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

Tue Sep 19, 2017 7:57 pm

StTim wrote:
By every definition I was taught at Business school Boeing has a weak balance sheet. Indeed historically you could say they were insolvent,

Now I do not believe Boeing is anywhere near to going broke. Times have obviously changed.


Why could you say they were insolvent?

What is 'Insolvency'

Insolvency is when an organization, or individual, can no longer meet its financial obligations with its lender or lenders as debts become due. Before an insolvent company, or person, gets involved in insolvency proceedings, it will likely be involved in informal arrangements with creditors, such as making alternative payment arrangements. Insolvency can arise from poor cash management, a reduction in cash inflow forecasts or from an increase in expenses.

http://www.investopedia.com/terms/i/insolvency.asp

Or this definition


In legal terminology, the situation where the liabilities of a person or firm exceed its assets. In practice, however, insolvency is the situation where an entity cannot raise enough cash to meet its obligations, or to pay debts as they become due for payment. Properly called technical insolvency, it may occur even when the value of an entity's total assets exceeds its total liabilities. Mere insolvency does not afford enough ground for lenders to petition for involuntary bankruptcy of the borrower, or force a liquidation of his or her assets.

Read more: http://www.businessdictionary.com/defin ... vency.html
Last edited by Newbiepilot on Tue Sep 19, 2017 7:57 pm, edited 1 time in total.
 
bigjku
Posts: 1906
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Re: Boeing to accelerate 787 production, increases accounting block

Tue Sep 19, 2017 7:59 pm

Newbiepilot wrote:
mjoelnir wrote:
Newbiepilot wrote:

No I am not. I'm not an expert and don't claim to be. That's why I'm quoting and referencing others who are experts to contradict your statement that "Boeing has not a strong balance sheet" and armchairceonr1 comments about Boeing not being able to issue more debt.


So you should not belittle the experience of others, having done and having to stand for the financial reporting for a company.


I'm not the one saying that Boeing has a weak balance sheet, you are. I'm sorry if you are offended, but your statement is contradictory to almost all of the financial analysis articles that I have read. I have to go back in time to 2009-2011 to find articles stating that Boeing had a weak balance sheet. If you have seen an industry expert corroborate your opinion, I'd love to see it. What I am reading is that Boeing has a strong balance sheet despite drop in equity.

More recently the Dollar has been falling in value, which is helping their balance sheet even more:

A weak dollar should provide a tailwind to Boeing's (BA - Get Report) commercial aircraft division. That division competes chiefly with Europe's Airbus, a company which will be hurt by the stronger euro.

https://www.thestreet.com/story/1431109 ... ollar.html

787 rate going up, 787 production costs and deferred costs going down, and Dollar going down should all help Boeing's balance sheet. A bigger accounting block can help boost profits, and with the falling dollar and recent sales, it looks like the 787 should continue to sell.


In a traditional sense it would be a huge worry. But IMHO you have to look beyond the balance sheet bottom line(s) of equity at times to fully understand what is going on.

Normally yes I would be massively concerned if a company has negative equity or low equity but I would want to know why first and foremost. If it were the result of ongoing losses I would never touch it as a financing entity.

However Boeing's position is quite deliberate. They have elected to spend earnings to buy back stock. Had they not they could have substantial equity at this point. Overall as other said, given the price they paid, the buyback was probably a net positive. They could reclaim some or all the cash they spent and everyone would be less diluted than they were before the buyback started.

I also expect given the price they won't buy back much anymore.

My second worry with a leveraged company would be how predictable are their cash flow and income statements. Despite what others have said Boeing has been pretty stable year after year for quite a while. There is no apparent reason to think there are huge hiccups coming there.

So I personally don't see balance sheet risk. I see a company with little debt. Someone brought up Catapiller as an example of a positive situation. Well I personally would rather have Boeings balance sheet. They are similar in terms of asset size but Catapillar has 3 times as much debt. It has 14 billion in equity to be sure but has to service its debt on half as much revenue. The equity position doesn't bother me because I can see where Boeing could readily obtain it if they need it and where I expect them to earn it over coming quarters. I also see that they didn't get there by posting losses.
 
StTim
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Re: Boeing to accelerate 787 production, increases accounting block

Tue Sep 19, 2017 8:07 pm

Insolvency is what happens what your creditors call in their debts. Now I know that a lot of Being debt is bonds etc but traditionally debt was bank loans and they could call it in at short notice - especially if a covenant is breached. Once one calls in the debt there is a cascade and the company fails.

A lot of profitable companies fail. Cash generating companies are however a lot less likely to fail BUT careful examination of where cash has come from is by squeezing suppliers (how long can this continue) and encouraging customers to pre pay. Now if I was a customer and was going to give some of my money to a vendor in advance of when it was really contractually required I would be looking for a quid pro quo in terms of reduced payments later.

There is also a lot of talk here about Wall Street Analysts as being clever old souls. A lot of them are not and those who are know where their bread is buttered. How many of the clever folk saw the last crash coming?

Now I am not and never have said the Boeing is close to going broke. They do however indulge in a huge amount of financial engineering.
 
Planeflyer
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Re: Boeing to accelerate 787 production, increases accounting block

Tue Sep 19, 2017 9:00 pm

Insolvency? This term does not belong in a serious conversation about Boeing. Show me a company that has generated as much as cash as they have who was even close to insolvency. You all wax on like you have a clue when you have missed out on 60% appreciation this year.....not including dividends. Good grief!
 
PlanesNTrains
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Re: Boeing to accelerate 787 production, increases accounting block

Wed Sep 20, 2017 3:15 am

I have no idea how Boeing would deal with a catastrophic business change. However, as an example, we had near-insolvent airlines that on 9/10/2001 were not doing so well, yet on 9/12/2001 had pulled down massive lines of credit to support their businesses. I can't help but think that if Boeing needed funds in such a dire circumstance, they could come up with them.

Do I trust that Boeing is infallible? No. Do I trust that they know what they are doing? Probably. Do I believe they are financially sound? Of course. Could that change? Anything can change.

But - to appease those who see it differently - yes, Boeing has a weak balance sheet and are setting themselves up for failure.
-Dave


MAX’d out on MAX threads. If you are starting a thread, and it’s about the MAX - stop. There’s already a thread that covers it.
 
airzona11
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Re: Boeing to accelerate 787 production, increases accounting block

Wed Sep 20, 2017 4:20 am

StTim wrote:
Insolvency is what happens what your creditors call in their debts. Now I know that a lot of Being debt is bonds etc but traditionally debt was bank loans and they could call it in at short notice - especially if a covenant is breached. Once one calls in the debt there is a cascade and the company fails.

A lot of profitable companies fail. Cash generating companies are however a lot less likely to fail BUT careful examination of where cash has come from is by squeezing suppliers (how long can this continue) and encouraging customers to pre pay. Now if I was a customer and was going to give some of my money to a vendor in advance of when it was really contractually required I would be looking for a quid pro quo in terms of reduced payments later.

