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Momo1435
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Re: Boeing 787 deferred production cost watch

Thu Apr 25, 2019 11:50 am

majano wrote:
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.

Here's an image of the data, taken from the website and edited in Excel.

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

Image
 
majano
Posts: 115
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Re: Boeing 787 deferred production cost watch

Thu Apr 25, 2019 2:03 pm

Momo1435 wrote:
majano wrote:
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.


Here's an image of the data, taken from the website and edited in Excel.

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

Image

Thanks, clearly the best quarter ever on an absolute basis! With 39 deliveries in Q4 '18, the rate per aircraft is close to USD27 million. Cannot go any further back than what is in this thread, but this rate is also likely to be the best per aircraft rate recorded so far.
 
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Matt6461
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Re: Boeing 787 deferred production cost watch

Thu Apr 25, 2019 2:05 pm

Thanks for that work @Momo1435.

I've seen some of the operating numbers for the 787-10 versus its competition and it's a really astounding aircraft performing in line with the best of hype.
Market intelligence has airlines complaining about the 78X's price over the last few years, so this plane is probably selling at a historically high profit margin.
Is there a handy tracker for the delivery mix by accounting quarter?
 
Kilopond
Posts: 454
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Re: Boeing 787 deferred production cost watch

Thu Apr 25, 2019 9:24 pm

mjoelnir wrote:
[...]You will not be able to find an example, because nobody else is accounting in this way.[...]


At this point I respectfully contradict you: the financial clearing system of the European Central Bank with her member national banks works quite the same way as Boeing`s financial prestidigitations. Claims and obligations are outsourced into a very special chest that is totally untuchable.

http://sdw.ecb.europa.eu/reports.do?node=1000004859
 
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lightsaber
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Re: Boeing 787 deferred production cost watch

Thu Apr 25, 2019 11:22 pm

Momo1435 wrote:
majano wrote:
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.

Here's an image of the data, taken from the website and edited in Excel.

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

Image

So only 22 or 23 quarters to go!

Ok, acceleration will continue. But realizing that in January 2026 we will be done is great news!

Lightsaber
IM messages to mods on warnings and bans will be ignored and nasty ones will result in a ban.
 
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Matt6461
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Re: Boeing 787 deferred production cost watch

Fri Apr 26, 2019 1:59 am

Lightsaber wrote:
So only 22 or 23 quarters to go!


Rate 14 started this quarter (2Q), so we should see ~14% earning acceleration from that alone.
And the mix will continue to improve as 78X deliveries increase and as the few -8 deliveries incorporate the last round of commonality with -9's.
If BA sees, say, $35mn/delivery that'll be close to $6bn/year. Or only ~17 quarters to go. That's an upside case but seems feasible at least.
 
majano
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Re: Boeing 787 deferred production cost watch

Fri Apr 26, 2019 7:26 am

lightsaber wrote:
Momo1435 wrote:
majano wrote:
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.

Here's an image of the data, taken from the website and edited in Excel.

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

Image

So only 22 or 23 quarters to go!

Ok, acceleration will continue. But realizing that in January 2026 we will be done is great news!

Lightsaber

Agreed. Some way to go, but excellent progress made.
 
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Francoflier
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Re: Boeing 787 deferred production cost watch

Fri Apr 26, 2019 7:41 am

This is much needed encouraging news for Boeing. Though it seems as if 787s might be used as 'sweeteners' for some operators that are affected by the MAX grounding (thinking GA, there might be others). Is there any chance that might push the breakeven a bit further to the right?
I'll do my own airline. With Blackjack. And hookers. In fact, forget the airline.
 
Bricktop
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Re: Boeing 787 deferred production cost watch

Fri Apr 26, 2019 9:15 am

Francoflier wrote:
This is much needed encouraging news for Boeing. Though it seems as if 787s might be used as 'sweeteners' for some operators that are affected by the MAX grounding (thinking GA, there might be others). Is there any chance that might push the breakeven a bit further to the right?

I was thinking about that, in re Garuda. They may allocate revenues to the MAX so they can tell Wall Street that the MAX impact "wasn't so bad" at the expense of the improving 787 program. That's all PR BS as far as I am concerned, but someone will care and some nonsense rationale will be fed to the auditors.
 
Sokes
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Re: Boeing 787 deferred production cost watch

Mon Jun 24, 2019 7:58 am

Post 14-17 discussed Boeing having negative equity. Was there really a time with negative equity?
I post two cases. Please correct me if I'm wrong.

Case1:
I have 500.000 $ own money (=equity) and decide to sell skiing equipment in a oasis in the Sahara. My showroom costs me 480.000$. I have 20.000 $ left, but decide to order 50.000$ skiing equipment. I get the stuff delivered. Unfortunately no bank is convinced of my business case and willing to give me credit.
I'm unable to pay the loan. I have to declare bancruptcy even though I still have 500.000$ equity. It's a cash flow problem.

Case 2:
I started with 500.000 $ equity and have a successfull business running for some time. I manufacture products with good demand and profit range.
Thanks to retained earnings I already have 700.000 $ equity. I have a two million $ credit from the bank. The 2.7 million $ "equity + liability" are matched on the asset side with 600.000 plant + equipment, 1 million for material (stocks in trade) and 1.1 million cash. It so happens that I sell 800.000 $ material to a guy who goes bancrupt. I can't recover the money. I still have 1.1 million cash on my account, but as I have to write off 800.000 $ my equity goes negative. I have to declare bancruptcy even though I don't have a cash flow problem.
Why can't the world be a little bit more autistic?
 
phdaust
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Re: Boeing 787 deferred production cost watch

Sun Jul 14, 2019 3:03 am

What about inflation? 20 billion in 2014 does not equal 20 billion in 2019 ( 20 billion × 2% = 400 million a year) ....
 
Newbiepilot
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Re: Boeing 787 deferred production cost watch

Sun Jul 14, 2019 3:09 pm

phdaust wrote:
What about inflation? 20 billion in 2014 does not equal 20 billion in 2019 ( 20 billion × 2% = 400 million a year) ....


