorry, but this sounds like "revisionist history" to me. I was here on a.net throughout all the discussions as the A330neo was being formulated, and I can't even recall the "insurance policy" idea even being floated, never mind it being given credence.

There are lots of markets/routes where the A330neo makes a lot of sense. I can understand that if it gets launched into a stagnant wide body market and doesn't pick up steam that the financial community might stay away from it, but 3 big leasing firms already have a block of 50 a/c on order and the plane hasn't even entered service yet.

Never heard about the "insurance policy" either. Existing A330-operators (you know, for example the one who always wears a red baseball cap...) pushed Airbus for an updated version and finally Airbus launched it.
 
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Re: Boeing to accelerate 787 production to 14x per month

Sat Sep 16, 2017 2:48 am

Revelation wrote:
Siddar wrote:
The 330 NEO was just an airbus insurance policy in case 350 had the same development problems as 787

Sorry, but this sounds like "revisionist history" to me. I was here on a.net throughout all the discussions as the A330neo was being formulated, and I can't even recall the "insurance policy" idea even being floated, never mind it being given credence.

There are lots of markets/routes where the A330neo makes a lot of sense. I can understand that if it gets launched into a stagnant wide body market and doesn't pick up steam that the financial community might stay away from it, but 3 big leasing firms already have a block of 50 a/c on order and the plane hasn't even entered service yet.

There are routes it makes sense. The issue is Boeing is now accelerating 787 production. That means in this more stagnant wide body market, the leasing companies (or as you put it financial community) will stay away as the resale market won't be what was expected. 50 aircraft from the big leasing companies is pretty good, except they usually have escape clauses...

My point is that increased 787 volume forces the A330NEO to compete more vigorously.

As my above post noted, I think this is an indication Indigo, Spicejet, or both ordered the 787... Or maybe I just hope.

Lightsaber
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Hamlet69
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Re: Boeing to accelerate 787 production, increases accounting block

Sat Sep 16, 2017 3:28 am

QuarkFly wrote:
It could be that B is just doing this for a cash intake spike for a few years and a quick stock price shot in the arm. So 24 more aircraft per year, lets estimate $20 to 25 million cash cleared per frame by 2020...this brings in at least $500 million more cash per year.

After appropriate executive stock options are exercised -- comes the unavoidable widebody order and delivery slowdown after 2020 due to low fuel prices and higher interest rates (and global instability?). Big production cuts come after 2020 long after execs have pocketed their stock gains. All this is a more reasonable explanation for the production increase.


More reasonable than all the other much more logical and simpler responses given? Just :shakehead:


lightsaber wrote:
There are routes it makes sense. The issue is Boeing is now accelerating 787 production. That means in this more stagnant wide body market, the leasing companies (or as you put it financial community) will stay away as the resale market won't be what was expected. 50 aircraft from the big leasing companies is pretty good, except they usually have escape clauses...

My point is that increased 787 volume forces the A330NEO to compete more vigorously.

As my above post noted, I think this is an indication Indigo, Spicejet, or both ordered the 787... Or maybe I just hope.

Lightsaber


You may be right with the Indian carriers. However, I think the more obvious answer is staring us in the face (and has become quite the cliché, too): China.

In just the last couple years, we've seen a number of relatively small orders come from many of the smaller Chinese airlines:
Donghai Airlines - 5
Juneyao Airlines - 5
Okay Airways - 5 (MoU)
Ruili Airlines - 6

I honestly do not see these airlines stopping at just these quantities, do you? And that's not even taking into consideration the Big 3, which only have a total of 52 on the books. I see that number also growing greatly, especially with the -10 and what it can do for the Chinese airlines.

Re: the A330NEO. I too thought it would be getting a bit more traction by now. As it was, Airbus's window for good sales of this frame was already quite small. Unfortunately, that window appears to be getting smaller by the month. And today's 787 announcement is certainly not good news for it.

********************************************************************

In regards to the Accounting Block, there have already been some very good explanations in this thread, and elsewhere. The only thing I will point out is that it seems a number of posters are seeing whatever the current AB is, and mistaking that for a "hard" number (i.e., the deferred costs must be recovered at a specific number). It never was intended that way, it has never been that way, nor will it ever be that way until production ceases. The Accounting Block will continue to increase as long as Boeing can continue to sell the aircraft. There is no secret to this, no hidden agenda on the part of Boeing. Yes, the deferred costs are astronomical because of the c*&%-ups, but that does not change the way the Accounting Blocks work. Hell, even the 737 has an Accounting Block.

So the idea that they must recover all deferred costs at X number of aircraft is not connected to reality.

Regards,

Hamlet69
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Re: Boeing to accelerate 787 production, increases accounting block

Sat Sep 16, 2017 5:06 am

flee wrote:
kitplane01 wrote:
flee wrote:
The increase in accounting block has been predicted by many because it is evident that Boeing is not going to be able to cover all the deferred costs without making the 787 selling price uncompetitive.
My gawd I'm sick of seeing this on airliners.net.

The price that maximizes Boeing profit (or minimizes Boeing losses) is independent of the accounting block, and independent of changes to the accounting block. This has been discussed many times on airliners.net. Please see https://en.wikipedia.org/wiki/Sunk_cost

I know what sunk cost is and I agree that there is no effect on cash flows as the money has already been spent.

I also know what Boeing's program accounting involves. All those sunk costs are not written off at the time they are incurred. Instead, they are carried forward as "deferred costs" and capitalised as an asset in Boeing's balance sheet. The asset is then amortised with each 787 frame delivered.

I hope that you now see the big picture!


I don't.

I agree with everything you wrote. But nothing you wrote changes the price Boeing should charge on planes to maximize future profits or minimize future losses. It does change lots with regards to Boeing capital statements, and the timing of profits/losses. But it doesn't change the optimal aircraft pricing.
Last edited by kitplane01 on Sat Sep 16, 2017 5:22 am, edited 1 time in total.
 