There is also a lot of talk here about Wall Street Analysts as being clever old souls. A lot of them are not and those who are know where their bread is buttered. How many of the clever folk saw the last crash coming?

Now I am not and never have said the Boeing is close to going broke. They do however indulge in a huge amount of financial engineering.


What firm doesn't? Any accountant will tell you that they can make the numbers say and do almost anything. Boeing is not going to have a loan called up. Boeing a darling of the banking world, all the large manufacturers are. Boeing operates assuming such being the case. This time last year their stock was ~$120 and has since doubled. They are not doing anything illegal. Their margins are healthy. They are diversified across product lines, they continue to horizontally expand their services in-house, while controlling for unknowns in the supply chain. They have absorbed and learned a lot from the 787 experience.

Something else to consider, airplanes have a limited shelf life, they have only 1 other true competitor, in a duopoly scenario, at this scale, they have breathing room.
 
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Stitch
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Re: Boeing to accelerate 787 production, increases accounting block

Wed Sep 20, 2017 3:49 pm

So looks like Turkish is in the market for the 787 or A350. This is probably one of the RFPs that is supporting the 787 production increase.

viewtopic.php?f=3&t=1374237&p=19828331
 
81819
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Re: Boeing to accelerate 787 production, increases accounting block

Wed Sep 20, 2017 6:08 pm

Wow.

If the market turned Boeing could simply generate cash internally by reducing their spend on R&D, reducing staff levels and re-structuring their businesses through consolidation of current assets.

Boeing generates very healthy free cash flows, even with the 787 program cost overruns, development of the 777X, investment in new facilities and K46 project delays/ write offs.

When describing the financial health of Boeing I wouldn't be using the word onsolvent in the conversation.
 
Planeflyer
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Re: Boeing to accelerate 787 production, increases accounting block

Wed Sep 20, 2017 6:31 pm

Wow describes the wishful thinking some have towards a demise at Boeing. But A Net is an internet forum with the attendant low signal to noise ratio. Good news is that some posters are really knowledgeable but often they are only drawn out in response to wrong headed thinking.

I think Boeing will win 2/3rds of the small widebody market over the next 10 years but I also think this is reflected in the current share price. This is the reason they will increase production from 12-14 a month.
 
Siddar
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Re: Boeing to accelerate 787 production, increases accounting block

Wed Sep 20, 2017 8:05 pm

People talking about solvency of Boeing and Airbus always seem to forget the highly profitable 737, 320 programs. As long as those stay profitable then it doesn't matter how bad they screw up else where. Airbus can make 380 and Boeing can make the early 787 screw ups, it wont endanger ether company as long as 737 and 320 program stay profitable.
 
mjoelnir
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Re: Boeing to accelerate 787 production, increases accounting block

Wed Sep 20, 2017 9:01 pm

Newbiepilot wrote:
StTim wrote:
By every definition I was taught at Business school Boeing has a weak balance sheet. Indeed historically you could say they were insolvent,

Now I do not believe Boeing is anywhere near to going broke. Times have obviously changed.


Why could you say they were insolvent?

What is 'Insolvency'

Insolvency is when an organization, or individual, can no longer meet its financial obligations with its lender or lenders as debts become due. Before an insolvent company, or person, gets involved in insolvency proceedings, it will likely be involved in informal arrangements with creditors, such as making alternative payment arrangements. Insolvency can arise from poor cash management, a reduction in cash inflow forecasts or from an increase in expenses.

http://www.investopedia.com/terms/i/insolvency.asp

Or this definition


In legal terminology, the situation where the liabilities of a person or firm exceed its assets. In practice, however, insolvency is the situation where an entity cannot raise enough cash to meet its obligations, or to pay debts as they become due for payment. Properly called technical insolvency, it may occur even when the value of an entity's total assets exceeds its total liabilities. Mere insolvency does not afford enough ground for lenders to petition for involuntary bankruptcy of the borrower, or force a liquidation of his or her assets.

Read more: http://www.businessdictionary.com/defin ... vency.html


In legal terminology, the situation where the liabilities of a person or firm exceed its assets. To quote you.

A negative equity, means that liabilities exceed assets. Add to that, that 27 billion USD deferred cost are booked as assets at Boeing. In normal accounting, Boeing's equity would be negative by 29 billion USD. (Q2 report).
I know, that negative equity is acceptable in the USA and I know that Boeing is neither insolvent nor in cash flow problems. And I have no wish for Boeing to disappear. But one can hardly talk about a solid balance sheet while looking at Boeing's financial reports.
 
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kitplane01
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Re: Boeing to accelerate 787 production, increases accounting block

Thu Sep 21, 2017 1:55 am

airmagnac wrote:
So to summarize :
- deferred costs are NOT sunk costs as they have been paid but not accounted for in the P&L, and therefore any future decision-making would have to take them into account
- 787 delivery cash flow is not directly convertible into free cash flow as a large chunk of it is earmarked to service the deferred costs - and thus is not free.


I disagree with these points.

Deferred costs ARE sunk costs. The definition of sunk cost is "In economics and business decision-making, a sunk cost is a cost that has already been incurred and cannot be recovered." In this context "cannot be recovered" means that you cannot go back the original vendors and request a refund. I agree the accounting is sometimes not straightforward, but these deferred costs are money already spent and cannot be recovered.

The 787 cash flow might be free cash flow. Free cash flow is defined as "Free cash flow (FCF) is a measure of a company's financial performance, calculated as operating cash flow minus capital expenditures." The 787 cash flow is operating cash flow, and it need not be spent on capital expenditures. It can be used to reduce the deferred costs, but that's not a capital expenditure. Instead, it is money you could give to a shareholders if you wanted.

https://en.wikipedia.org/wiki/Sunk_cost
http://www.investopedia.com/terms/f/freecashflow.asp
 
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speedbored
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Re: Boeing to accelerate 787 production, increases accounting block

Thu Sep 21, 2017 6:16 am

kitplane01 wrote:
Deferred costs ARE sunk costs.
The 787 cash flow might be free cash flow.

Most of what you say is correct, apart from:
kitplane01 wrote:
The 787 cash flow ..... can be used to reduce the deferred costs

The deferred costs have already been paid on a cash basis. The only things that can be used to reduce the deferred costs are profits or write-offs.
 
mjoelnir
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Re: Boeing to accelerate 787 production, increases accounting block

Thu Sep 21, 2017 8:44 am

kitplane01 wrote:
airmagnac wrote:
So to summarize :
- deferred costs are NOT sunk costs as they have been paid but not accounted for in the P&L, and therefore any future decision-making would have to take them into account
- 787 delivery cash flow is not directly convertible into free cash flow as a large chunk of it is earmarked to service the deferred costs - and thus is not free.


I disagree with these points.

Deferred costs ARE sunk costs. The definition of sunk cost is "In economics and business decision-making, a sunk cost is a cost that has already been incurred and cannot be recovered." In this context "cannot be recovered" means that you cannot go back the original vendors and request a refund. I agree the accounting is sometimes not straightforward, but these deferred costs are money already spent and cannot be recovered.