Since no money is actually owed, I don't believe that it is subject to inflation or interest.
 
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lightsaber
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Re: Boeing 787 deferred production cost watch

Sun Jul 14, 2019 4:21 pm

Sokes wrote:
Post 14-17 discussed Boeing having negative equity. Was there really a time with negative equity?
I post two cases. Please correct me if I'm wrong.

Case1:
I have 500.000 $ own money (=equity) and decide to sell skiing equipment in a oasis in the Sahara. My showroom costs me 480.000$. I have 20.000 $ left, but decide to order 50.000$ skiing equipment. I get the stuff delivered. Unfortunately no bank is convinced of my business case and willing to give me credit.
I'm unable to pay the loan. I have to declare bancruptcy even though I still have 500.000$ equity. It's a cash flow problem.

Case 2:
I started with 500.000 $ equity and have a successfull business running for some time. I manufacture products with good demand and profit range.
Thanks to retained earnings I already have 700.000 $ equity. I have a two million $ credit from the bank. The 2.7 million $ "equity + liability" are matched on the asset side with 600.000 plant + equipment, 1 million for material (stocks in trade) and 1.1 million cash. It so happens that I sell 800.000 $ material to a guy who goes bancrupt. I can't recover the money. I still have 1.1 million cash on my account, but as I have to write off 800.000 $ my equity goes negative. I have to declare bancruptcy even though I don't have a cash flow problem.

Why would case 2 declare bankruptcy? If that was a requirement, Amazon, Google, and most small tech companies would have failed.

Lightsaber
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Momo1435
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Re: Boeing 787 deferred production cost watch

Wed Jul 24, 2019 7:04 pm

Q2 2019 accounting considerations

http://www.boeing.com/investors/account ... ions.page/

Deferred Production Cost: -1,060 billion dollar (down to 20,969 billion)
Unamortized Tooling and Other Non-Recurring Cost : -0,178 billion dollar (down to 2,354 billion)

Total Q2= 1,238 billion reduction.

This is significant bigger then the 1,040 billion reduction in Q1.

Considering the financial hit Boeing has taken over the MAX grounding in Q2 these numbers are good and showing that the 787 program is bringing in more and more money. In Q2 we have seen more deliveries then ever, including the last 787-10 prototype after the rework was completed, all this is now showing in these numbers. If this continues it will be down to 0 in about 5 years from now.
 
majano
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Re: Boeing 787 deferred production cost watch

Wed Jul 24, 2019 7:11 pm

Momo1435 wrote:
Q2 2019 accounting considerations

http://www.boeing.com/investors/account ... ions.page/

Deferred Production Cost: -1,060 billion dollar (down to 20,969 billion)
Unamortized Tooling and Other Non-Recurring Cost : -0,178 billion dollar (down to 2,354 billion)

Total Q2= 1,238 billion reduction.

This is significant bigger then the 1,040 billion reduction in Q1.

Considering the financial hit Boeing has taken over the MAX grounding in Q2 these numbers are good and showing that the 787 program is bringing in more and more money. In Q2 we have seen more deliveries then ever, including the last 787-10 prototype after the rework was completed, all this is now showing in these numbers. If this continues it will be down to 0 in about 5 years from now.

Good news. How many deliveries did Boeing make during the quarter?
 
Weatherwatcher1
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Re: Boeing 787 deferred production cost watch

Thu Jul 25, 2019 12:36 am

majano wrote:
Momo1435 wrote:
Q2 2019 accounting considerations

http://www.boeing.com/investors/account ... ions.page/

Deferred Production Cost: -1,060 billion dollar (down to 20,969 billion)
Unamortized Tooling and Other Non-Recurring Cost : -0,178 billion dollar (down to 2,354 billion)

Total Q2= 1,238 billion reduction.

This is significant bigger then the 1,040 billion reduction in Q1.

Considering the financial hit Boeing has taken over the MAX grounding in Q2 these numbers are good and showing that the 787 program is bringing in more and more money. In Q2 we have seen more deliveries then ever, including the last 787-10 prototype after the rework was completed, all this is now showing in these numbers. If this continues it will be down to 0 in about 5 years from now.

Good news. How many deliveries did Boeing make during the quarter?


42 deliveries

https://finance.yahoo.com/news/boeing-r ... 00342.html

That should equal about $30 million reduction per plane.
 
MIflyer12
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Re: Boeing 787 deferred production cost watch

Thu Jul 25, 2019 12:56 am

Momo1435 wrote:
If this continues it will be down to 0 in about 5 years from now.


If they continue to get strong net new orders they will likely boost the accounting block again, up from the present 1,600 units.
 
9Patch
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Re: Boeing 787 deferred production cost watch

Thu Jul 25, 2019 1:05 am

MIflyer12 wrote:
Momo1435 wrote:
If this continues it will be down to 0 in about 5 years from now.


If they continue to get strong net new orders they will likely boost the accounting block again, up from the present 1,600 units.


A lot of people here seem to think that every time Boeing increases the accounting block it's because deferred costs went up.

Increasing the accounting block is good news not bad news. It means more sales and more airplanes to spread the costs over.
 
RJMAZ
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Re: Boeing 787 deferred production cost watch

Thu Jul 25, 2019 3:49 am

It seems big investment is now paying big rewards.

With new aircraft designs being so expensive we will no doubt see fewer cleansheet designs. 20 years ago back in 1999 Boeing had the 717, 737, 757, 767, 767 and 747 all in production.

It wouldn't surprise me if in 20 years time Boeing only has three models in production covering the full spectrum.
Small, short range = NSA
Medium, medium range = 797
Large, long range = 787NEO
 
RickNRoll
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Re: Boeing 787 deferred production cost watch

Thu Jul 25, 2019 5:44 am

sxf24 wrote:
mjoelnir wrote:
lightsaber wrote:
If people want to emphasize the 787 is deep in the red, ok. But also mention how Boeing has very little external debt. At this point, these costs are future tax breaks for R&D already spent.

