User avatar
Aesma
Posts: 11557
Joined: Sat Nov 14, 2009 6:14 am

Re: Boeing 787 deferred production cost watch

Mon Oct 29, 2018 6:20 pm

If this is tax breaks for later, then Boeing should have written off this last year, before Trump's tax cut. Now they benefit less.

Also, if this is no big deal, is it worth it to pay probably an army of accountants to keep this up, versus just writing off everything in one quarter/year and be done with it ?
New Technology is the name we give to stuff that doesn't work yet. Douglas Adams
 
2175301
Posts: 1428
Joined: Wed May 16, 2007 11:19 am

Re: Boeing 787 deferred production cost watch

Mon Oct 29, 2018 6:41 pm

Aesma wrote:
If this is tax breaks for later, then Boeing should have written off this last year, before Trump's tax cut. Now they benefit less.

Also, if this is no big deal, is it worth it to pay probably an army of accountants to keep this up, versus just writing off everything in one quarter/year and be done with it ?


Not really. Keep in mind that Boeing also uses "Program Accounting" for the 737, 767, 777, and 747; in addition to various defense contracts. I don't seem to see anyone complaining about and creating threads its use for those programs. Hmmm...

While they could change accounting systems and practice for the company. Why change something that works, is legally allowed (grandfathered in for older companies that were using it at the time of a modernization of accounting rules), overall no noticeable long term impact (over many years program accounting equals the same amounts as other accounting programs over those same years - with the exception that there may be some tax differences due to changes in the tax code).

To change accounting systems and practice at Boeing would be a very massive disruption, and actually fairly costly to implement given the size and scope of Boeing.

The fact that certain people do not understand how program accounting works (its a form of amortization; and every company I know uses amortization); and some of them make fodder of that here on Anet is not a reason to change accounting practice. Imagine if you ran a multi-billion dollar company. Would you change accounting systems/practice because some people on an internet forum did not understand what you did - or did not personally like the use of that legal practice. Get real!

Have a great day,
 
JayinKitsap
Posts: 1339
Joined: Sat Nov 26, 2005 9:55 am

Re: Boeing 787 deferred production cost watch

Mon Oct 29, 2018 6:57 pm

Construction uses completed contract accounting, I assume Boeing does also. At completion of each airplane, the books on it can be closed and a known profit / loss can be established. This would be one piece of 1,000s in the 787 program, which is also basically a completed contract spanning decades. Accounting has established specific rules for this type of account, in order mostly to avoid posting profits with future losses hidden.

The IRS also has a large interest in how this is done, they do not like tax deferral and/or tax avoidance. If Boeing cashed in this deferred cost in 3 $8B yearly installments, the IRS would lose around $1.5 Billion of tax due in each of these years, but after that Boeing would be paying a good chunk more each year. At the end of the deferral period the tax effect would be about the same, just that Uncle Sam got it over many more years.

With the change in the Corporate Tax code last year, Boeing would have cashed this in if they could. I suppose the rules would not allow it.
 
User avatar
Polot
Posts: 9286
Joined: Thu Jul 28, 2011 3:01 pm

Re: Boeing 787 deferred production cost watch

Mon Oct 29, 2018 7:05 pm

Aesma wrote:
Also, if this is no big deal, is it worth it to pay probably an army of accountants to keep this up, versus just writing off everything in one quarter/year and be done with it ?

Do you think that if Boeing stopped program accounting that they would have no need for accountants, and that say Muilenburg would just draw up the books on a spare weekend? Boeing is paying an army of accountants no matter how they account the business. Their pay is not based on accounting method.
 
User avatar
Revelation
Posts: 20634
Joined: Wed Feb 09, 2005 9:37 pm

Re: Boeing 787 deferred production cost watch

Mon Oct 29, 2018 7:23 pm

marcelh wrote:
ElroyJetson wrote:
Why are people obsessing about this?

Perhaps it gives Boeing an advantage compared to their competitor?

If it does, it isn't something that can be "fixed" till we get something akin to One World Government.

Therefore it's just something people here put entirely too much energy into worrying about.

The investment community know what's happening, if it bothers them they simply avoid investing in Boeing.
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
 
VV
Posts: 720
Joined: Sat Feb 13, 2016 1:03 pm

Re: Boeing 787 deferred production cost watch

Mon Oct 29, 2018 8:21 pm

I am still looking for any indication as who initially started this madness about 787 deferred production cost.

The person must have a large audience or worked in a respected organization.

Does anyone know who it was or which organization the person belongs or belonged?

Thanks for your help.
 
User avatar
Revelation
Posts: 20634
Joined: Wed Feb 09, 2005 9:37 pm

Re: Boeing 787 deferred production cost watch

Mon Oct 29, 2018 9:53 pm

United857 wrote:
However, take a valuation class and you'll learn that investing is based on the future potential of the firm, and in that regard Boeing will be doing very well.

Thanks for the informative post, but keep in mind some people are too invested in their chosen narratives to take classes and learn what might be lacking in said narrative.
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
 
User avatar
PW100
Posts: 3643
Joined: Mon Jan 28, 2002 9:17 pm

Re: Boeing 787 deferred production cost watch

Mon Oct 29, 2018 10:04 pm

2175301 wrote:
. . . Keep in mind that Boeing also uses "Program Accounting" for the 737, 767, 777, and 747; in addition to various defense contracts. I don't seem to see anyone complaining about and creating threads its use for those programs. Hmmm....,


I guess the main issue some of the more "reasonable" posters were/are having is not so much Program Accounting itself, but the massive scale which has been applied to, and was and remains unique to the 787 program: around a full order of magnitude bigger than any of those other programs (737, 767, 777, and 747 - don't know about defense contracts).

And as a secondary issue (for some the most important issue), thus the enabling of "bragging rights" of being more profitable than the competition (Airbus), which did not have luxury of "distorting" declared profits (or to a much much smaller scale).
Immigration officer: "What's the purpose of your visit to the USA?" Spotter: "Shooting airliners with my Canon!"
 
User avatar
PW100
Posts: 3643
Joined: Mon Jan 28, 2002 9:17 pm

Re: Boeing 787 deferred production cost watch

Mon Oct 29, 2018 10:07 pm

Revelation wrote:
If it does, it isn't something that can be "fixed" till we get something akin to One World Government.

Why would IFRS not work? I guess it's the closest thing we (will ever) have ti that in terms of financial reporting . . .
Immigration officer: "What's the purpose of your visit to the USA?" Spotter: "Shooting airliners with my Canon!"
 
ScottB
Posts: 6565
Joined: Fri Jul 28, 2000 1:25 am

Re: Boeing 787 deferred production cost watch

Mon Oct 29, 2018 11:04 pm

mjoelnir wrote:
Boeing has declared profits to the tune of the deferred cost. They have spend this profits, that they did not yet make, on bonuses, dividends and share buy backs. Declaring profits one still has to make, is not just an accounting procedure.