The 787 cash flow might be free cash flow. Free cash flow is defined as "Free cash flow (FCF) is a measure of a company's financial performance, calculated as operating cash flow minus capital expenditures." The 787 cash flow is operating cash flow, and it need not be spent on capital expenditures. It can be used to reduce the deferred costs, but that's not a capital expenditure. Instead, it is money you could give to a shareholders if you wanted.

https://en.wikipedia.org/wiki/Sunk_cost
http://www.investopedia.com/terms/f/freecashflow.asp


I disagree with you, especially regarding deferred cost being sunk cost. Sunk cost have no influence on the future. Here are several points.
- Deferred cost are booked as assets. Assets are by definition recoverable.
- Deferred cost are looked at, from the way how program accounting works, as future cost.
- Deferred cost have influence on future profits or loss.
- Deferred cost can lead to future write offs.

Regarding the free cash flow. There is a distinction between free cash flow and cash flow. Some definitions ignore the twists of program accounting. The deferred cost, booked as an asset, has an influence on free cash flow. Deferred cost lowers future profits, profits are part of the free cash flow so deferred cost lowers future free cash flow.

http://www.investopedia.com/ask/answers ... h-flow.asp

Quote: It is a representation of cash that a business is able to generate after laying out the money needed for expansion of its asset base.

Deferred cost are booked as an asset, reducing the deferred cost is reducing assets and therefore reducing the Free Cash Flow. The Cash Flow stays the same.
 
Amiga500
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Re: Boeing to accelerate 787 production, increases accounting block

Thu Sep 21, 2017 9:23 am

Basically, Boeing have zero risk of going under, but their current share price is inflated based on a number of factors:

(i) continually delaying the inevitable charges on the 787 program from going onto the balance sheet.
(ii) pulling in customer payments and pushing out supplier payments.
(iii) inertia from the buybacks.

Given that (ii) can not be repeated - indeed it may result in long term strife with the supply chain - considering also (i) will have to be dealt with at some point -- putting both together means there likely won't be sufficient numbers on paper to continue (iii).

It won't directly endanger the company - but when it does happen - short termism amongst shareholders could see stupidly short term decisions made - which *then* could endanger the long term security of the company. For example, say all this comes to a head in ~2025. Airbus decide to strike while Boeing are in disarray and launch the A30X. Boeing's shareholders don't want to spend the development money so force the board to make do with a further update of the 737. BBD, Comac and Irkut have enough industrial capacity and the product to mean a full production line at Airbus doesn't automatically equate to an airline having to buy a 737 mk4. That could see Boeing become a marginal competitor in the narrowbody market, and that could be the beginning of the end of BCA.
 
WIederling
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Re: Boeing to accelerate 787 production, increases accounting block

Thu Sep 21, 2017 12:36 pm

Amiga500 wrote:
It won't directly endanger the company - but when it does happen - short termism amongst shareholders could see stupidly short term decisions made - which *then* could endanger the long term security of the company. For example, say all this comes to a head in ~2025. Airbus decide to strike while Boeing are in disarray and launch the A30X. Boeing's shareholders don't want to spend the development money so force the board to make do with a further update of the 737. BBD, Comac and Irkut have enough industrial capacity and the product to mean a full production line at Airbus doesn't automatically equate to an airline having to buy a 737 mk4. That could see Boeing become a marginal competitor in the narrowbody market, and that could be the beginning of the end of BCA.


The methods used to enable "Boeing books look good" is from the same toolbox that caused the GFC.
It requires that the US slap down/entangle any possible competitor.
Murphy is an optimist
 
Planesmart
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Re: Boeing to accelerate 787 production, increases accounting block

Thu Sep 21, 2017 9:09 pm

It's put up or shut up time at Boeing. In the finance industry, we call it 'shaking the tree'. The fallout usually ends up being a fees and bonuses bonanza for those funding.

Boeing cannot afford to have the continuing hangover of deep discounts and soft contract conditions spilling over into yet to be announced new models and upgrades. They have already absorbed too much of that with 788 orders switched to 9's and 10's.

With a few exceptions (leasing companies and airlines late to the party that didn't order 8's), airlines holding deferred 787 orders, or options and letters of intent at deep discounts, need to exercise those, and take delivery by 2022, or negotiate changes, and incur fees (higher unit price) for the privilege.

I'm sure there will be surprises as even 788 orders are announced. And watch the unidentified category diminish.
 
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Stitch
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Re: Boeing to accelerate 787 production, increases accounting block

Thu Sep 21, 2017 9:18 pm

Planesmart wrote:
I'm sure there will be surprises as even 788 orders are announced. And watch the unidentified category diminish.


JAL was identified today as the owner of a four-frame 787-8 UFO order (perhaps the one placed 28 March). ;)
 
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Stitch
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Re: Boeing to accelerate 787 production, increases accounting block

Thu Sep 21, 2017 10:44 pm

Stitch wrote:
So looks like Turkish is in the market for the 787 or A350. This is probably one of the RFPs that is supporting the 787 production increase.


And they just signed an LoI for 40 - viewtopic.php?f=3&t=1374365
 
Newbiepilot
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Re: Boeing to accelerate 787 production, increases accounting block

Fri Sep 22, 2017 12:18 am

Stitch wrote:
Stitch wrote:
So looks like Turkish is in the market for the 787 or A350. This is probably one of the RFPs that is supporting the 787 production increase.


And they just signed an LoI for 40 - viewtopic.php?f=3&t=1374365


Increasing the production rate may have been necessary to win that order.
 
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lightsaber
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Re: Boeing to accelerate 787 production, increases accounting block

Fri Sep 22, 2017 12:44 am

Newbiepilot wrote:
Stitch wrote:
Stitch wrote:
So looks like Turkish is in the market for the 787 or A350. This is probably one of the RFPs that is supporting the 787 production increase.


And they just signed an LoI for 40 - viewtopic.php?f=3&t=1374365


Increasing the production rate may have been necessary to win that order.

A small production rate increase was required to TK. But that order, if finalized, doesn't justify another 24 per year.

To increase the rate 24 per year requires about 6 years of production. Or Boeing must see the opportunity for 144 or so more near term sales.

Lightsaber
I cannot wait to get vaccinated to live again! Warning: I simulated that it takes 50%+ vaccinated to protect the vaccinated and 75%+ vaccinated to protect the vac-hesitant.
 
iamlucky13
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Re: Boeing to accelerate 787 production, increases accounting block

Fri Sep 22, 2017 12:55 am

Amiga500 wrote:
Basically, Boeing have zero risk of going under, but their current share price is inflated based on a number of factors:

(i) continually delaying the inevitable charges on the 787 program from going onto the balance sheet.
(ii) pulling in customer payments and pushing out supplier payments.
(iii) inertia from the buybacks.

Given that (ii) can not be repeated - indeed it may result in long term strife with the supply chain - considering also (i) will have to be dealt with at some point -- putting both together means there likely won't be sufficient numbers on paper to continue (iii).