There is no cash here per se. While bad, the 787 has more chance of breaking even than the A380.

Lightsaber

PS
And mention the ramp to 168 per year. ;). That should drop costs and this speed payback.

But again, look at Boeing corporate debt, it isn't much.

Lightsaber


If you want to start again.
The liabilities of a company are their whole dept, as something that has to be paid or wares to be delivered for. The equity is what a company owns.
Cash is just a measurement if a company is liquid at this time. Cash accounting does not bother if you own the cash or have it on loan.
Boeing has still a negative equity, so all their cash is on loan and the liabilities are not covered by their assets.


Until you can tell us why Boeing has negative equity (hint: it is not because of deferred production costs), then I suggest you stay silent on the subject. You continue to complain about issues that you can’t explain.

A better measure of a company’s performance is cash flow. In fact, that’s what shareholders care about and what Boeing executives get bonuses based on. Focusing on GAAP profit is like arguing about where the fire truck should park when then come to put your house fire out. In the scheme of things, it’s not the most important.


Which is why prudent companies don't double down on cash flow. The MAX grounding has just cut biggest source of Boeings cash.
 
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lightsaber
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Re: Boeing 787 deferred production cost watch

Thu Jul 25, 2019 6:51 am

Weatherwatcher1 wrote:
majano wrote:
Momo1435 wrote:
Q2 2019 accounting considerations

http://www.boeing.com/investors/account ... ions.page/

Deferred Production Cost: -1,060 billion dollar (down to 20,969 billion)
Unamortized Tooling and Other Non-Recurring Cost : -0,178 billion dollar (down to 2,354 billion)

Total Q2= 1,238 billion reduction.

This is significant bigger then the 1,040 billion reduction in Q1.

Considering the financial hit Boeing has taken over the MAX grounding in Q2 these numbers are good and showing that the 787 program is bringing in more and more money. In Q2 we have seen more deliveries then ever, including the last 787-10 prototype after the rework was completed, all this is now showing in these numbers. If this continues it will be down to 0 in about 5 years from now.

Good news. How many deliveries did Boeing make during the quarter?


42 deliveries

https://finance.yahoo.com/news/boeing-r ... 00342.html

That should equal about $30 million reduction per plane.

That is an amazing amount of cash per widebody. It is more than plausible that Boeing maintains 5+ years of 787 production, so we see an end to the differed costs.

At this point, if the production block is increased, it is to improve profit. However, that is unlikely to happen until the MAX is flying again.

Lightsaber
IM messages to mods on warnings and bans will be ignored and nasty ones will result in a ban.
 
StTim
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Re: Boeing 787 deferred production cost watch

Thu Jul 25, 2019 6:58 am

An increase in the accounting block should, and always should have been, be related to reasonable expectations of sales.

It is good to see this coming down at a significant rate. It is good for Boeing to have one program producing cash but that is not helping profits as those were baked in years ago.

I was a doubter but there is light at the end of the tunnel for Boeing on this.
 
olle
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Re: Boeing 787 deferred production cost watch

Thu Jul 25, 2019 7:20 am

Right now Boeing need to fix its books after the 737 disaster and show more profits. I can easily see that the down payment of deferred cost will decrease for period.
 
StTim
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Re: Boeing 787 deferred production cost watch

Thu Jul 25, 2019 7:22 am

That makes no difference to profit booked.

These are quite separate.
 
sxf24
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Re: Boeing 787 deferred production cost watch

Thu Jul 25, 2019 12:33 pm

RickNRoll wrote:
sxf24 wrote:
mjoelnir wrote:

If you want to start again.
The liabilities of a company are their whole dept, as something that has to be paid or wares to be delivered for. The equity is what a company owns.
Cash is just a measurement if a company is liquid at this time. Cash accounting does not bother if you own the cash or have it on loan.
Boeing has still a negative equity, so all their cash is on loan and the liabilities are not covered by their assets.


Until you can tell us why Boeing has negative equity (hint: it is not because of deferred production costs), then I suggest you stay silent on the subject. You continue to complain about issues that you can’t explain.

A better measure of a company’s performance is cash flow. In fact, that’s what shareholders care about and what Boeing executives get bonuses based on. Focusing on GAAP profit is like arguing about where the fire truck should park when then come to put your house fire out. In the scheme of things, it’s not the most important.


Which is why prudent companies don't double down on cash flow. The MAX grounding has just cut biggest source of Boeings cash.


This is stupid. If you don’t focus on cash flow, you will not exist. Cash flow pays the bills.
 
Sokes
Posts: 165
Joined: Sat Mar 09, 2019 4:48 pm

Re: Boeing 787 deferred production cost watch

Thu Aug 01, 2019 4:20 pm

lightsaber wrote:
Sokes wrote:
Post 14-17 discussed Boeing having negative equity. Was there really a time with negative equity?
I post two cases. Please correct me if I'm wrong.

Case1:
I have 500.000 $ own money (=equity) and decide to sell skiing equipment in a oasis in the Sahara. My showroom costs me 480.000$. I have 20.000 $ left, but decide to order 50.000$ skiing equipment. I get the stuff delivered. Unfortunately no bank is convinced of my business case and willing to give me credit.
I'm unable to pay the loan. I have to declare bancruptcy even though I still have 500.000$ equity. It's a cash flow problem.

Case 2:
I started with 500.000 $ equity and have a successfull business running for some time. I manufacture products with good demand and profit range.
Thanks to retained earnings I already have 700.000 $ equity. I have a two million $ credit from the bank. The 2.7 million $ "equity + liability" are matched on the asset side with 600.000 plant + equipment, 1 million for material (stocks in trade) and 1.1 million cash. It so happens that I sell 800.000 $ material to a guy who goes bancrupt. I can't recover the money. I still have 1.1 million cash on my account, but as I have to write off 800.000 $ my equity goes negative. I have to declare bancruptcy even though I don't have a cash flow problem.