Er, no, it's pretty much just the opposite. Those profits weren't spent on bonuses, dividends, or share buybacks; they were spent on 787 program expenses. That spent cash has been converted into an asset on the balance sheet under the category of deferred production cost. That makes the cash unavailable to spend on bonuses or returning capital to the shareholders. The paper profits declared in the years when they were massively spending on the 787 program didn't create cash out of thin air. The cash on hand at Boeing came from the normal course of business -- delivering finished products and services to customers as well as any borrowing they might have undertaken.

Any cash coming in now as part of free cash flow can be spent to pay down debt, on research, or even on bonuses, dividends, or buybacks. In fact, there's more cash available for that stuff now because the deferred production cost asset doesn't reduce the company's cash as it's written down -- that cash was already spent a decade ago.

DfwRevolution wrote:
You do not understand the implications of equity on a corporate balance sheet. It’s just assets minus liabilities. Nothing more. This is not personal finance.


It isn't even necessarily different from personal finance -- we just don't create profit & loss statements for ourselves like public companies. We do similar things in our heads, though, when we look at the value of our stock portfolio or real estate. While the market value of your house or stocks may rise and fall over time, those changes don't really affect your cash on hand until it comes time to sell and those assets are given a final valuation. In cases where one owns a rental property, it's pretty common to depreciate the value of that property annually to reduce tax liability. This isn't really that different from the 787 program accounting where the deferred production cost asset is depreciated as aircraft are delivered.

mjoelnir wrote:
You can not proof that if Boeing would write off the deferred cost tomorrow, producing a loss of 28 billion USD and going negative in equity to the tune of 30 billion USD, that that will have no influence on the stock market value.


Believe it or not, the share price would probably end up going higher in future because ongoing earnings would end up being higher after taking that special charge -- probably to the tune of over half a billion per quarter. Boeing's share price is less about the book value of its assets and more about the potential of the enterprise to generate future profits. That's why investors look at the price-to-earnings (or P-E) ratio -- it's a common measure of the return on investment in a stock.
 
User avatar
Revelation
Posts: 20634
Joined: Wed Feb 09, 2005 9:37 pm

Re: Boeing 787 deferred production cost watch

Mon Oct 29, 2018 11:27 pm

PW100 wrote:
Revelation wrote:
If it does, it isn't something that can be "fixed" till we get something akin to One World Government.

Why would IFRS not work? I guess it's the closest thing we (will ever) have ti that in terms of financial reporting . . .

In theory it would. In practice you're asking the US's largest exporter to give up something it finds beneficial, and something it'd presumably lobby hard to keep. On the other hand, I'm sure Airbus would love to smooth out the bumps in its books that it incurs as it spends billions introducing a new product line, now that it is a real corporation and all.
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
 
SFOtoORD
Posts: 1070
Joined: Tue Jul 03, 2007 2:26 am

Re: Boeing 787 deferred production cost watch

Tue Oct 30, 2018 1:37 am

bigjku wrote:
mjoelnir wrote:
Revelation wrote:
(b).

The cash has long since been paid out, so they actually get the money.

It's an accounting procedure that Boeing has been doing for decades now and even Airbus now does to a small degree these days.


I am a bit tired of this. Boeing has declared profits to the tune of the deferred cost. They have spend this profits, that they did not yet make, on bonuses, dividends and share buy backs. Declaring profits one still has to make, is not just an accounting procedure.
If they do not bring in this deferred cost, Boeing has to declare the rest as a loss.


You can’t spend profits. You still don’t understand the issues at hand. I would suggest getting educated.


But then he couldn’t participate in the monthly thread on this topic. It’s more fun to flog an invisible nemesis.
 
User avatar
AirlineCritic
Posts: 1626
Joined: Sat Mar 14, 2009 1:07 pm

Re: Boeing 787 deferred production cost watch

Tue Oct 30, 2018 5:15 am

The basics of this arrangement are standard practise. Spend money on a long-term useful asset, book that as an asset, appreciate small amount as cost every month. And the investors get this.

But Enron et al excepted, the difficulties in evaluating companies is usually not at the level of whether costs and assets actually exist. It is about how reasonable assumptions and predictions and valuations are.

And this is where of course the devil is in the details. I think a lot of investors even are operating at a rather shallow level, tracking minute changes in profits for instance rather than deeply understanding the business and assumptions baked into the various numbers.

I think Boeing has gone further than many others by booking as an asset something that isn't just about tangible production assets but also (if I have understood correctly) their initially higher per-unit production costs.

I think Boeing is doing a reasonable thing, they've had similar arrangements throughout their other programs, as noted their debt level is good, and the 787 program looks relatively healthy, even if how much it will be in the black or red at the end of the project is yet to be seen.

Now, what I think all this means is that you just can't look at some number and blindly believe it represents everything. In this case you have to know that some of the Boeing numbers have baked-in assumptions and expectations about how their projects will proceed. How much actual cost reduction can be achieved, for instance, or in general, how useful assets on a company's balance sheet really are. And since the projects in this case are huge, the impacts are also very big in numbers. 26 billion here and there and soon you are talking real money :-)

So I think this is all quite reasonable and not a cause for worry, but one should of course be aware of what's behind the numbers; the arrangements are special.
 
brindabella
Posts: 562
Joined: Fri Apr 30, 2010 10:38 am

Re: Boeing 787 deferred production cost watch

Tue Oct 30, 2018 12:08 pm

Polot wrote:
Aesma wrote:
Also, if this is no big deal, is it worth it to pay probably an army of accountants to keep this up, versus just writing off everything in one quarter/year and be done with it ?

Do you think that if Boeing stopped program accounting that they would have no need for accountants, and that say Muilenburg would just draw up the books on a spare weekend? Boeing is paying an army of accountants no matter how they account the business. Their pay is not based on accounting method.


Delighted. Just love it.

I am sure Muilenberg could do it ... but not everyone would necessarily be too keen on the result ... (deliberate undertstatement!).

And on the upside, it would generate a thread here on a.net which would far eclipse such Golden Oldies as:

1) "why don't they restart the 757 production?".
2) "the A380s day must come soon because of ...".
3) "when will Boeing re-engine the 767 to make a 767NG?".
NOT TO MENTION:
4) "how Program Accounting proves that Boeing is completely Bankrupt!".

etc etc

cheers

(until Dennis Muilenberg shows us the REAL books!)
:D :D
Billy
Billy
 
VV
Posts: 720
Joined: Sat Feb 13, 2016 1:03 pm

Re: Boeing 787 deferred production cost watch

Tue Oct 30, 2018 12:17 pm

Hi guys, are you going to continue this madness long time?

Deferred production cost is what it is, deferred production cost. So it's not going to zero anytime soon. As long as the program still produce aircraft the deferred production cost won't become zero.

So, if you guys really want to spend the next fifteen years of your life tracking 787 deferred production cost, it is alright.
However it would be a quite stupid utilization of your time.
 