It won't directly endanger the company - but when it does happen - short termism amongst shareholders could see stupidly short term decisions made - which *then* could endanger the long term security of the company. For example, say all this comes to a head in ~2025. Airbus decide to strike while Boeing are in disarray and launch the A30X. Boeing's shareholders don't want to spend the development money so force the board to make do with a further update of the 737. BBD, Comac and Irkut have enough industrial capacity and the product to mean a full production line at Airbus doesn't automatically equate to an airline having to buy a 737 mk4. That could see Boeing become a marginal competitor in the narrowbody market, and that could be the beginning of the end of BCA.


(i) I'm having a hard time guessing what recording some 787 charges is going to do to their share price. I'd expect the big institutional investors to generally understand the magnitude of deferred costs they have yet to account for.

I'm most concerned about potentially premature workforce reductions during the 737 and 777 transitions and 787 ramp up. The South Carolina startup workforce reduction and 787-9 start of production were a costly lesson. I'm concerned they may be repeating it. Everybody I talk to seems to be working overtime, feeling burnt out, and stressed because they don't know if more layoffs might be coming.

If they over-extend their workforce and end up stuck trying to catch up with resulting issues while also trying to launch a clean-sheet MoM or NSA, they could be stuck having to hire rapidly, but won't be getting commensurate productivity increases between the learning curve for new hires and the burn out among the existing workers.

That would hardly be an existential threat for Boeing, but it definitely could significantly change their cash flow.
 
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kitplane01
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Re: Boeing to accelerate 787 production, increases accounting block

Fri Sep 22, 2017 1:12 am

speedbored wrote:
kitplane01 wrote:
Deferred costs ARE sunk costs.
The 787 cash flow might be free cash flow.

Most of what you say is correct, apart from:
kitplane01 wrote:
The 787 cash flow ..... can be used to reduce the deferred costs

The deferred costs have already been paid on a cash basis. The only things that can be used to reduce the deferred costs are profits or write-offs.


Yes, you're right. That's what I meant but not close to what I wrote.
 
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kitplane01
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Re: Boeing to accelerate 787 production, increases accounting block

Fri Sep 22, 2017 1:26 am

mjoelnir wrote:
kitplane01 wrote:
airmagnac wrote:
So to summarize :
- deferred costs are NOT sunk costs as they have been paid but not accounted for in the P&L, and therefore any future decision-making would have to take them into account
-


I disagree with these points.

Deferred costs ARE sunk costs. The definition of sunk cost is "In economics and business decision-making, a sunk cost is a cost that has already been incurred and cannot be recovered." In this context "cannot be recovered" means that you cannot go back the original vendors and request a refund. I agree the accounting is sometimes not straightforward, but these deferred costs are money already spent and cannot be recovered.



https://en.wikipedia.org/wiki/Sunk_cost


I disagree with you, especially regarding deferred cost being sunk cost. Sunk cost have no influence on the future. Here are several points.
- Deferred cost are booked as assets. Assets are by definition recoverable.
- Deferred cost are looked at, from the way how program accounting works, as future cost.
- Deferred cost have influence on future profits or loss.
- Deferred cost can lead to future write offs.


If the Seattle Times, CBS News, the Motley fool, and the local Everette newspaper all call them sunk costs ...

The Seattle Times, when writing of the 787 program, calls them a sunk cost. "Boeing’s projection of an eventual profit for the Dreamliner depends on very aggressive assumptions, given $32 billion in sunk costs already, " The Herald Newspaper, of Everette Washington “It’s sunk costs, so to some extent it’s not all that relevant going forward,” CBS News calls them sunken costs. "Though a non-cash charge-off, this accounting sleight of hand still serves to lower shareholder equity -- the "sunken costs" that are always justified as part of the learning curve equation." The Motley fool calls them sunk costs "No matter how many Dreamliners Boeing manages to sell over the model's lifetime, the program will have been a bad investment due to all of the cost overruns over the past decade. However, those are sunk costs. At this point, investors just want to see Boeing wring out as much profit from the Dreamliner lineup as possible over the next 15 years or so."

http://www.seattletimes.com/business/bo ... skeptical/
http://www.heraldnet.com/business/a-32b ... ll-street/
https://www.cbsnews.com/news/dreamliner ... -aircraft/
https://www.fool.com/investing/2016/12/ ... track.aspx
 
mjoelnir
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Re: Boeing to accelerate 787 production, increases accounting block

Fri Sep 22, 2017 1:38 am

kitplane01 wrote:
mjoelnir wrote:
kitplane01 wrote:

I disagree with these points.

Deferred costs ARE sunk costs. The definition of sunk cost is "In economics and business decision-making, a sunk cost is a cost that has already been incurred and cannot be recovered." In this context "cannot be recovered" means that you cannot go back the original vendors and request a refund. I agree the accounting is sometimes not straightforward, but these deferred costs are money already spent and cannot be recovered.



https://en.wikipedia.org/wiki/Sunk_cost


I disagree with you, especially regarding deferred cost being sunk cost. Sunk cost have no influence on the future. Here are several points.
- Deferred cost are booked as assets. Assets are by definition recoverable.
- Deferred cost are looked at, from the way how program accounting works, as future cost.
- Deferred cost have influence on future profits or loss.
- Deferred cost can lead to future write offs.


If the Seattle Times, CBS News, the Motley fool, and the local Everette newspaper all call them sunk costs ...

The Seattle Times, when writing of the 787 program, calls them a sunk cost. "Boeing’s projection of an eventual profit for the Dreamliner depends on very aggressive assumptions, given $32 billion in sunk costs already, " The Herald Newspaper, of Everette Washington “It’s sunk costs, so to some extent it’s not all that relevant going forward,” CBS News calls them sunken costs. "Though a non-cash charge-off, this accounting sleight of hand still serves to lower shareholder equity -- the "sunken costs" that are always justified as part of the learning curve equation." The Motley fool calls them sunk costs "No matter how many Dreamliners Boeing manages to sell over the model's lifetime, the program will have been a bad investment due to all of the cost overruns over the past decade. However, those are sunk costs. At this point, investors just want to see Boeing wring out as much profit from the Dreamliner lineup as possible over the next 15 years or so."

http://www.seattletimes.com/business/bo ... skeptical/
http://www.heraldnet.com/business/a-32b ... ll-street/
https://www.cbsnews.com/news/dreamliner ... -aircraft/
https://www.fool.com/investing/2016/12/ ... track.aspx


I have a very simple answer, Boeing books the deferred cost as assets, they do not seem to agree with you.

The 32 billion sunk cost can still be right, what did the development cost amount to?

Regarding the profits from the 787, they have to be used against the deferred cost first, to the tune of 27 billion USD. That is why people talk about cash flow.
 
iamlucky13
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Re: Boeing to accelerate 787 production, increases accounting block

Fri Sep 22, 2017 2:19 am

I was recently looking in moderate depth at Boeing and Airbus's market forecasts, mainly as it related to 777X and A350 prospects, but since the portions I was looking at related to the 787, too, I thought I'd bring it up here.