Why would case 2 declare bankruptcy? If that was a requirement, Amazon, Google, and most small tech companies would have failed.

Lightsaber


Amazon Annual Report 2018, p.39:
Balance sheet 162,648 million $
of which equity 43,549 million $
https://ir.aboutamazon.com/static-files ... 5dc9d8b5ec

Alphabet Fiscal year 2018 report:
Balance sheet 232,792 million $
of which:
total stockholder's equity: 177,628 million $
total liabilities 55,164 million $
https://ir.aboutamazon.com/static-files ... 5dc9d8b5ec

I don't remember to have ever seen a balance sheet with such high proportion of equity as Alphabet's.
What made you think they have no equity?

However you do have a point:
"Shareholder equity can be either negative or positive. If positive, the company has enough assets to cover its liabilities.
If negative, the company's liabilities exceed its assets; if prolonged, this is considered balance sheet insolvency. "
https://www.investopedia.com/terms/e/equity.asp

I was surprised to learn that Rolls Royce has negative equity. I was always under the impression that this is illegal.
It also doesn't make sense. I may lend money to somebody who has some own skin in the game which is getting lost first. I wouldn't continue to lend him money if he has no own money to loose. What does "prolonged" mean?

Later in the above link under "components of shareholder equity":
"Treasury shares or stock (not to be confused with U.S.Treasury bills) represent stock that the company has bought back from existing shareholders.
Companies may do a repurchase when management cannot deploy all the available equity capital in ways that might deliver the best returns. Shares bought back by companies become treasury shares, and their dollar value is noted in an account called treasury stock, a contra account to the accounts of investor capital and retained earnings. Companies can reissue treasury shares back to stockholders when companies need to raise money."

Coming back to Boeing (Q1, not Q2):
While equity is a ridiculously low 232 million $, they have 54,630 million $ in treasury stocks.
p.5: http://s2.q4cdn.com/661678649/files/doc ... 9-10-Q.PDF

So I was wrong when I claimed in some other topic that Boeing is close to bankruptcy.
Why can't the world be a little bit more autistic?
 
Bradin
Posts: 274
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Re: Boeing 787 deferred production cost watch

Thu Aug 01, 2019 4:47 pm

RickNRoll wrote:
sxf24 wrote:
mjoelnir wrote:

If you want to start again.
The liabilities of a company are their whole dept, as something that has to be paid or wares to be delivered for. The equity is what a company owns.
Cash is just a measurement if a company is liquid at this time. Cash accounting does not bother if you own the cash or have it on loan.
Boeing has still a negative equity, so all their cash is on loan and the liabilities are not covered by their assets.


Until you can tell us why Boeing has negative equity (hint: it is not because of deferred production costs), then I suggest you stay silent on the subject. You continue to complain about issues that you can’t explain.

A better measure of a company’s performance is cash flow. In fact, that’s what shareholders care about and what Boeing executives get bonuses based on. Focusing on GAAP profit is like arguing about where the fire truck should park when then come to put your house fire out. In the scheme of things, it’s not the most important.


Which is why prudent companies don't double down on cash flow. The MAX grounding has just cut biggest source of Boeings cash.


Revenue - yes.
Cash - no.

On the balance sheet, each undelievered 737 MAX would be listed as inventory.
 
Sokes
Posts: 165
Joined: Sat Mar 09, 2019 4:48 pm

Re: Boeing 787 deferred production cost watch

Thu Aug 01, 2019 4:57 pm

sxf24 wrote:
mjoelnir wrote:

If you want to start again.
The liabilities of a company are their whole dept, as something that has to be paid or wares to be delivered for. The equity is what a company owns.
Cash is just a measurement if a company is liquid at this time. Cash accounting does not bother if you own the cash or have it on loan.
Boeing has still a negative equity, so all their cash is on loan and the liabilities are not covered by their assets.


Until you can tell us why Boeing has negative equity (hint: it is not because of deferred production costs), then I suggest you stay silent on the subject. You continue to complain about issues that you can’t explain.

A better measure of a company’s performance is cash flow. In fact, that’s what shareholders care about and what Boeing executives get bonuses based on. Focusing on GAAP profit is like arguing about where the fire truck should park when then come to put your house fire out. In the scheme of things, it’s not the most important.


Do you find a mistake in mjoelnir's statement? Because I can't find one.
I can accept if Elon Musk argues that cash flow is king. He is in a time of extreme expansion. But I don't understand why so many here are so much in love with cash flow. GM had a pension problem. I don't know how was their cash flow, but at the end operational profits are required to pay for whatever obligations are there.
That Boeing has to park all B737 MAX is of course a cash flow problem. But in normal times profit is more important.

Since years I read about this problem and that problem in Indian media. Before 2008 such news would indicate that the economy is going to dive in a very short time. But the show goes on and on and on. Maybe you are right. Maybe the close to 0% interest creates a snowball economy in which losses and negative equity doesn't matter as long as one has enough cash at hand to pay old credits with new credits.
Why can't the world be a little bit more autistic?
 
Sokes
Posts: 165
Joined: Sat Mar 09, 2019 4:48 pm

Re: Boeing 787 deferred production cost watch

Thu Aug 01, 2019 5:31 pm

Bradin wrote:
RickNRoll wrote:

...The MAX grounding has just cut biggest source of Boeings cash.


Revenue - yes.
Cash - no.

On the balance sheet, each undelievered 737 MAX would be listed as inventory.

Undelivered B737 MAX appear as inventories = assets on the balance sheet ("assets = equity + liability" account).
While Boeing still has to pay for the suppliers, they can't get revenues from the planes until delivery. Unless Boeing has enough cash, it's a cash flow problem.
Why can't the world be a little bit more autistic?
 