User avatar
Revelation
Posts: 20634
Joined: Wed Feb 09, 2005 9:37 pm

Re: Boeing 787 deferred production cost watch

Tue Oct 30, 2018 12:29 pm

VV wrote:
Hi guys, are you going to continue this madness long time?

Deferred production cost is what it is, deferred production cost. So it's not going to zero anytime soon. As long as the program still produce aircraft the deferred production cost won't become zero.

So, if you guys really want to spend the next fifteen years of your life tracking 787 deferred production cost, it is alright.
However it would be a quite stupid utilization of your time.

Fifteen years times four quarterly reports means 60 more threads -- count me in!

Troll feeding is a modern variation on an old theme, schadenfreude.

It gives one confidence in the idea that some things will never change, like the cat will always chase the laser pointer.
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
 
mutu
Posts: 472
Joined: Tue Mar 21, 2006 7:04 am

Re: Boeing 787 deferred production cost watch

Tue Oct 30, 2018 2:18 pm

JayinKitsap wrote:
Construction uses completed contract accounting, I assume Boeing does also. At completion of each airplane, the books on it can be closed and a known profit / loss can be established. This would be one piece of 1,000s in the 787 program, which is also basically a completed contract spanning decades. Accounting has established specific rules for this type of account, in order mostly to avoid posting profits with future losses hidden.

The IRS also has a large interest in how this is done, they do not like tax deferral and/or tax avoidance. If Boeing cashed in this deferred cost in 3 $8B yearly installments, the IRS would lose around $1.5 Billion of tax due in each of these years, but after that Boeing would be paying a good chunk more each year. At the end of the deferral period the tax effect would be about the same, just that Uncle Sam got it over many more years.

With the change in the Corporate Tax code last year, Boeing would have cashed this in if they could. I suppose the rules would not allow it.


Yes I imagine like the UK, the tax definition of taxable profits largely follows the accounting conventions. Boeing is properly "matching" development cost with revenues over the sales life of the program. Only if the 787 was withdrawn fully from sale and service would the accounting convention require an immediate write off of the balance of the deferred cost.
 
User avatar
kitplane01
Posts: 1333
Joined: Thu Jun 16, 2016 5:58 am

Re: Boeing 787 deferred production cost watch

Wed Oct 31, 2018 3:51 am

VV wrote:
Dan23 wrote:
It might be a number of years from now but its going to be quite a day here on A.net when the deferred costs reach zero. That will be one thread worth a read :cloudnine:


It will not reach zero, by definition. It is "deferred production cost", so as long as the aircraft is in production there will be a certain amount of deferred production cost.
It may reach zero when the last aircraft of the program will be delivered.

If people are crazy enough to track 787's deferred production cost then be it. They will do it during decades.


I thought that Boeing had zero deferred production costs on the 747-8 because of a write off earlier. But that was false. They still have $1.3B on the 747-8. Who knew???

https://www.businessinsider.com/r-sec-p ... erg-2016-2
 
PlanesNTrains
Posts: 9527
Joined: Tue Feb 01, 2005 4:19 pm

Re: Boeing 787 deferred production cost watch

Wed Oct 31, 2018 4:30 am

kitplane01 wrote:
VV wrote:
Dan23 wrote:
It might be a number of years from now but its going to be quite a day here on A.net when the deferred costs reach zero. That will be one thread worth a read :cloudnine:


It will not reach zero, by definition. It is "deferred production cost", so as long as the aircraft is in production there will be a certain amount of deferred production cost.
It may reach zero when the last aircraft of the program will be delivered.

If people are crazy enough to track 787's deferred production cost then be it. They will do it during decades.


I thought that Boeing had zero deferred production costs on the 747-8 because of a write off earlier. But that was false. They still have $1.3B on the 747-8. Who knew???

https://www.businessinsider.com/r-sec-p ... erg-2016-2


Is that related to facilities/equipment used to produce the frames as well as the in-production frames not yet paid for?
-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.
 
VV
Posts: 720
Joined: Sat Feb 13, 2016 1:03 pm

Re: Boeing 787 deferred production cost watch

Wed Oct 31, 2018 12:16 pm

kitplane01 wrote:
VV wrote:
Dan23 wrote:
It might be a number of years from now but its going to be quite a day here on A.net when the deferred costs reach zero. That will be one thread worth a read :cloudnine:


It will not reach zero, by definition. It is "deferred production cost", so as long as the aircraft is in production there will be a certain amount of deferred production cost.
It may reach zero when the last aircraft of the program will be delivered.

If people are crazy enough to track 787's deferred production cost then be it. They will do it during decades.


I thought that Boeing had zero deferred production costs on the 747-8 because of a write off earlier. But that was false. They still have $1.3B on the 747-8. Who knew???

https://www.businessinsider.com/r-sec-p ... erg-2016-2



Deferred production cost is what it is, deferred production cost.

As long as the produce 747-8, there will always be deferred production cost.

The write off mentioned in the article is NOT cash transaction. It is what it is, a write off.
 
2175301
Posts: 1428
Joined: Wed May 16, 2007 11:19 am

Re: Boeing 787 deferred production cost watch

Wed Oct 31, 2018 1:57 pm

kitplane01 wrote:
I thought that Boeing had zero deferred production costs on the 747-8 because of a write off earlier. But that was false. They still have $1.3B on the 747-8. Who knew???

https://www.businessinsider.com/r-sec-p ... erg-2016-2


Boeing recognized that their projection estimate base for their Program Accounting 748 block was incorrect as the demand for the 748 that they anticipated never materialized. As such, they took a write-off to cover the difference on Program Accounting Deferred cost recovery to a smaller production block (they wrote off the anticipated recovery by what was then to be estimated unproductive aircraft in the next X years - which had been previously been projected to be sold and produced). That was standard knowledge, and clearly announced, for those who pay attention.

Interestingly enough; the 748 F has continued to sell well - and Boeing may go way past the revised estimate production block when they did the write-off (i.e - in retrospect they did not need to write off so much).. That will be all adjusted within the Program Accounting rules.

Key point here is that Boeing followed the Program Accounting Rules; and when it appeared that they could not realistically recover the full value of the "deferred production cost" they took the appropriate write-down.

While initial 787 production cost were higher than anticipated (by a lot) and 787 deferred production cost ballooned, the sales of the 787 have continued to climb and Boeing can reasonably project that they will be able to "recover" all the deferred production cost by future production. Of course, there will always be some deferred production cost until the very last 787 is delivered just due to the nature of how Program Accounting works.

Have a great day,
 
Bricktop
Posts: 1360
Joined: Fri Jan 22, 2016 11:04 am

Re: Boeing 787 deferred production cost watch

Wed Oct 31, 2018 2:15 pm

We'll be back here in three months as sure as eggs is eggs.
 