Both Boeing and Airbus have categories in their forecasts for small widebodies. This includes the 787, A350-900, A330 NEO, and 767.

The average in this category between the two is 5,267 small widebody aircraft deliveries over the next 20 years.

14/month for the 787 is 3360 deliveries, or nearly 2/3 of the market. If Airbus is serious about going to 13/month with the A350, and the roughly 75:25 split that currently exists between the A359 and A35X holds, that pushes production of those two families to 5670 over 20 years. We can presumably discount the 767 passenger prospects, but presumably the A330NEO will earn a modest number more sales before ending production.

If Boeing launches the MoM, it's market share would presumably come from a mix of the current narrow body and small widebody markets, but the widebody supply already looks potentially excessive.

Basically, the production rates look a bit sporty to me, even assuming the assumption both companies have been making that the traffic growth trends continue unabated at roughly the same pace they've been following for decades.
 
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Momo1435
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Re: Boeing to accelerate 787 production, increases accounting block

Fri Sep 22, 2017 5:15 am

With the TK LoI the number of firm orders/MoUs/LoIs booked/announced so far this year = 143.

That's book to bill for the current year. Of course firm orders count more, but even then it shows that the market for the 787 continues to be strong.
 
SFOtoORD
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Re: Boeing to accelerate 787 production, increases accounting block

Fri Sep 22, 2017 5:43 am

mjoelnir wrote:
kitplane01 wrote:
mjoelnir wrote:

I disagree with you, especially regarding deferred cost being sunk cost. Sunk cost have no influence on the future. Here are several points.
- Deferred cost are booked as assets. Assets are by definition recoverable.
- Deferred cost are looked at, from the way how program accounting works, as future cost.
- Deferred cost have influence on future profits or loss.
- Deferred cost can lead to future write offs.


If the Seattle Times, CBS News, the Motley fool, and the local Everette newspaper all call them sunk costs ...

The Seattle Times, when writing of the 787 program, calls them a sunk cost. "Boeing’s projection of an eventual profit for the Dreamliner depends on very aggressive assumptions, given $32 billion in sunk costs already, " The Herald Newspaper, of Everette Washington “It’s sunk costs, so to some extent it’s not all that relevant going forward,” CBS News calls them sunken costs. "Though a non-cash charge-off, this accounting sleight of hand still serves to lower shareholder equity -- the "sunken costs" that are always justified as part of the learning curve equation." The Motley fool calls them sunk costs "No matter how many Dreamliners Boeing manages to sell over the model's lifetime, the program will have been a bad investment due to all of the cost overruns over the past decade. However, those are sunk costs. At this point, investors just want to see Boeing wring out as much profit from the Dreamliner lineup as possible over the next 15 years or so."

http://www.seattletimes.com/business/bo ... skeptical/
http://www.heraldnet.com/business/a-32b ... ll-street/
https://www.cbsnews.com/news/dreamliner ... -aircraft/
https://www.fool.com/investing/2016/12/ ... track.aspx


I have a very simple answer, Boeing books the deferred cost as assets, they do not seem to agree with you.

The 32 billion sunk cost can still be right, what did the development cost amount to?

Regarding the profits from the 787, they have to be used against the deferred cost first, to the tune of 27 billion USD. That is why people talk about cash flow.


Neither of you are accountants, auditors or GAAP experts so just let it go. There is no point to this discussion.
 
Amiga500
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Re: Boeing to accelerate 787 production, increases accounting block

Fri Sep 22, 2017 9:11 am

iamlucky13 wrote:
(i) I'm having a hard time guessing what recording some 787 charges is going to do to their share price. I'd expect the big institutional investors to generally understand the magnitude of deferred costs they have yet to account for.


"Big institutional investors" are some of the most short termist on the planet. I can't call them stupid as they know what they are doing/wanting is ultimately not at all connected to the long term health of the invested company, indeed, is sometimes diametrically opposite to what is good for the long term health of the invested company.

If and when Boeing start to take charges on the 787 deferred costs, profits on paper will nose dive. This will leave less for dividend and/or buybacks. Causing a wobble in the share price and a panic to sell at the top for these "big institutional investors".


Unfortunately, applying logic to the stock market is a waste of time when they are looking to execute trades in milliseconds. IMO laws should be introduced - you buy a stock - you can't sell it for 12 months. You sell a stock - you can't buy it for 12 months. Make an investment an investment, not a means to bounce around from second to second, minute to minute or hour to hour.
 
 
mjoelnir
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Re: Boeing to accelerate 787 production, increases accounting block

Fri Sep 22, 2017 9:20 am

SFOtoORD wrote:
mjoelnir wrote:
kitplane01 wrote:

If the Seattle Times, CBS News, the Motley fool, and the local Everette newspaper all call them sunk costs ...

The Seattle Times, when writing of the 787 program, calls them a sunk cost. "Boeing’s projection of an eventual profit for the Dreamliner depends on very aggressive assumptions, given $32 billion in sunk costs already, " The Herald Newspaper, of Everette Washington “It’s sunk costs, so to some extent it’s not all that relevant going forward,” CBS News calls them sunken costs. "Though a non-cash charge-off, this accounting sleight of hand still serves to lower shareholder equity -- the "sunken costs" that are always justified as part of the learning curve equation." The Motley fool calls them sunk costs "No matter how many Dreamliners Boeing manages to sell over the model's lifetime, the program will have been a bad investment due to all of the cost overruns over the past decade. However, those are sunk costs. At this point, investors just want to see Boeing wring out as much profit from the Dreamliner lineup as possible over the next 15 years or so."

http://www.seattletimes.com/business/bo ... skeptical/
http://www.heraldnet.com/business/a-32b ... ll-street/
https://www.cbsnews.com/news/dreamliner ... -aircraft/
https://www.fool.com/investing/2016/12/ ... track.aspx


I have a very simple answer, Boeing books the deferred cost as assets, they do not seem to agree with you.

The 32 billion sunk cost can still be right, what did the development cost amount to?

Regarding the profits from the 787, they have to be used against the deferred cost first, to the tune of 27 billion USD. That is why people talk about cash flow.


Neither of you are accountants, auditors or GAAP experts so just let it go. There is no point to this discussion.


If you find something wrong in what I say, say it. This is a thread about accelerating 787 production and increasing the accounting block. This discussion is right on track.
 
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Revelation
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Re: Boeing to accelerate 787 production, increases accounting block

Fri Sep 22, 2017 10:06 am

iamlucky13 wrote:
Basically, the production rates look a bit sporty to me, even assuming the assumption both companies have been making that the traffic growth trends continue unabated at roughly the same pace they've been following for decades.

Yes, very sporty, considering what lightsaber wrote about the commitments Boeing makes to its vendors when it increases the production rate. In essence Boeing can't just flip the switch and go back to the old rate (or lower) without a lot of consequences.