Sokes
Posts: 165
Joined: Sat Mar 09, 2019 4:48 pm

Re: Boeing 787 deferred production cost watch

Thu Aug 01, 2019 6:04 pm

Sokes wrote:
Alphabet Fiscal year 2018 report:
Balance sheet 232,792 million $
of which:
total stockholder's equity: 177,628 million $
total liabilities 55,164 million $
https://ir.aboutamazon.com/static-files ... 5dc9d8b5ec


Sorry, wrong source. Correct:
https://abc.xyz/investor/static/pdf/201 ... he=adc3b38
Why can't the world be a little bit more autistic?
 
Bradin
Posts: 274
Joined: Wed Jun 15, 2016 5:12 am

Re: Boeing 787 deferred production cost watch

Thu Aug 01, 2019 8:16 pm

Sokes wrote:
Bradin wrote:
RickNRoll wrote:

...The MAX grounding has just cut biggest source of Boeings cash.


Revenue - yes.
Cash - no.

On the balance sheet, each undelievered 737 MAX would be listed as inventory.

Undelivered B737 MAX appear as inventories = assets on the balance sheet ("assets = equity + liability" account).
While Boeing still has to pay for the suppliers, they can't get revenues from the planes until delivery. Unless Boeing has enough cash, it's a cash flow problem.


If anyone else is interested.....

https://www.marketwatch.com/investing/s ... et/quarter
 
WIederling
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Re: Boeing 787 deferred production cost watch

Thu Aug 01, 2019 9:20 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


If you have some idle time watch the 737 deferred production cost bucket "expand" . :-))
Murphy is an optimist
 
Sokes
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Re: Boeing 787 deferred production cost watch

Sat Aug 03, 2019 4:49 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


You missed to check the date of the newspaper article: Feb 2016.

I wonder if those who emphasize on positive cash flow mean to say it's important that Boeing receives more per plane than what the plane costs to make as of today. In other words positive cash flow from sales.
Selling price > payments to suppliers + salaries + interest
(but ignoring deferred costs = no amortization of a) development cost and b) tooling cost and c) losses from early planes)

So why do I criticize the use of "cash flow" instead of profits?
1) I'm not familiar with Boeing's cash flow today and I ignore the B737 for the moment. But suppose Boeing had very high investments for buildings, tooling, research and development for the B777X which caused them to become cash flow negative. Why would that be a problem as long as there are sufficient cash/ credit facilities?
2) Suppose I make one million loss, but a bank gives me three million new credit. I'm two million cash flow positive.
3) Suppose I make one million loss, but I reduce my stock of raw materials or my stock of finished products by three millions. I'm two million cash flow positive.
At the moment Boeing is increasing stock of finished products, which means B737 MAXs. That's cash flow negative as of today. Why would that be negative if Boeing can sell them for a good price in a few months? (Compensations to airlines are a given, whether production is stopped or not.)
4) One can't ignore amortization.

Selling a depreciated 30 years old office building and renting it back boosts cash flow as well as profit for the year.
A company which has positive cash flow from (product) sales is not at all like a company that makes positive cash flow through other means. Cash flow from sales is quite closely linked with profit. But profit is still the better measurement as it also includes amortizations, besides the other reasons given above.
Would you rather lend money to somebody who makes losses, but is cash flow positive or to somebody who makes profits, but is cash flow negative?

I'm aware my view defends Boeing's B787 deferred production costs in principle. I may still disagree on assumptions made about number of future plane sales and the cash flow derived from these sales. But my disagreement is more in principle: I dislike if today's managers' bonuses depend on their optimism.
Why can't the world be a little bit more autistic?
 
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lightsaber
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Re: Boeing 787 deferred production cost watch

Sat Aug 03, 2019 5:06 pm

Sokes wrote:
lightsaber wrote:
Sokes wrote:
Post 14-17 discussed Boeing having negative equity. Was there really a time with negative equity?
I post two cases. Please correct me if I'm wrong.

Case1:
I have 500.000 $ own money (=equity) and decide to sell skiing equipment in a oasis in the Sahara. My showroom costs me 480.000$. I have 20.000 $ left, but decide to order 50.000$ skiing equipment. I get the stuff delivered. Unfortunately no bank is convinced of my business case and willing to give me credit.
I'm unable to pay the loan. I have to declare bancruptcy even though I still have 500.000$ equity. It's a cash flow problem.

Case 2:
I started with 500.000 $ equity and have a successfull business running for some time. I manufacture products with good demand and profit range.
Thanks to retained earnings I already have 700.000 $ equity. I have a two million $ credit from the bank. The 2.7 million $ "equity + liability" are matched on the asset side with 600.000 plant + equipment, 1 million for material (stocks in trade) and 1.1 million cash. It so happens that I sell 800.000 $ material to a guy who goes bancrupt. I can't recover the money. I still have 1.1 million cash on my account, but as I have to write off 800.000 $ my equity goes negative. I have to declare bancruptcy even though I don't have a cash flow problem.

Why would case 2 declare bankruptcy? If that was a requirement, Amazon, Google, and most small tech companies would have failed.

Lightsaber


Amazon Annual Report 2018, p.39:
Balance sheet 162,648 million $
of which equity 43,549 million $
https://ir.aboutamazon.com/static-files ... 5dc9d8b5ec

Alphabet Fiscal year 2018 report:
Balance sheet 232,792 million $
of which:
total stockholder's equity: 177,628 million $
total liabilities 55,164 million $
https://ir.aboutamazon.com/static-files ... 5dc9d8b5ec

I don't remember to have ever seen a balance sheet with such high proportion of equity as Alphabet's.
What made you think they have no equity?

However you do have a point:
"Shareholder equity can be either negative or positive. If positive, the company has enough assets to cover its liabilities.
If negative, the company's liabilities exceed its assets; if prolonged, this is considered balance sheet insolvency. "
https://www.investopedia.com/terms/e/equity.asp

I was surprised to learn that Rolls Royce has negative equity. I was always under the impression that this is illegal.
It also doesn't make sense. I may lend money to somebody who has some own skin in the game which is getting lost first. I wouldn't continue to lend him money if he has no own money to loose. What does "prolonged" mean?