StTim
Posts: 3358
Joined: Thu Aug 08, 2013 7:39 am

Re: Boeing 787 deferred production cost watch

Wed Oct 31, 2018 2:16 pm

2175301 wrote:
kitplane01 wrote:
I thought that Boeing had zero deferred production costs on the 747-8 because of a write off earlier. But that was false. They still have $1.3B on the 747-8. Who knew???

https://www.businessinsider.com/r-sec-p ... erg-2016-2


Boeing recognized that their projection estimate base for their Program Accounting 748 block was incorrect as the demand for the 748 that they anticipated never materialized. As such, they took a write-off to cover the difference on Program Accounting Deferred cost recovery to a smaller production block (they wrote off the anticipated recovery by what was then to be estimated unproductive aircraft in the next X years - which had been previously been projected to be sold and produced). That was standard knowledge, and clearly announced, for those who pay attention.

Interestingly enough; the 748 F has continued to sell well - and Boeing may go way past the revised estimate production block when they did the write-off (i.e - in retrospect they did not need to write off so much).. That will be all adjusted within the Program Accounting rules.

Key point here is that Boeing followed the Program Accounting Rules; and when it appeared that they could not realistically recover the full value of the "deferred production cost" they took the appropriate write-down.

While initial 787 production cost were higher than anticipated (by a lot) and 787 deferred production cost ballooned, the sales of the 787 have continued to climb and Boeing can reasonably project that they will be able to "recover" all the deferred production cost by future production. Of course, there will always be some deferred production cost until the very last 787 is delivered just due to the nature of how Program Accounting works.

Have a great day,



Sort of yes and no. Let me first state I think Boeing will eventually get it all paid back BUT the requirement is to get the deferred cost to zero over the current Accounting Block.

I have lost track what the current Accounting Block is but I aam also fairly certain that for some time the chance to recover the whole amount over the current accounting block was very low. It should have been at this point that Boeing either declared that the accounting block was being increased (certainly sustainable now as sales are good) or taken a forward loss over the accounting block.

It is all a bit of sematics. They persuaded the auditors (I presume it is audited) that they could so they carried on. From now on the position will only get better and better for Boeing.
 
2175301
Posts: 1428
Joined: Wed May 16, 2007 11:19 am

Re: Boeing 787 deferred production cost watch

Wed Oct 31, 2018 2:40 pm

StTim wrote:
2175301 wrote:
kitplane01 wrote:
I thought that Boeing had zero deferred production costs on the 747-8 because of a write off earlier. But that was false. They still have $1.3B on the 747-8. Who knew???

https://www.businessinsider.com/r-sec-p ... erg-2016-2


Boeing recognized that their projection estimate base for their Program Accounting 748 block was incorrect as the demand for the 748 that they anticipated never materialized. As such, they took a write-off to cover the difference on Program Accounting Deferred cost recovery to a smaller production block (they wrote off the anticipated recovery by what was then to be estimated unproductive aircraft in the next X years - which had been previously been projected to be sold and produced). That was standard knowledge, and clearly announced, for those who pay attention.

Interestingly enough; the 748 F has continued to sell well - and Boeing may go way past the revised estimate production block when they did the write-off (i.e - in retrospect they did not need to write off so much).. That will be all adjusted within the Program Accounting rules.

Key point here is that Boeing followed the Program Accounting Rules; and when it appeared that they could not realistically recover the full value of the "deferred production cost" they took the appropriate write-down.

While initial 787 production cost were higher than anticipated (by a lot) and 787 deferred production cost ballooned, the sales of the 787 have continued to climb and Boeing can reasonably project that they will be able to "recover" all the deferred production cost by future production. Of course, there will always be some deferred production cost until the very last 787 is delivered just due to the nature of how Program Accounting works.

Have a great day,



Sort of yes and no. Let me first state I think Boeing will eventually get it all paid back BUT the requirement is to get the deferred cost to zero over the current Accounting Block.

I have lost track what the current Accounting Block is but I aam also fairly certain that for some time the chance to recover the whole amount over the current accounting block was very low. It should have been at this point that Boeing either declared that the accounting block was being increased (certainly sustainable now as sales are good) or taken a forward loss over the accounting block.

It is all a bit of sematics. They persuaded the auditors (I presume it is audited) that they could so they carried on. From now on the position will only get better and better for Boeing.


I will admit that my explanation could have been clearer. I disagree that it is all semantics though.

The estimates must be reasonable and defensible. That includes anticipated future sales and production in a reasonable time-frame, Anticipated cost of production, profit, recovery of deferred cost, etc over that period, and other estimates. The estimates must reasonably come in at "zero" with the delivery and paymet for the last aircraft delivered in the production block.

Not only is this audited - and Boeing had to defend that their projections on the various factors was "reasonable"; but, also my memory is that the SEC investigated the 787 deferred production cost "issue" and did not find enough evidence to be able to take action against Boeing (beyond possible verbal recommendations of what they would like to see behind close doors).

The issue is further complicated by the decision to develop the 787-10. Whatever all the factors... The 787 Program Accounting has is audited as part of the normal auditing process. Due to investor concerns of the past I suspect that it is very closely monitored.

In the case of the 747-8 which my post directly addressed: In that case the future production and sales numbers were no longer reasonable (even if the original projections some years earlier were); and Boeing properly and appropriately wrote off the difference between current reasonable projections and existing deferred production cost. This accounting system is self correcting for changes; as are all good accounting systems.

Have a great day,
 
User avatar
flee
Posts: 932
Joined: Mon Oct 12, 2009 8:14 am

Re: Boeing 787 deferred production cost watch

Wed Oct 31, 2018 3:34 pm

United857 wrote:
mjoelnir wrote:
It is not about deferring production cost, it is about inflating profits. As there will always be deferred cost at Boeing, the next project produces cost deferrals before the former projects deferrals are written off, profits and accumulated profits at Boeing have been off for years. Some of the most ardent supporters of the cost for accounting model at Boeing, turn than around and ask why are the profits at other companies lower, without accounting for the cost deferrals in the comparison.


If Boeing followed IFRS and did not defer costs, all those losses would have been sustained in 2007-2013 during the massive cost overruns during the delays and production ramp-up. That also means that because they would have recorded the cost of developing the 787 during that time, resulting in losses in 2007-2013, but profits today would actually be HIGHER than they are now.

Currently, if Boeing sells a 787 for $150 million that cost $100 million to produce, it does not record $50 million in profit, but instead records around $25 million as profit and records the other $25 million in amortization of deferred production costs. If those deferred costs were instead expensed in 2007-2013 according to IFRS that does not allow deferred cost accounting, Boeing would be recording the full $50 million in profit instead of $25 million today in 2018 and in future periods.

So what the deferred production cost accounting has essentially done is allow Boeing to overstate earnings during 2007-2013 when 787's were making a loss per-frame, at the cost of reducing earnings today now that the 787 is profitable on a per-frame basis. So, no, Boeing's profits today in 2018 would not be lower, but instead HIGHER, if Boeing did not defer production costs. It is Boeing's profits in 2007-2013 that would have been much lower than officially reported.