787Mech
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Re: Boeing to accelerate 787 production to 14x per month

Sat Sep 16, 2017 5:10 am

smittythepirate wrote:
jbs2886 wrote:
gwrudolph wrote:

I admittedly don't know that much about commercial aircraft assembly lines and re-tooling, but could they be accelerating so that they can eventually free-up some line space to create an MOM line in early-mid 2020s?


Highly unlikely. The MOM will either take over 767/747 lines or will be an entirely new line. There is no way Boeing will stop production of the 787 in early-mid 2020s.


I have always guessed that all 787 production would move to South Carolina as the final assembly building would only need 1 spot added to the building to allow for 2 separate lines. That way they could use the Everett line for the new plane.

However it may be difficult with staffing and probably wouldn't happen until after 2021 anyway.

The Seattle site is well on the way to 4 bays in F/A (if not already), BSC is capable of running two assembly lines even under the current configuration once the tooling in the critical path areas are updated to that of Evt. To be honest, the most logical thing to do would be if/when Boeing decides to launch the 797 - slowly transition all 787 production to BSC while trying to phase out the -8's. Seeing us here in SC build a new derivative would be great but, just doesn't make sense when comparing our workforce to Evt eg. 7100 employees vs 70,000? And then taking into account the other programs which are dying out, the workforce there is ready for a new plane.. interestingly enough, the Army Corp of Engineers website has a site layout for BSC as of a couple years ago; the changes suggested in it are dramatic when compared to the current site plan.

A Surge line here in BSC would be a nice way to boost production, much like everett had a couple years back but, does underutilize F/A's capability. You all know about as much as the people on the floor do in regards to new changes, it's all hearsay.
 
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kitplane01
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Re: Boeing to accelerate 787 production, increases accounting block

Sat Sep 16, 2017 5:11 am

PW100 wrote:

As a result of the humongous deferred cost, combined with the slow learning curve on bringing production cost down, the initial Accounting Block became more and more laughable . . .


I don't think you know what the Accounting Block is. Its the number of aircraft Boeing expects to sell. It's a number independent of past deferred costs.
 
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kitplane01
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Re: Boeing to accelerate 787 production, increases accounting block

Sat Sep 16, 2017 5:19 am

RJMAZ wrote:

The 787-8 will become a big problem for Boeing. The 787-8 has the least commonality in the family. As the orders dry up the economy of scale reduces. The cost of production will exceed the larger 787-9.

Boeing will be better off ending production and giving free upgrades to the larger variants. This may come much sooner than people expect.

However this surge in production actually points to an upgraded 787-8 that will be launched with more new sales. There are a lot of design inefficiencies in the 787-8 that were fixed for the 787-9. An empty weight reduction by as much as 10% could be a achievable. This would explains the 787-3 rumours going around, not one with clipped wings but a fully optimised lighter version.


This would make sense but for one thing. Could Boeing keep the secret?

Could Boeing actually be doing development work on the 787-8+ without someone leaking it? I know that Boeing has a military division that keeps secrets, but I doubt the civilian side could do this without it appearing on Twitter. Within the hour.
 
zkncj
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Re: Boeing to accelerate 787 production, increases accounting block

Sat Sep 16, 2017 5:28 am

Would expect that by 2019 Boeing might be able to offer an 787-9ER/LR option which could gain more orders to helpful up the production line.

If there we're to introduce an ER/LR they would for sure have orders from NZ & QF who are currently both pushing for being able todo AKL-EWR & SYD-JFK non-stop.
 
RJMAZ
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Re: Boeing to accelerate 787 production, increases accounting block

Sat Sep 16, 2017 5:48 am

zkncj wrote:
Would expect that by 2019 Boeing might be able to offer an 787-9ER/LR option which could gain more orders to helpful up the production line.

If there we're to introduce an ER/LR they would for sure have orders from NZ & QF who are currently both pushing for being able todo AKL-EWR & SYD-JFK non-stop.

Doubtful. That's what the 777X is built for.

The 787 is already limited by its max takeoff weight, so I'm not sure how you'd add extra fuel. The wing would be a bit too small.

Some people have floated that Boeing could do something similar to what they did with the max 7 where they changed it from a unique model to a simple shrink of the max 8. They would make the 787-8 a shrink of the 787-9. They could call it the 787-8ER. Its CASM would be worse on medium haul flights and the A330NEO would actually outperform it on shorter flights.

That's why I think a lightweight 787-8 is on the cards.
 
zkncj
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Re: Boeing to accelerate 787 production, increases accounting block

Sat Sep 16, 2017 6:31 am

RJMAZ wrote:
zkncj wrote:
Would expect that by 2019 Boeing might be able to offer an 787-9ER/LR option which could gain more orders to helpful up the production line.

If there we're to introduce an ER/LR they would for sure have orders from NZ & QF who are currently both pushing for being able todo AKL-EWR & SYD-JFK non-stop.

Doubtful. That's what the 777X is built for.

The 787 is already limited by its max takeoff weight, so I'm not sure how you'd add extra fuel. The wing would be a bit too small.

Some people have floated that Boeing could do something similar to what they did with the max 7 where they changed it from a unique model to a simple shrink of the max 8. They would make the 787-8 a shrink of the 787-9. They could call it the 787-8ER. Its CASM would be worse on medium haul flights and the A330NEO would actually outperform it on shorter flights.

That's why I think a lightweight 787-8 is on the cards.


The 777X is simply to large for some long-haul markets it doesn't allow secondary point to point services, they we're able to add extra tanks to the 767-300 so surely it could be done to the 789 it would probably just reducing the cargo hold space.

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