Later in the above link under "components of shareholder equity":
"Treasury shares or stock (not to be confused with U.S.Treasury bills) represent stock that the company has bought back from existing shareholders.
Companies may do a repurchase when management cannot deploy all the available equity capital in ways that might deliver the best returns. Shares bought back by companies become treasury shares, and their dollar value is noted in an account called treasury stock, a contra account to the accounts of investor capital and retained earnings. Companies can reissue treasury shares back to stockholders when companies need to raise money."

Coming back to Boeing (Q1, not Q2):
While equity is a ridiculously low 232 million $, they have 54,630 million $ in treasury stocks.
p.5: http://s2.q4cdn.com/661678649/files/doc ... 9-10-Q.PDF

So I was wrong when I claimed in some other topic that Boeing is close to bankruptcy.

I was talking very early in their history. Obviously now they are very profitable now.

I was noting case 2 doesn't lead to bankruptcy.

Lightsaber
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Sokes
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Re: Boeing 787 deferred production cost watch

Sun Aug 04, 2019 10:45 am

lightsaber wrote:
I was talking very early in their history. Obviously now they are very profitable now.
Lightsaber

I misunderstood.

lightsaber wrote:
I was noting case 2 doesn't lead to bankruptcy.
Lightsaber


You are right. Which I consider outrageous.
If a bank wants to lend to somebody without equity so be it. They know the financials and after all it doesn't matter if they gamble with credit default swaps or otherwise.
But I think a businessman should be able to deliver goods without taking 100% advance payments at a reasonable risk.
It should be made law that each company below let's say 20% equity ratio has to state in it's letterhead it's equity ratio. As a supplier I can think what payment procedures I demand for such customers.
If finally a bank decides not to renew a credit they will demand to be paid first from whatever is recoverable in insolvency proceedings.

We shall see how it works out for Airbus to rely for their A350/ A330 Neo on a turbine manufacturer with negative equity.
Why can't the world be a little bit more autistic?
 
tealnz
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Re: Boeing 787 deferred production cost watch

Sun Aug 04, 2019 2:28 pm

lightsaber wrote:
Here's an image of the data, taken from the website and edited in Excel.
https://www.boeing.com/investors/accoun ... ions.page/
Image
So only 22 or 23 quarters to go!
Ok, acceleration will continue. But realizing that in January 2026 we will be done is great news!
Lightsaber


Matt6461 wrote:
Lightsaber wrote:
So only 22 or 23 quarters to go!

Rate 14 started this quarter (2Q), so we should see ~14% earning acceleration from that alone.
And the mix will continue to improve as 78X deliveries increase and as the few -8 deliveries incorporate the last round of commonality with -9's.
If BA sees, say, $35mn/delivery that'll be close to $6bn/year. Or only ~17 quarters to go. That's an upside case but seems feasible at least.


22 quarters? 17 quarters? If the premise is that Boeing can maintain current production rate for the next five years this is looking a bit of a stretch. If I'm reading the Leeham chart correctly https://leehamnews.com/2019/07/29/boeing-max-crisis-overshadows-other-challenges/ at rate 14 orders fall off the cliff from 2022. That's not to say the sales team won't fill in some of the gaps. But rate 14? The orders need to be coming in now. Cut the rate significantly and a lot of things change. Including margins available to draw down deferred costs.
 
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lightsaber
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Re: Boeing 787 deferred production cost watch

Sun Aug 04, 2019 3:22 pm

tealnz wrote:
lightsaber wrote:
Here's an image of the data, taken from the website and edited in Excel.
https://www.boeing.com/investors/accoun ... ions.page/
Image
So only 22 or 23 quarters to go!
Ok, acceleration will continue. But realizing that in January 2026 we will be done is great news!
Lightsaber


Matt6461 wrote:
Lightsaber wrote:
So only 22 or 23 quarters to go!

Rate 14 started this quarter (2Q), so we should see ~14% earning acceleration from that alone.
And the mix will continue to improve as 78X deliveries increase and as the few -8 deliveries incorporate the last round of commonality with -9's.
If BA sees, say, $35mn/delivery that'll be close to $6bn/year. Or only ~17 quarters to go. That's an upside case but seems feasible at least.


22 quarters? 17 quarters? If the premise is that Boeing can maintain current production rate for the next five years this is looking a bit of a stretch. If I'm reading the Leeham chart correctly https://leehamnews.com/2019/07/29/boeing-max-crisis-overshadows-other-challenges/ at rate 14 orders fall off the cliff from 2022. That's not to say the sales team won't fill in some of the gaps. But rate 14? The orders need to be coming in now. Cut the rate significantly and a lot of things change. Including margins available to draw down deferred costs.

The production rate was accelerated to give Boeing near term slots to sell. 2022 slots have only 10 to 18 months to sell. But options only need be firmed 18 to 24 months out and airlines do that late.

Boeing has a firm backlog of 592:
https://en.m.wikipedia.org/wiki/Boeing_787_Dreamliner

That backlog doesn't include the ANZ 787-10s, UA options, AA options, or any other options.

https://australianaviation.com.au/2019/ ... 787-order/

Huh... The above link notes ANZ is still working with UA on starting the new services in 2022 or 2023. Your link notes slots available for either decision.

AF/KLM is looking into more 787-9s, possibly in AF fleet too, to replace A380:
https://seekingalpha.com/article/428109 ... transcript


Not to mention 20 firm to Korean not in your link nor Wikipedia, yet:

http://m.atwonline.com/airshow-orders/k ... -10-orders


The A350 is oversold. There are not enough near term slots to compete.

Boeing has sold net about a hundred a year since announcing the rate increase:
https://en.m.wikipedia.org/wiki/List_of ... deliveries

Airbus sells about net 40:
https://en.m.wikipedia.org/wiki/List_of ... deliveries

As your link notes, through 2019, 2020 and 2021 are booked. Ten more quarters without more sales at full production. If sales continue stalled at about a hundred per year, Boeing will have to slow production in 2023.