Now it is true that the cumulative amount that earnings have been overstated when 787's were losing money each frame is much larger than the cumulative amount earnings have been understated now that the 787 is making money each frame. However, take a valuation class and you'll learn that investing is based on the future potential of the firm, and in that regard Boeing will be doing very well. Deferred cost accounting is simply allowing Boeing to spreading out the negative impact of writing off it's deferred cost over numerous periods on its stock price by understating its earnings a little each period instead of doing it all in one big swoop.

IMHO, your explanation above best describes the situation.

The whole purpose of financial reporting is to show a TRUE and FAIR view of the state of affairs of the company. This is probably very easy for a trading company that buys in goods and resells them for a profit within the reporting period. However, the industry that Boeing is in does not have that short a timeline. Boeing's timeline for its products is over years and decades but its financial reporting is in quarters.Boeing tried to report a true and fair view each time using "program accounting" techniques.

Essentially, it is trying to even out the profits and losses of the whole program into equal chunks over the timeline of the life of the program. This idea is good if revenue and costs are predictable and linear. It all gets undone when the cost numbers overun and spin out of reasonable limits.

Yes, if Boeing had charged all those costs as they are incurred, they would have made losses in the early years of the 787 program. And if they did not carry forward those "deferred production costs", today's profit numbers would be far higher.

For many here in a.net - Program Accounting is probably to complex a concept to grasp. Boeing is continually tweaking their 787 reporting to ensure that they maintain a true and fair view. However, this may distort profits and losses reported from time to time. Investors do take cognisance of these anomalies and that is why we see the share price fluctuate.

Boeing is far from perfect in reporting the 787's financial performance. It is trying hard to keep "trimming" its reporting to reflect reality. As some people here have rightly pointed out - the program as a whole still has some way to achieving profitability. But profits and cash flows are two different things.

Those who measure profits will be less bullish about Boeing while those who measure cash flows will be elated. Just bear in mind that stock market investors look at reports that emphasises profits. But look at the tech industry too - they don't seem to care too much about profits (e.g. Uber).

So while there is this big argument here, I am sure that no one is 100% correct. The truth lies somewhere between the two measures of success!

As such I think this thread is a good idea. It is interesting to see where the 787 program is heading and how Boeing keeps adjusting and reporting its "program accounting" data.
 
User avatar
Nomadd
Posts: 224
Joined: Sat Dec 09, 2017 3:26 pm

Re: Boeing 787 deferred production cost watch

Wed Oct 31, 2018 4:01 pm

VV wrote:

Deferred production cost is what it is, deferred production cost.

As long as the produce 747-8, there will always be deferred production cost.

The write off mentioned in the article is NOT cash transaction. It is what it is, a write off.

Do you really think you're fooling anybody?
 
armchairceonr1
Posts: 271
Joined: Sun Jul 30, 2017 8:09 am

Re: Boeing 787 deferred production cost watch

Wed Oct 31, 2018 4:17 pm

People here are overestimating 787s current margins. Last year commercial aircraft segment unit cost basis earnings were 4,704m$ while program accounting basis earnings were 5,452m$, even they covered deferred production costs by about 2,500m$.

This tells to me that 787 programs margins are still pretty low. You should also note that their reported margins recover everytime when they increace accounting quantity.
 
JayinKitsap
Posts: 1339
Joined: Sat Nov 26, 2005 9:55 am

Re: Boeing 787 deferred production cost watch

Wed Oct 31, 2018 4:50 pm

a link from a Q3 2015 post. scroll to page 2
http://www.boeing.com/investors/account ... ions.page/

Back then Boeing projected that the deferred costs in 3Q18 would be 23,584 with tooling 2,774. 3 years later Q3 results have
Q3 reduction per plane 22,7 million Q3 Total deferred cost + tooling left 26358 million
so 3 years ago it advised investors of these costs and low and behold they deferred the exact amount 3 years later. Remember that prior to 2015 the 787 was in a cash negative position.

It is acknowledged that the deferred cost per plane does need to rise to retire the entire 26.3B within the accounting block. Well I see an amazing unit production cost reduction from 0 to 22.7 million in 4 years. I expect the accounting block to rise along with bookings such that the reduction per plane remains around 25 M, and further reductions in current plane costs will allow for profits to be booked.

Lots of analysts were surprised how much cash is coming into Boeing at this time,
 
User avatar
ODwyerPW
Posts: 1475
Joined: Thu Dec 09, 2004 6:30 am

Re: Boeing 787 deferred production cost watch

Wed Oct 31, 2018 5:18 pm

hmmmmmmm, searches for Forum / Thread tools..... seeking to permanently hide a thread....
good lord folks......
learning never stops.
 
VV
Posts: 720
Joined: Sat Feb 13, 2016 1:03 pm

Re: Boeing 787 deferred production cost watch

Wed Oct 31, 2018 5:56 pm

Nomadd wrote:
VV wrote:

Deferred production cost is what it is, deferred production cost.

As long as the produce 747-8, there will always be deferred production cost.

The write off mentioned in the article is NOT cash transaction. It is what it is, a write off.

Do you really think you're fooling anybody?


No, only those who miserably fail to understand what deferred production cost means.

I feel really sorry for them.
 
Exeiowa
Posts: 140
Joined: Fri Jul 06, 2018 4:49 pm

Re: Boeing 787 deferred production cost watch

Wed Oct 31, 2018 6:53 pm

What this information tell us because they report it in such a way is when this program starts becoming cash positive, I know that I am sure there is stuff hidden in different pots and other things not considered in income that contribute, but it does give a window into the total development of an aircraft we would not get if they accounted for things a different way. Which is actually kind of cool. If the accounting makes it easier to understand the value of your shares or not is probably of less interest on an aviation forum than seeing how much a program costs and its implication on if it makes sense for manufacturers to build a plane. Knowing what they do now regarding costs would Boeing still have made this plane? Or would they have been less ambitious? And does this impact their thinking on other potential projects (797 cough, cough)

Airbus does things does things differently for whatever reason and we don't get to see this same information so we cannot tell how their cost structures effects their choices in the same way. So I would stop the worrying and enjoy the nugget.
 
axiom
Posts: 855
Joined: Mon Aug 10, 2015 10:39 pm

Re: Boeing 787 deferred production cost watch

Wed Oct 31, 2018 7:57 pm

United857 wrote:
mjoelnir wrote:
It is not about deferring production cost, it is about inflating profits. As there will always be deferred cost at Boeing, the next project produces cost deferrals before the former projects deferrals are written off, profits and accumulated profits at Boeing have been off for years. Some of the most ardent supporters of the cost for accounting model at Boeing, turn than around and ask why are the profits at other companies lower, without accounting for the cost deferrals in the comparison.


If Boeing followed IFRS and did not defer costs, all those losses would have been sustained in 2007-2013 during the massive cost overruns during the delays and production ramp-up. That also means that because they would have recorded the cost of developing the 787 during that time, resulting in losses in 2007-2013, but profits today would actually be HIGHER than they are now.