And there almost seems to be an assumption that the A330neo can't undermine the 787 much if at all. I don't know if Boeing is confident because it's done its homework or so desperate for cash flow in the short term that they're recklessly exposing themselves in the long term.
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Wake now, discover that you are the song that the morning brings
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Revelation
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Re: Boeing to accelerate 787 production, increases accounting block

Fri Sep 22, 2017 10:11 am

pabloeing wrote:
http://www.arabianbusiness.com/content/376730-emirates-poised-to-announce-dreamliner-deal-with-boeing

Uhm...

Saj Ahmad, a consultant at Strategic Aero Research, wrote on his website that the Dreamliner decision was a “done deal” with Boeing.

That's what Saj always writes...

The rest of the content is the typical Saj drek that any a.net fanboy could crank out in their sleep.

And some "journalists" who cruise web sites looking for stories are too stupid to know he's just a fanboy blogger.
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
 
Newbiepilot
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Re: Boeing to accelerate 787 production, increases accounting block

Fri Sep 22, 2017 11:17 am

Amiga500 wrote:
iamlucky13 wrote:
(i) I'm having a hard time guessing what recording some 787 charges is going to do to their share price. I'd expect the big institutional investors to generally understand the magnitude of deferred costs they have yet to account for.


"Big institutional investors" are some of the most short termist on the planet. I can't call them stupid as they know what they are doing/wanting is ultimately not at all connected to the long term health of the invested company, indeed, is sometimes diametrically opposite to what is good for the long term health of the invested company.

If and when Boeing start to take charges on the 787 deferred costs, profits on paper will nose dive. This will leave less for dividend and/or buybacks. Causing a wobble in the share price and a panic to sell at the top for these "big institutional investors".


Unfortunately, applying logic to the stock market is a waste of time when they are looking to execute trades in milliseconds. IMO laws should be introduced - you buy a stock - you can't sell it for 12 months. You sell a stock - you can't buy it for 12 months. Make an investment an investment, not a means to bounce around from second to second, minute to minute or hour to hour.


In the last quarterly report, deferred production costs really started to drop in earnest after Boeing went through some significant cost cutting efforts. Let's wait and see how much they drop in the coming quarters and once the rate hits 14 a month to see if charges are even necessary. A bigger accounting block helps that situation as well.
 
Amiga500
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Re: Boeing to accelerate 787 production, increases accounting block

Fri Sep 22, 2017 11:23 am

Newbiepilot wrote:
In the last quarterly report, deferred production costs really started to drop in earnest after Boeing went through some significant cost cutting efforts. Let's wait and see how much they drop in the coming quarters and once the rate hits 14 a month to see if charges are even necessary. A bigger accounting block helps that situation as well.


Was the last quarter not the one where they screwed their suppliers over and pulled in a load of payments?

I thought I'd read articles a few months back about how they were merely scratching the surface of the deferred costs and that even an astronomical hike in efficiency would still be merely mild dents - but obviously I've been well wrong before...
 
mffoda
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Re: Boeing to accelerate 787 production, increases accounting block

Fri Sep 22, 2017 11:57 am

Amiga500 wrote:
Newbiepilot wrote:
In the last quarterly report, deferred production costs really started to drop in earnest after Boeing went through some significant cost cutting efforts. Let's wait and see how much they drop in the coming quarters and once the rate hits 14 a month to see if charges are even necessary. A bigger accounting block helps that situation as well.


Was the last quarter not the one where they screwed their suppliers over and pulled in a load of payments?

I thought I'd read articles a few months back about how they were merely scratching the surface of the deferred costs and that even an astronomical hike in efficiency would still be merely mild dents - but obviously I've been well wrong before...


********

Perhaps you might find some answers to these questions in the following article?

https://seekingalpha.com/article/410842 ... cret-sauce
harder than woodpecker lips...
 
Newbiepilot
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Re: Boeing to accelerate 787 production, increases accounting block

Fri Sep 22, 2017 12:39 pm

Amiga500 wrote:
Newbiepilot wrote:
In the last quarterly report, deferred production costs really started to drop in earnest after Boeing went through some significant cost cutting efforts. Let's wait and see how much they drop in the coming quarters and once the rate hits 14 a month to see if charges are even necessary. A bigger accounting block helps that situation as well.


Was the last quarter not the one where they screwed their suppliers over and pulled in a load of payments?

I thought I'd read articles a few months back about how they were merely scratching the surface of the deferred costs and that even an astronomical hike in efficiency would still be merely mild dents - but obviously I've been well wrong before...


$16 million per plane last quarter and that number per plane is increasing. That's not scratching the surface any more. It's expected to get even bigger when 787-10s start delivering. I think it is entirely possible that the accounting block may get increased again and if it does, they might be able to not require a special charge at all. That's probably what wall street is expecting.
 
sxf24
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Re: Boeing to accelerate 787 production, increases accounting block

Fri Sep 22, 2017 1:02 pm

Newbiepilot wrote:
Amiga500 wrote:
Newbiepilot wrote:
In the last quarterly report, deferred production costs really started to drop in earnest after Boeing went through some significant cost cutting efforts. Let's wait and see how much they drop in the coming quarters and once the rate hits 14 a month to see if charges are even necessary. A bigger accounting block helps that situation as well.


Was the last quarter not the one where they screwed their suppliers over and pulled in a load of payments?

I thought I'd read articles a few months back about how they were merely scratching the surface of the deferred costs and that even an astronomical hike in efficiency would still be merely mild dents - but obviously I've been well wrong before...


$16 million per plane last quarter and that number per plane is increasing. That's not scratching the surface any more. It's expected to get even bigger when 787-10s start delivering. I think it is entirely possible that the accounting block may get increased again and if it does, they might be able to not require a special charge at all. That's probably what wall street is expecting.


I think there’s a general misunderstanding of reach forward losses, or special charges. A company does not get to pick and choose when they happen. If they can’t prove to auditors the costs will be reasonably be recovered, they have to record the loss now. Boeing must have a definitive plan to recovering ALL of the 787 costs, otherwise it could not be booking profits on the program.

Of course, one could allege unethical and illegal behavior. It’s not really appropriate to discuss that here: I’d recommend you immediately take your proof to the SEC.
 
Planeflyer
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Re: Boeing to accelerate 787 production, increases accounting block

Fri Sep 22, 2017 2:24 pm

sxf24, Exactly! Well said.

The doom and gloom posts are written by people who don't run a business, don't risk their own money, don't know what it is like to make payroll, have never faced an audit and who missed out on the doubling of Boeing shares.

The run up in share value is largely due to the reduction in deferred costs seen over the past several quarters. After all, none of the smart money doubts Boeing will capture 70-80% of the small wide body market because they know the 787 vs 330 = 330 vs 767.

The risk is Boeing's ability to bring revenue from a 3000 plane market to the bottom line. Less risk = share appreciation.

As I have said in previous posts Boeing shares are now fairly valued and I have moved my gains to EADS where the upside is greater. The 350 will ramp from 4 -10 per month vs the 787 which will ramp from 12-14 a month. In addition longer range versions of the 321 will dramatically improve the earnings for this program. EADS shares have been flat for the past 3 years due to uncertainty and write downs around the A400 and other defense programs and poor execution on commercial programs which I think caught the market off-guard as this has traditionally been a strength for AB. I think these are now under control.