So at 17 quarters, they could just do it before slowing. However, the 787-10 is gaining interest. GE is creating rumors of a CMC PiP.

So 2022 needs 80 orders per your link. I see an issue of not enough 2022 slots to jump start sales. You present it as a problem having slots available for sale.

For the first time, 787s will be available on short notice. If Boeing gauged the market correctly, they will land orders creating the production tail.

In fact, I see as pretty much certain being able to maintain production to paying off differed costs. So why the worry?

The China deal for a hundred 787/777 is on hold (in my opinion) due to trade tensions. But if that goes through, there will be a shortage of 787 near term slots:

https://www.latimes.com/business/la-fi- ... story.html

EK still hasn't closed the A339, A359, or 787 deals:

http://m.aviationweek.com/paris-airshow ... -787-order

Delivery slots will play a role in how many of each type EK takes.

There will be a 787 production rate decrease at some time. But vendor negotiations in September will be full steam ahead until 2023. I'm betting we have the same discussion next year, just increasing the years by one.

Lightsaber
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tealnz
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Re: Boeing 787 deferred production cost watch

Sun Aug 04, 2019 6:45 pm

Sure. Let's see how it plays out. My point is that current orders show a steep fall-off after 2021. Meaning the cost efficiencies of rate 14 are under pressure if the sales team can't do better than 100 sales a year from here out. Which presumably also means – what's your view? – that the margins available to fund the quarterly reductions in deferred production cost will also come under pressure. Depends a bit on whether Airbus get any serious traction with the 330neo squeezing the 787 from below.

As for the other sales candidates, we'll see. Too soon to call on AF. Ditto the NZ options (Luxon clearly expects the airline will look for something bigger to replace the 77W rather than go all-787). EK is anyone's guess. On performance to date I guess it's a bit too early to bet against the Boeing sales team 8-)
 
JayinKitsap
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Re: Boeing 787 deferred production cost watch

Sun Aug 04, 2019 8:17 pm

I think the current orders fill out the production block. Soon Boeing will have $30M per plane extra margin to play with, so they can be agressive on pricing or enjoy high margins on future sales campaigns.
 
WIederling
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Re: Boeing 787 deferred production cost watch

Sun Aug 04, 2019 8:55 pm

JayinKitsap wrote:
I think the current orders fill out the production block. Soon Boeing will have $30M per plane extra margin to play with, so they can be aggressive on pricing or enjoy high margins on future sales campaigns.


They don't have $30m to play with.
( they would have had if they had done bookkeeping like Airbus has to do.
But then they would have been unable to show the plushy profit numbers from the past.)

I'd guess that the larger part of production cost reduction stems from heavily leaning on suppliers.
Fall Out from that ( snitching on quality, safety, ... ) is still to come.

Boeing can successfully be aggressive on pricing on a few select offers.
( especially if they can hide behind US dumping laws or new MAGA taxes.)

But that can't fix an overall (under)performance that blew massive amounts of money.
Boeing had presented the 787 as making real money ( not just via deferring prod. cost )
from day one! This will never materialize.
What project in the past needed 2000 frames to break even in real money?
Murphy is an optimist
 
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lightsaber
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Re: Boeing 787 deferred production cost watch

Sun Aug 04, 2019 9:34 pm

tealnz wrote:
Sure. Let's see how it plays out. My point is that current orders show a steep fall-off after 2021. Meaning the cost efficiencies of rate 14 are under pressure if the sales team can't do better than 100 sales a year from here out. Which presumably also means – what's your view? – that the margins available to fund the quarterly reductions in deferred production cost will also come under pressure. Depends a bit on whether Airbus get any serious traction with the 330neo squeezing the 787 from below.

As for the other sales candidates, we'll see. Too soon to call on AF. Ditto the NZ options (Luxon clearly expects the airline will look for something bigger to replace the 77W rather than go all-787). EK is anyone's guess. On performance to date I guess it's a bit too early to bet against the Boeing sales team 8-)

I found a link from February 2018 noting Boeing had empty late 2019 and plenty of 2020 slots:
https://australianaviation.com.au/2018/ ... ion-lapse/

So it looks like Boeing runs agresive on production.

Boeing will complete another 10 quarters a maximum production, current sales prices, and continued cost cutting.

They will certainly sell more. I agree they will eventually cut production, we are debating when. I see getting past the 17 quarters for paying off differed costs.

The more I think about it, the more the GE CMC PiP will help sales. I only do not mention RR as I do not have any insight into an equivalent PiP.

Lightsaber
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strfyr51
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Re: Boeing 787 deferred production cost watch

Mon Aug 05, 2019 12:12 am

scbriml wrote:
Turnhouse1 wrote:
So complete non accountant lack of understanding question, but do Boeing have a loan for $26Bn which they are repaying or did they just run up a charge on their balance sheet, either for an intangible asset or the physical tooling, which they're depreciating as they sell planes and actually get the money?


The money has been spent, but not allowed for in the accounts.

Effectively, Boeing has to work -$26+ billion thought the books as they deliver each 787. They could book it all in one quarter and take a huge paper loss, but that would have a massive negative impact on the share price and, more importantly, executives bonuses.

Cynical, me? :duck:


this is all internal accounting and accounting for Tax Purposes. Boeing hasn't lost a public DIME.
 
MIflyer12
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Re: Boeing 787 deferred production cost watch

Mon Aug 05, 2019 12:30 am

Sokes wrote:
It should be made law that each company below let's say 20% equity ratio has to state in it's letterhead it's equity ratio. As a supplier I can think what payment procedures I demand for such customers.
If finally a bank decides not to renew a credit they will demand to be paid first from whatever is recoverable in insolvency proceedings.


Every publicly-traded U.S. firm publishes a balance sheet regularly. Do you think Boeing's lenders, shareholders (it's majority institution-held) and bondholders are unfamiliar with its debt-to-equity ratio?
 