Currently, if Boeing sells a 787 for $150 million that cost $100 million to produce, it does not record $50 million in profit, but instead records around $25 million as profit and records the other $25 million in amortization of deferred production costs. If those deferred costs were instead expensed in 2007-2013 according to IFRS that does not allow deferred cost accounting, Boeing would be recording the full $50 million in profit instead of $25 million today in 2018 and in future periods.

So what the deferred production cost accounting has essentially done is allow Boeing to overstate earnings during 2007-2013 when 787's were making a loss per-frame, at the cost of reducing earnings today now that the 787 is profitable on a per-frame basis. So, no, Boeing's profits today in 2018 would not be lower, but instead HIGHER, if Boeing did not defer production costs. It is Boeing's profits in 2007-2013 that would have been much lower than officially reported.

Now it is true that the cumulative amount that earnings have been overstated when 787's were losing money each frame is much larger than the cumulative amount earnings have been understated now that the 787 is making money each frame. However, take a valuation class and you'll learn that investing is based on the future potential of the firm, and in that regard Boeing will be doing very well. Deferred cost accounting is simply allowing Boeing to spreading out the negative impact of writing off it's deferred cost over numerous periods on its stock price by understating its earnings a little each period instead of doing it all in one big swoop.



Very clearly and well articulated. Not that your post will stop a new iteration of this thread from appearing in 90 days, of course.
 
musman9853
Posts: 712
Joined: Mon May 14, 2018 12:30 pm

Re: Boeing 787 deferred production cost watch

Wed Oct 31, 2018 8:07 pm

axiom wrote:
United857 wrote:
mjoelnir wrote:
It is not about deferring production cost, it is about inflating profits. As there will always be deferred cost at Boeing, the next project produces cost deferrals before the former projects deferrals are written off, profits and accumulated profits at Boeing have been off for years. Some of the most ardent supporters of the cost for accounting model at Boeing, turn than around and ask why are the profits at other companies lower, without accounting for the cost deferrals in the comparison.


If Boeing followed IFRS and did not defer costs, all those losses would have been sustained in 2007-2013 during the massive cost overruns during the delays and production ramp-up. That also means that because they would have recorded the cost of developing the 787 during that time, resulting in losses in 2007-2013, but profits today would actually be HIGHER than they are now.

Currently, if Boeing sells a 787 for $150 million that cost $100 million to produce, it does not record $50 million in profit, but instead records around $25 million as profit and records the other $25 million in amortization of deferred production costs. If those deferred costs were instead expensed in 2007-2013 according to IFRS that does not allow deferred cost accounting, Boeing would be recording the full $50 million in profit instead of $25 million today in 2018 and in future periods.

So what the deferred production cost accounting has essentially done is allow Boeing to overstate earnings during 2007-2013 when 787's were making a loss per-frame, at the cost of reducing earnings today now that the 787 is profitable on a per-frame basis. So, no, Boeing's profits today in 2018 would not be lower, but instead HIGHER, if Boeing did not defer production costs. It is Boeing's profits in 2007-2013 that would have been much lower than officially reported.

Now it is true that the cumulative amount that earnings have been overstated when 787's were losing money each frame is much larger than the cumulative amount earnings have been understated now that the 787 is making money each frame. However, take a valuation class and you'll learn that investing is based on the future potential of the firm, and in that regard Boeing will be doing very well. Deferred cost accounting is simply allowing Boeing to spreading out the negative impact of writing off it's deferred cost over numerous periods on its stock price by understating its earnings a little each period instead of doing it all in one big swoop.



Very clearly and well articulated. Not that your post will stop a new iteration of this thread from appearing in 90 days, of course.


idk about you, i always enjoy these kinds of threads. just the sheer level of delusion that some posters here have really brightens my day
Welcome to the City Beautiful.
 
axiom
Posts: 855
Joined: Mon Aug 10, 2015 10:39 pm

Re: Boeing 787 deferred production cost watch

Wed Oct 31, 2018 8:36 pm

musman9853 wrote:
axiom wrote:
United857 wrote:

If Boeing followed IFRS and did not defer costs, all those losses would have been sustained in 2007-2013 during the massive cost overruns during the delays and production ramp-up. That also means that because they would have recorded the cost of developing the 787 during that time, resulting in losses in 2007-2013, but profits today would actually be HIGHER than they are now.

Currently, if Boeing sells a 787 for $150 million that cost $100 million to produce, it does not record $50 million in profit, but instead records around $25 million as profit and records the other $25 million in amortization of deferred production costs. If those deferred costs were instead expensed in 2007-2013 according to IFRS that does not allow deferred cost accounting, Boeing would be recording the full $50 million in profit instead of $25 million today in 2018 and in future periods.

So what the deferred production cost accounting has essentially done is allow Boeing to overstate earnings during 2007-2013 when 787's were making a loss per-frame, at the cost of reducing earnings today now that the 787 is profitable on a per-frame basis. So, no, Boeing's profits today in 2018 would not be lower, but instead HIGHER, if Boeing did not defer production costs. It is Boeing's profits in 2007-2013 that would have been much lower than officially reported.

Now it is true that the cumulative amount that earnings have been overstated when 787's were losing money each frame is much larger than the cumulative amount earnings have been understated now that the 787 is making money each frame. However, take a valuation class and you'll learn that investing is based on the future potential of the firm, and in that regard Boeing will be doing very well. Deferred cost accounting is simply allowing Boeing to spreading out the negative impact of writing off it's deferred cost over numerous periods on its stock price by understating its earnings a little each period instead of doing it all in one big swoop.



Very clearly and well articulated. Not that your post will stop a new iteration of this thread from appearing in 90 days, of course.


idk about you, i always enjoy these kinds of threads. just the sheer level of delusion that some posters here have really brightens my day


I love to learn about corporate finance, for some reason -- almost as much as I love to learn about aviation. I'm also no huge fan of economic life in the era of the large corporation, nor do I have a horse in the A vs B race. I do, however, find it very concerning -- and a reflection of our times -- to find seeemingly intelligent posters who refuse to engage with the plain facts of this matter. Alternative Facts, innit.
 
Strato2
Topic Author
Posts: 417
Joined: Sat Sep 24, 2016 3:52 pm

Re: Boeing 787 deferred production cost watch

Wed Jan 30, 2019 6:18 pm

2018 Q4 numbers are out:

Deliveries: 39
Deferred production cost reduction 617 (million)
Unamortized Tooling and Other Non-Recurring Cost reduction 136

Q4 reduction per plane 19,3 million
Q4 Total deferred cost + tooling left 25605 million

787 Backlog at the end of December: 622 planes

Reduction needed to get rid of Deferred cost + tooling with 622 orders = 41,16 million/plane

Backlog needed to get rid of 25605 million Deferred cost + tooling with a reduction of 19,3 million/plane = 1326 planes



In essence things have gone downhill a bit from Q3. Deferred cost reduction has slowed even with record deliveries and with these latest numbers Boeing needs to sell 700 787's to get rid of it.
 