Have some fun, make some money.
 
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Stitch
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Re: Boeing to accelerate 787 production, increases accounting block

Fri Sep 22, 2017 3:02 pm

Amiga500 wrote:
Was the last quarter not the one where they screwed their suppliers over and pulled in a load of payments?


Those supplier agreements are likely years away from taking full effect and would definitely have no impact on the prices Boeing was paying months or even years ago for components that went into those deliveries. And Boeing only records the costs at airframe delivery, so pulling forward pre-delivery payments would have no impact in that quarter.

So that $16 million is a real savings that will continue going forward on all deliveries.
 
Amiga500
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Re: Boeing to accelerate 787 production, increases accounting block

Fri Sep 22, 2017 4:26 pm

Newbiepilot wrote:
$16 million per plane last quarter and that number per plane is increasing. That's not scratching the surface any more. It's expected to get even bigger when 787-10s start delivering. I think it is entirely possible that the accounting block may get increased again and if it does, they might be able to not require a special charge at all. That's probably what wall street is expecting.


If the deferred costs currently sit at around $ 26B USD, and with ~800 left in the block, that is $32m per frame average. Not impossible I suppose, but at the minute it'd mean the last plane off the line needs to generate a profit of ~$48m USD - quite a bit of fat in what by then will be a 10+ year old airframe.


That seeking alpha article isn't worth wiping your ass with. Does the eejit that wrote it honestly think that the 85% learning curve doesn't already include effect of supplier efficiencies? Would he then have us believe that over 75% of the aircraft's expense (in a 400 frame production run) from the word go is in the OEM assembling it? The reasons for the 787 moving around from the 85% curves are fairly straightforward:
1. The Q1 2013 battery debacle.
2. The 787-9 is built very differently and much cheaper than the 787-8 (and also sells for higher prices).
3. Considering only losses per build assume a constant price of sale. Not a constant when you consider discounts vary depending on how early in the production line you are or how big a customer you are.

(2) & (3) are the main drivers of the moving around that Dhierin Bechai is unable to explain, (1) and below are the more historical reasons for chucking it out of kilter.

If you run the historical production and deferred costs, Boeing made a massive gain when transitioning thru the early "terrible teens" - well ahead of the 85% curve. If you "restart" the program (aka your 85% curve) from airframe 13, and assume 60% discount for first 100 frames, 55% discount for 100-200, 50% discount for 200-300 and 45% thereafter, the damn thing converges very very nicely - ok it wobbles - wobbles quite a bit between airframes ~70 to ~120, but it then starts to really track together surprisingly strongly.

There will not be a step change in 787 production efficiencies. It'll improve, obviously, but there is no paradigm shift that will occur.

Image
 
Amiga500
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Re: Boeing to accelerate 787 production, increases accounting block

Fri Sep 22, 2017 4:34 pm

Stitch wrote:
Those supplier agreements are likely years away from taking full effect and would definitely have no impact on the prices Boeing was paying months or even years ago for components that went into those deliveries.


Negotiations on Preparing For Sacrifice 2 (PFS) kicked off over a year ago. They are coming into the pipeline.
 
MIflyer12
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Re: Boeing to accelerate 787 production, increases accounting block

Fri Sep 22, 2017 4:49 pm

sxf24 wrote:
I think there’s a general misunderstanding of reach forward losses, or special charges. A company does not get to pick and choose when they happen. If they can’t prove to auditors the costs will be reasonably be recovered, they have to record the loss now. Boeing must have a definitive plan to recovering ALL of the 787 costs, otherwise it could not be booking profits on the program.


I think you're employing black & white language where a more nuanced view should prevail.

Boeing doesn't need a definitive plan to recover costs - it needs to demonstrate (to auditor's satisfaction, and investor's satisfaction) that is has a plausible program. Investors think it does, at least across the company's array of commercial and military work -- Boeing couldn't have a big stock price run-up without it. An increase in the accounting block has to be supported by current assessments of market conditions (competition, demand for travel, buyer finances).
 
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Re: Boeing to accelerate 787 production, increases accounting block

Fri Sep 22, 2017 4:51 pm

Newbiepilot wrote:
Amiga500 wrote:
Newbiepilot wrote:
In the last quarterly report, deferred production costs really started to drop in earnest after Boeing went through some significant cost cutting efforts. Let's wait and see how much they drop in the coming quarters and once the rate hits 14 a month to see if charges are even necessary. A bigger accounting block helps that situation as well.


Was the last quarter not the one where they screwed their suppliers over and pulled in a load of payments?

I thought I'd read articles a few months back about how they were merely scratching the surface of the deferred costs and that even an astronomical hike in efficiency would still be merely mild dents - but obviously I've been well wrong before...


$16 million per plane last quarter and that number per plane is increasing. That's not scratching the surface any more. It's expected to get even bigger when 787-10s start delivering. I think it is entirely possible that the accounting block may get increased again and if it does, they might be able to not require a special charge at all. That's probably what wall street is expecting.

I too expect no charge. The backlog is large and this production rate increase will enable further sales.

Wanting or expecting a competitor to fail is not a business strategy. The 786 will easily outsell the current block. 160 787s per year * about $20million per 787 is about $3.2 billion per year payoff of the differed costs.

So it puzzles me about some of the comments about Boeing for the 787 alone should pay off all their debt for the corporation alone! And the real money is 737 support...
I cannot wait to get vaccinated to live again! Warning: I simulated that it takes 50%+ vaccinated to protect the vaccinated and 75%+ vaccinated to protect the vac-hesitant.
 
Newbiepilot
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Re: Boeing to accelerate 787 production, increases accounting block

Fri Sep 22, 2017 4:54 pm

Amiga500 wrote:
Newbiepilot wrote:
$16 million per plane last quarter and that number per plane is increasing. That's not scratching the surface any more. It's expected to get even bigger when 787-10s start delivering. I think it is entirely possible that the accounting block may get increased again and if it does, they might be able to not require a special charge at all. That's probably what wall street is expecting.


If the deferred costs currently sit at around $ 26B USD, and with ~800 left in the block, that is $32m per frame average. Not impossible I suppose, but at the minute it'd mean the last plane off the line needs to generate a profit of ~$48m USD - quite a bit of fat in what by then will be a 10+ year old airframe.


That seeking alpha article isn't worth wiping your ass with. Does the eejit that wrote it honestly think that the 85% learning curve doesn't already include effect of supplier efficiencies? Would he then have us believe that over 75% of the aircraft's expense (in a 400 frame production run) from the word go is in the OEM assembling it? The reasons for the 787 moving around from the 85% curves are fairly straightforward:
1. The Q1 2013 battery debacle.
2. The 787-9 is built very differently and much cheaper than the 787-8 (and also sells for higher prices).
3. Considering only losses per build assume a constant price of sale. Not a constant when you consider discounts vary depending on how early in the production line you are or how big a customer you are.