WBM
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Re: Boeing 787 deferred production cost watch

Mon Aug 05, 2019 4:09 am

MIflyer12 wrote:
Sokes wrote:
It should be made law that each company below let's say 20% equity ratio has to state in it's letterhead it's equity ratio. As a supplier I can think what payment procedures I demand for such customers.
If finally a bank decides not to renew a credit they will demand to be paid first from whatever is recoverable in insolvency proceedings.


Every publicly-traded U.S. firm publishes a balance sheet regularly. Do you think Boeing's lenders, shareholders (it's majority institution-held) and bondholders are unfamiliar with its debt-to-equity ratio?


I will just add a little bit to your reply. As someone who works on financial statements I will say that when banks or investors look at a balance sheet they have numbers they look to first. Total equity is not one of those numbers. To be honest it is not really meaningful in isolation. There are lot of reasons for this. A big part is that assets are recorded at the lower of cost or fair market value. That means assets are often under valued so equity is to. Accounting rules do not try to fix this. I think that is because rule makers know accounting can’t value a company, that is the market’s job.

As far as bankruptcy goes the only thing that matters is assets and liabilities. If a company has assets to pay liabilities and maintain operations it is not bankrupt. That is why auditors and rule making bodies focus a lot on liabilities and current assets.

The reason cash flow is so important is because cash doesn’t lie. It is hard to fake, and when combined with other factors it tells a story that is important to understand for investors.

Net profit is important, but the problem is it is possible to be profitable, and bankrupt. It happy all the time.
 
frmrCapCadet
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Re: Boeing 787 deferred production cost watch

Mon Aug 05, 2019 2:11 pm

Stock prices are based on something that does not yet exist. The future and its potential profits. Even today's assets may be worthless or worse per nuclear plants require costly cleanup. Buying stocks is betting that sometime in the future they will be worth more than buying gold or hiding money under the mattress.
Buffet: the airline business...has eaten up capital...like..no other (business)
 
United857
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Re: Boeing 787 deferred production cost watch

Mon Aug 05, 2019 3:35 pm

We need to distinguish between book equity, which is what is being referred to above, and the market value of equity.

Book equity is a reflection of the book value of assets (lower of cost or market value) minus book value of liabilities. This is highly inaccurate because assets can only be written down when values decrease, but are never written up when values increase. For example, the value of the land of the Boeing factory in Everett, WA is worth far more today than how much it cost back in the 60's when it was acquired, yet it is prohibited to write the value of that land up to market value (you are not even allowed to adjust for inflation). Thus the book value of equity is typically massively understated for companies as old as Boeing.

The market value of equity is what financial analysts are interested in, and is what the finance profession attempts to value. You either use a relative valuation method that uses ratios (i.e. P/E) to value the firm based on comparable firms in the same industry or an intrinsic valuation method, such as a DCF (discounted cash flow) valuation. In the DCF method, the market value of equity is the present value of all future cash flows to equity holders discounted at the risk-free rate.
A319 A320 A321 A333 A343 A346 A388 B712 B733 B737 B738 B739 B744 B748 B752 B764 B772 B77L B77W B788 CRJ2 E145 E17S E190 MD88 MD90
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9Patch
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Re: Boeing 787 deferred production cost watch

Mon Aug 05, 2019 4:53 pm

WIederling wrote:
What project in the past needed 2000 frames to break even in real money?

You're wrong, as usual.
Increasing the accounting block from 1000 to 2000 doesn't mean Boeing has to sell 2000 to break even on the program, and it doesn't mean the deferred costs doubled.
It means Boeing is spreading the deferred costs over more units.
Think of deferred costs as a pizza, whether you cut it into four slices or eight slices, it's still the same size pizza.
 
WIederling
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Re: Boeing 787 deferred production cost watch

Mon Aug 05, 2019 5:10 pm

9Patch wrote:
WIederling wrote:
What project in the past needed 2000 frames to break even in real money?

You're wrong, as usual.
Increasing the accounting block from 1000 to 2000 doesn't mean Boeing has to sell 2000 to break even on the program, and it doesn't mean the deferred costs doubled.
It means Boeing is spreading the deferred costs over more units.
Think of deferred costs as a pizza, whether you cut it into four slices or eight slices, it's still the same size pizza.


Outch.

Everything has a simple explanation that is patently wrong.
you've just made one of those :-)))))))
Murphy is an optimist
 
9Patch
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Re: Boeing 787 deferred production cost watch

Mon Aug 05, 2019 5:24 pm

    WIederling wrote:
    9Patch wrote:
    WIederling wrote:
    What project in the past needed 2000 frames to break even in real money?

    You're wrong, as usual.
    Increasing the accounting block from 1000 to 2000 doesn't mean Boeing has to sell 2000 to break even on the program, and it doesn't mean the deferred costs doubled.
    It means Boeing is spreading the deferred costs over more units.
    Think of deferred costs as a pizza, whether you cut it into four slices or eight slices, it's still the same size pizza.


    Outch.

    Everything has a simple explanation that is patently wrong.
    you've just made one of those :-)))))))

    Care to point out where I'm wrong and you're right?
    The fact that you chose not to is very telling.
     
    StTim
    Posts: 3401
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    Re: Boeing 787 deferred production cost watch

    Mon Aug 05, 2019 5:31 pm

    strfyr51 wrote:

    this is all internal accounting and accounting for Tax Purposes. Boeing hasn't lost a public DIME.



    Not true. What the Programme Accounting did is allow Boeing to declare profits in the early years when the huge deferred cost was being run up. Now however as the deferred cost is being wound down they are actually suppressing their profits by that amount.

    One interesting thing is it allowed profit to be declared in say 2015 $ but the deferred costs to be written down in say 2019 $ (which are worth less due to inflation). Now for Managers whose bonus is based on profits that is a neat trick - but allowed under the rules being followed.

    Given the large other programmes run by BCA and defence whether they would have actually gone into a loss making position for a quarter or two I am not sure - but it is published in Boeing's Accounts for those interested,

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