B2707SST
Posts: 1287
Joined: Wed Apr 23, 2003 5:25 am

Re: Boeing 787 deferred production cost watch

Wed Jan 30, 2019 7:41 pm

Strato2 wrote:
2018 Q4 numbers are out:

Deliveries: 39
Deferred production cost reduction 617 (million)
Unamortized Tooling and Other Non-Recurring Cost reduction 136

Q4 reduction per plane 19,3 million
Q4 Total deferred cost + tooling left 25605 million

787 Backlog at the end of December: 622 planes

Reduction needed to get rid of Deferred cost + tooling with 622 orders = 41,16 million/plane

Backlog needed to get rid of 25605 million Deferred cost + tooling with a reduction of 19,3 million/plane = 1326 planes

In essence things have gone downhill a bit from Q3. Deferred cost reduction has slowed even with record deliveries and with these latest numbers Boeing needs to sell 700 787's to get rid of it.


Boeing delivered two of the three 787-10 test airplanes in Q4; the third is finishing change incorporation for expected delivery tomorrow. Not at all surprising that the first few -10s were much more expensive to build than the current -8s and -9s and thus dented the pace of deferred cost reduction. The market is clearly not concerned, as Boeing stock is up over 6% today.
Keynes is dead and we are living in his long run.
 
sciing
Posts: 145
Joined: Tue Feb 03, 2015 9:54 am

Re: Boeing 787 deferred production cost watch

Wed Jan 30, 2019 8:06 pm

Still amazing that Boeing did another 3 billion$ profit last year hidden in the books.
But the a.net myth that the production cost of the 787 are strongly reducing is still not visible in the financial data. There is no change in deferred cost reduction per frame since 7 quarters now. It is flat around 20mio$/frame (the cost per frame are 20mio$ less than planned avarage over the accounting block).
https://goo.gl/images/D5EQJb
 
hkcanadaexpat
Posts: 3763
Joined: Mon Dec 10, 2012 3:33 am

Re: Boeing 787 deferred production cost watch

Wed Jan 30, 2019 8:53 pm

B2707SST wrote:
the third is finishing change incorporation for expected delivery tomorrow.

Delivery tomorrow? What? It will need a few test flights and customer acceptance flights before that happens.
 
B2707SST
Posts: 1287
Joined: Wed Apr 23, 2003 5:25 am

Re: Boeing 787 deferred production cost watch

Wed Jan 30, 2019 9:01 pm

hkcanadaexpat wrote:
B2707SST wrote:
the third is finishing change incorporation for expected delivery tomorrow.

Delivery tomorrow? What? It will need a few test flights and customer acceptance flights before that happens.


Uresh's spreadsheet at http://nyc787.blogspot.com/ shows a 1/31 expected delivery date for ln 548, but apparently it hasn't flown since a ferry from BFI a year ago, so would be quite impressive if it goes to United tomorrow!
Keynes is dead and we are living in his long run.
 
User avatar
PW100
Posts: 3643
Joined: Mon Jan 28, 2002 9:17 pm

Re: Boeing 787 deferred production cost watch

Wed Jan 30, 2019 10:05 pm

B2707SST wrote:
The market is clearly not concerned, as Boeing stock is up over 6% today.

Good prospects for their defense business might also have been a factor, muddying the waters a bit in this respect . . . :

Boeing Defense turnaround helps company post record $101bn sales
Immigration officer: "What's the purpose of your visit to the USA?" Spotter: "Shooting airliners with my Canon!"
 
SFOtoORD
Posts: 1070
Joined: Tue Jul 03, 2007 2:26 am

Re: Boeing 787 deferred production cost watch

Wed Jan 30, 2019 11:45 pm

sciing wrote:
Still amazing that Boeing did another 3 billion$ profit last year hidden in the books.
But the a.net myth that the production cost of the 787 are strongly reducing is still not visible in the financial data. There is no change in deferred cost reduction per frame since 7 quarters now. It is flat around 20mio$/frame (the cost per frame are 20mio$ less than planned avarage over the accounting block).
https://goo.gl/images/D5EQJb


Yes, totally hidden profit because of money they spent years ago. And the billions in free cash flow is phantom too I suppose? This is the dumbest Anet conspiracy theory.
 
User avatar
Momo1435
Posts: 885
Joined: Sat Aug 25, 2012 2:33 pm

Re: Boeing 787 deferred production cost watch

Thu Jan 31, 2019 6:07 am

SFOtoORD wrote:
sciing wrote:
Still amazing that Boeing did another 3 billion$ profit last year hidden in the books.
But the a.net myth that the production cost of the 787 are strongly reducing is still not visible in the financial data. There is no change in deferred cost reduction per frame since 7 quarters now. It is flat around 20mio$/frame (the cost per frame are 20mio$ less than planned avarage over the accounting block).
https://goo.gl/images/D5EQJb


Yes, totally hidden profit because of money they spent years ago. And the billions in free cash flow is phantom too I suppose? This is the dumbest Anet conspiracy theory.

That's no conspiracy, it's also not a negative comment.

He means that Boeing could have booked $ 3 billion more profit for 2018 if they wouldn't have to reduce these deferred costs. The insane free cash flow numbers actually back this statement up. These hidden were actually already booked years ago when the deferred costs was growing.

But he feels reduce faster then it does now claiming that it is an "a.net myth" that 787 production costs are strongly reducing. In that aspect it's Boeing that has for the last 2 quarters specifically stated that the increase in revenue is down to better 787 margins. I don't think that translates directly into declining production costs. But I also don't think there is a clear 1 on 1 correlation between lower production costs and the declining deferred costs. Simply because Boeing needs to invest into the production to decrease the per unit production cost, especially with the rate going to 14 per month. These investment will add to the deferred costs, it's a constant process of adding and reducing. It's very possible that we will see a sudden large drop in one of the next quarters, it won't be a straight linear decline, even if it does look like it is in the last 7 quarters.
 
SC430
Posts: 189
Joined: Tue Dec 26, 2017 11:45 pm

Re: Boeing 787 deferred production cost watch

Thu Jan 31, 2019 5:54 pm

One thing that needs to be mentioned, the deferred cost number has a profit component factored in. It is not all just raw costs.
 
User avatar
seabosdca
Posts: 6428
Joined: Sat Sep 01, 2007 8:33 am

Re: Boeing 787 deferred production cost watch

Thu Jan 31, 2019 6:35 pm

B2707SST wrote:
Uresh's spreadsheet at http://nyc787.blogspot.com/ shows a 1/31 expected delivery date for ln 548, but apparently it hasn't flown since a ferry from BFI a year ago, so would be quite impressive if it goes to United tomorrow!


The spreadsheet is a treasure trove of information but it's not always up to date; Uresh doesn't always get all information. Sometimes you need to put what you see there through a reality filter. If an aircraft that underwent change incorporation made its first post-change-incorporation flight today, the soonest it could possibly deliver is about a week out, and 2-3 weeks is more likely.