(2) & (3) are the main drivers of the moving around that Dhierin Bechai is unable to explain, (1) and below are the more historical reasons for chucking it out of kilter.

If you run the historical production and deferred costs, Boeing made a massive gain when transitioning thru the early "terrible teens" - well ahead of the 85% curve. If you "restart" the program (aka your 85% curve) from airframe 13, and assume 60% discount for first 100 frames, 55% discount for 100-200, 50% discount for 200-300 and 45% thereafter, the damn thing converges very very nicely - ok it wobbles - wobbles quite a bit between airframes ~70 to ~120, but it then starts to really track together surprisingly strongly.

There will not be a step change in 787 production efficiencies. It'll improve, obviously, but there is no paradigm shift that will occur.
]


Deferred production costs dropped $6 million per plane in 4Q17, $11 million per plane in 1Q17 and then $16 million per plane in 2Q17. I can't follow the learning curve logic. How much do you predict it will drop per plane in 3Q17 and 4Q17?

There are some shifts coming that will impact these numbers in the next year or two to continue to reduce the deferred production costs. 787-10s selling for higher prices and lower costs per plane with a 14 per month production rate.
 
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Re: Boeing to accelerate 787 production, increases accounting block

Fri Sep 22, 2017 5:15 pm

Newbiepilot wrote:
Amiga500 wrote:
Newbiepilot wrote:
In the last quarterly report, deferred production costs really started to drop in earnest after Boeing went through some significant cost cutting efforts. Let's wait and see how much they drop in the coming quarters and once the rate hits 14 a month to see if charges are even necessary. A bigger accounting block helps that situation as well.


Was the last quarter not the one where they screwed their suppliers over and pulled in a load of payments?

I thought I'd read articles a few months back about how they were merely scratching the surface of the deferred costs and that even an astronomical hike in efficiency would still be merely mild dents - but obviously I've been well wrong before...


$16 million per plane last quarter and that number per plane is increasing. That's not scratching the surface any more. It's expected to get even bigger when 787-10s start delivering. I think it is entirely possible that the accounting block may get increased again and if it does, they might be able to not require a special charge at all. That's probably what wall street is expecting.

I too expect no charge. The backlog is large and this production rate increase will enable further sales.

Wanting or expecting a competitor to fail is not a business strategy. The 786 will easily outsell the current block. 160 787s per year * about $20million per 787 is about $3.2 billion per year payoff of the differed costs.

So it puzzles me about some of the comments about Boeing for the 787 alone should pay off all their debt for the corporation alone! And the real money is 737 support...

Lightsaber
I cannot wait to get vaccinated to live again! Warning: I simulated that it takes 50%+ vaccinated to protect the vaccinated and 75%+ vaccinated to protect the vac-hesitant.
 
Planeflyer
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Re: Boeing to accelerate 787 production, increases accounting block

Fri Sep 22, 2017 6:14 pm

And at least 2 of us nonamateurs made a double in the last 17 months and have put our gains in EADS. Think like an owner instead of fan boy to profit from this site.
 
iamlucky13
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Re: Boeing to accelerate 787 production, increases accounting block

Fri Sep 22, 2017 7:53 pm

Amiga500 wrote:
iamlucky13 wrote:
(i) I'm having a hard time guessing what recording some 787 charges is going to do to their share price. I'd expect the big institutional investors to generally understand the magnitude of deferred costs they have yet to account for.


"Big institutional investors" are some of the most short termist on the planet. I can't call them stupid as they know what they are doing/wanting is ultimately not at all connected to the long term health of the invested company, indeed, is sometimes diametrically opposite to what is good for the long term health of the invested company.


Short term or long term (both types of institutional managers exist), they are both always trying to use existing information to value the stock. The deferred production costs are known, and much ink has been spilled over the topic of whether they will have to take a write down. If they do so, there will be some reactions based on the paper change in profits, but none of the large fund managers are going to be surprised, and the cash flow itself won't change.
 
SFOtoORD
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Re: Boeing to accelerate 787 production, increases accounting block

Fri Sep 22, 2017 8:07 pm

mjoelnir wrote:
SFOtoORD wrote:
mjoelnir wrote:

I have a very simple answer, Boeing books the deferred cost as assets, they do not seem to agree with you.

The 32 billion sunk cost can still be right, what did the development cost amount to?

Regarding the profits from the 787, they have to be used against the deferred cost first, to the tune of 27 billion USD. That is why people talk about cash flow.


Neither of you are accountants, auditors or GAAP experts so just let it go. There is no point to this discussion.


If you find something wrong in what I say, say it. This is a thread about accelerating 787 production and increasing the accounting block. This discussion is right on track.


What I see is a group of people unqualified to make these pronouncements.
 
iamlucky13
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Re: Boeing to accelerate 787 production, increases accounting block

Fri Sep 22, 2017 10:01 pm

Amiga500 wrote:
If the deferred costs currently sit at around $ 26B USD, and with ~800 left in the block, that is $32m per frame average. Not impossible I suppose, but at the minute it'd mean the last plane off the line needs to generate a profit of ~$48m USD - quite a bit of fat in what by then will be a 10+ year old airframe.


I think I worked out a similar end of accounting block number around the time last quarter's results were posted. I likewise wonder if they'll really be able to hit that size unit margin at a time when 787 will have a healthy used market, Airbus will presumably be in a position of being able to price the A350 aggressively, and perhaps even the A330 NEO is getting closeout pricing.

Revelation wrote:
And there almost seems to be an assumption that the A330neo can't undermine the 787 much if at all. I don't know if Boeing is confident because it's done its homework or so desperate for cash flow in the short term that they're recklessly exposing themselves in the long term.


Cash flow has been increasing, hasn't it? I don't think they're desperate for cash. Just trying to bolster share value, and apparently succeeding at making the finances look very good at a time when there has been a falloff in orders, the 777 delivery rate is falling, and they're managing development and EIS of major upgrades to two families. There's been a lot of skepticism over the last couple years, and at least on the surface, it looks like they're defying it. Combine that with concerns the market in general might be getting overvalued, and I think I see where the exuberance among Boeing investors is coming from.

Planeflyer wrote:
As I have said in previous posts Boeing shares are now fairly valued and I have moved my gains to EADS where the upside is greater.


I sold several months ago - obviously earlier than I ideally would have - and am a bit concerned it's overvalued at the moment.

It's quite a change from early 2016 when it bottomed out around $110 a share and I was kicking myself for not selling at $160 a few months earlier. At the time I thought $160 was a fair price and wished I could be buying at $110 without risking more on a single stock that I was comfortable with. $200 seemed unlikely, and I would have laughed at anybody claiming Boeing would hit $250 in 18 months or so.

I understand what you're saying about upside potential in EADS, but personally, I'm finally getting around to trimming my individual stock investments down to a trivial percentage of my portfolio. I'll be picking up a little more EADS anyways as some of that money goes into international index funds.

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