For LN 548, we get a clue from the ship numbers. 1005 is going to LN 800, to be delivered in late February. LN 548 won't be delivered before that. We'll see whether ship number 1006 gets assigned to LN 548 or LN 814, the next new-build UA 78J, which should be delivered in March.
 
justloveplanes
Posts: 982
Joined: Thu Jul 08, 2004 5:38 am

Re: Boeing 787 deferred production cost watch

Thu Jan 31, 2019 6:45 pm

SC430 wrote:
One thing that needs to be mentioned, the deferred cost number has a profit component factored in. It is not all just raw costs.



Interesting point. It seems to me, Boeing * self financed * production costs for the 787 the same way a company X might finance a factory building. The deferred production cost is like the mortgage payment on company X's factory building. Company X is making money on each widget it sells, but part of it's cost of production is the factory mortgage. Boeing is similar, it is making money on each 787 it sells, and part of the production cost is the deferred production cost. The only difference is Boeing is also the mortgage provider (self-financed).
 
JayinKitsap
Posts: 1339
Joined: Sat Nov 26, 2005 9:55 am

Re: Boeing 787 deferred production cost watch

Thu Jan 31, 2019 7:15 pm

justloveplanes wrote:
SC430 wrote:
One thing that needs to be mentioned, the deferred cost number has a profit component factored in. It is not all just raw costs.



Interesting point. It seems to me, Boeing * self financed * production costs for the 787 the same way a company X might finance a factory building. The deferred production cost is like the mortgage payment on company X's factory building. Company X is making money on each widget it sells, but part of it's cost of production is the factory mortgage. Boeing is similar, it is making money on each 787 it sells, and part of the production cost is the deferred production cost. The only difference is Boeing is also the mortgage provider (self-financed).


An easy way to see it, outside of the jargon that is basically what is happening, only the mortgage is really just paper. Boeing and the taxman will be tussling over which bucket what is in. But to those of us outside, when we buy the building we don't really care how big the mortgage is, just what the purchase price is.

Boeing knows to the penny the cost of each part within each plane and the overall numbers on each plane. Construction projects know what each change costs on each job and have contract adjustments regularly. Often they go in batches into one contract change, settled like your hotel bill as one checks out. The paperwork to change a deferred cost over a specific time is big, any number that gets into the financials has hundreds preparing those numbers. It probably states that frames 900 to 950 will 'pay' $22.5M per frame, 950 to 1000 will 'pay' $24M & so forth. It is probably back loaded, will be revised when they increase the block by 200 more planes.

The profit per plane is known to Boeing, LNxxx has a unique sales price, cost, and resulting margin. Some customers got deals, some paid list. I believe that Boeing is now delivering planes that have far higher prices than at the launch, at the time of the sale Boeing was sweating bullets that their costs were out of control.
 
User avatar
Momo1435
Posts: 885
Joined: Sat Aug 25, 2012 2:33 pm

Re: Boeing 787 deferred production cost watch

Wed Apr 24, 2019 2:31 pm

Q1 numbers are in.

https://www.boeing.com/investors/accoun ... ions.page/


Last quarter had the largest reduction to date, about -900 million to 22.029 billion.

Will they be able to keep this going?
 
User avatar
Matt6461
Posts: 2902
Joined: Wed Oct 16, 2013 9:36 pm

Re: Boeing 787 deferred production cost watch

Thu Apr 25, 2019 4:14 am

The link is dead. I've read analyst figures of $1.04bn in total deferred reduction (production and tooling), implying $30.7mn per frame. It's basically arbitrary whether Boeing apportions production profit to deferred production or tooling, so it's important to look at the total deferred delta instead of deferred production only, which is sometimes reported.

That's a dramatic improvement over the last couple quarters. If this represents the increasing -10 deliveries in the mix, and the learning curve surely occurring on that frame, then it seems possible Boeing can keep this going. If, OTOH, this represents randomly favorable sales terms or "strategic" use of accounting to cover 737MAX issues then maybe not. One bit of evidence for the latter is that Boeing beat many analyst predictions but the share price didn't move much. Presumably the smart money doesn't see news in the results, perhaps because accounting tricks don't fool them.
 
User avatar
Momo1435
Posts: 885
Joined: Sat Aug 25, 2012 2:33 pm

Re: Boeing 787 deferred production cost watch

Thu Apr 25, 2019 4:51 am

Link still works for me, but it's not too mobile friendly (I posted from my phone on my train ride back home yesterday) It's the standard Boeing accounting considerations page that hasn't changed in years, it's an easy find through Google.

So I only did a quick calculation, but the total reduction is indeed above the Billion.

Deferred Production Cost : -938

Unamortized Tooling ... : -106

That's 1.04 Billion in total

The 737 issues currently have a far bigger impact on Boeing then the 787 program accounting, so it's only logical that it doesn't have a big effect on the share price. Although the share price hasn't dropped too much after the large decline when the 2nd crash happened and the moment of grounding. Investors are not running away in large numbers, these 787 results could be sign for them to then that Boeing will still be OK financially.
 
majano
Posts: 105
Joined: Sun Oct 14, 2018 10:45 am

Re: Boeing 787 deferred production cost watch

Thu Apr 25, 2019 6:07 am

Momo1435 wrote:
Link still works for me, but it's not too mobile friendly (I posted from my phone on my train ride back home yesterday) It's the standard Boeing accounting considerations page that hasn't changed in years, it's an easy find through Google.

So I only did a quick calculation, but the total reduction is indeed above the Billion.

Deferred Production Cost : -938

Unamortized Tooling ... : -106

That's 1.04 Billion in total

The 737 issues currently have a far bigger impact on Boeing then the 787 program accounting, so it's only logical that it doesn't have a big effect on the share price. Although the share price hasn't dropped too much after the large decline when the 2nd crash happened and the moment of grounding. Investors are not running away in large numbers, these 787 results could be sign for them to then that Boeing will still be OK financially.

If it is not too much of an ask and you have the time, would you please provide a computation, similar to the two provided for Q3 '18 and Q4 '18. That would make the information easier to follow and comparable.

Popular Searches On Airliners.net

Top Photos of Last:   24 Hours  •  48 Hours  •  7 Days  •  30 Days  •  180 Days  •  365 Days  •  All Time

Military Aircraft Every type from fighters to helicopters from air forces around the globe

Classic Airliners Props and jets from the good old days

Flight Decks Views from inside the cockpit

Aircraft Cabins Passenger cabin shots showing seat arrangements as well as cargo aircraft interior

Cargo Aircraft Pictures of great freighter aircraft

Government Aircraft Aircraft flying government officials

Helicopters Our large helicopter section. Both military and civil versions

Blimps / Airships Everything from the Goodyear blimp to the Zeppelin

Night Photos Beautiful shots taken while the sun is below the horizon

Accidents Accident, incident and crash related photos

Air to Air Photos taken by airborne photographers of airborne aircraft

Special Paint Schemes Aircraft painted in beautiful and original liveries

Airport Overviews Airport overviews from the air or ground

Tails and Winglets Tail and Winglet closeups with beautiful airline logos