Bricktop
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Re: Bloomberg:Airbus Says It Must Slash A350 Costs to Win Wide-Body Price War

Fri Jun 21, 2019 2:59 pm

Sokes wrote:
VV wrote:
Strato2 wrote:
So this explains the slow reduction of the 787 deferred cost. Boeing seems to be throwing those planes out the door with very little profit and that is hurting Airbus. So a race to a bottom it seems.


Here we go again with the deferred production cost rubbish.


http://www.boeing.com/investors/account ... production

In 11 Quaters the sum of defered production cost and unamortised tooling and other non recurring cost came down from 31,380 billion $ to 24,561 billion $.
78.3% of defered production cost and unamortised tooling and other non recurring cost from 2Q16 is still not paid back.

I think it's a fair point to say that Boeing whith this amount of deferred costs shouldn't sell B787s cheap.

Is that a gross number or 787 specific? I.e. does it also include development of the 777X?
 
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Re: Bloomberg:Airbus Says It Must Slash A350 Costs to Win Wide-Body Price War

Fri Jun 21, 2019 3:13 pm

Sokes wrote:

In 11 Quaters the sum of defered production cost and unamortised tooling and other non recurring cost came down from 31,380 billion $ to 24,561 billion $.
78.3% of defered production cost and unamortised tooling and other non recurring cost from 2Q16 is still not paid back.

I think it's a fair point to say that Boeing whith this amount of deferred costs shouldn't sell B787s cheap.


Why does this bother you? Are you an investor? It seems it does not bother most other investors as Boeing stock has soared over those same 11 quarters. Maybe because they understand it is nothing more than an accounting exercise and that Boeing does not actually owe the money to anybody but themselves?

I tend to think that Airbus has to get overhead costs down. For example, there is no way running A320 assembly lines all around the world is as efficient as running one 737 production facility with nearly the same output. Too much overhead.`
 
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Re: Bloomberg:Airbus Says It Must Slash A350 Costs to Win Wide-Body Price War

Fri Jun 21, 2019 3:21 pm

Sokes wrote:
In 11 Quaters the sum of defered production cost and unamortised tooling and other non recurring cost came down from 31,380 billion $ to 24,561 billion $.
78.3% of defered production cost and unamortised tooling and other non recurring cost from 2Q16 is still not paid back.

I think it's a fair point to say that Boeing whith this amount of deferred costs shouldn't sell B787s cheap.


And in the most recent quarter (2019Q1) the 787 deferred production cost came down by over $900 million on 36 deliveries. Given that it seems unlikely the 787 will be obsolete in six years, Boeing's progress on amortizing deferred production cost seems acceptable. Moreover, management highlights the 787 (along with the 737, at least pre-MAX-grounding) as being a favorable contributor to profit margin.

lightsaber wrote:
This is a good point. Once five events happen, the 787 will be far more competitive:


That has to be what really keeps execs in Toulouse awake at night.
 
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Re: Bloomberg:Airbus Says It Must Slash A350 Costs to Win Wide-Body Price War

Fri Jun 21, 2019 3:22 pm

Bricktop wrote:
Sokes wrote:
VV wrote:

Here we go again with the deferred production cost rubbish.


http://www.boeing.com/investors/account ... production

In 11 Quaters the sum of defered production cost and unamortised tooling and other non recurring cost came down from 31,380 billion $ to 24,561 billion $.
78.3% of defered production cost and unamortised tooling and other non recurring cost from 2Q16 is still not paid back.

I think it's a fair point to say that Boeing whith this amount of deferred costs shouldn't sell B787s cheap.

Is that a gross number or 787 specific? I.e. does it also include development of the 777X?

The link is not a full financial report. It's only one page. In 10 seconds you get a better picture there than if I answer your question
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Re: Bloomberg:Airbus Says It Must Slash A350 Costs to Win Wide-Body Price War

Fri Jun 21, 2019 3:51 pm

Polot wrote:
Notice that they seem to be discussing more broad organizational changes than just learning how to screw apart some pieces quicker/cheaper.

Yes, people seem to be running with the A350 aritcle when it is just a follow on to:


which starts with:

Airbus SE is reviewing its jetliner factories across Europe as the group looks to trim costs and simplify a convoluted industrial structure resulting from its formation via a merger of national players.

The study, led by new commercial-aircraft Chief Operating Officer Michael Schöllhorn, will examine plane-building activities in France, Germany, Spain and the U.K. with the aim of making them more efficient and identifying surplus operations, people with knowledge of the matter said.

The review may result in restructurings, small disposals, or work being shifted to other locations, said the people, who asked not to be named discussing internal matters. They didn’t say whether a timetable had been set.

Note how none of this is specific to A350.

Sokes wrote:
I think it's a fair point to say that Boeing whith this amount of deferred costs shouldn't sell B787s cheap.

Every time Boeing pays deferred costs it writes a check to: Boeing!

No cash leaves the corporation.

It's totally up to Boeing to decide when/where/why/how to pay deferred costs since it's just paying itself.

If Boeing wants to do like Airbus and wait till production ends and do a reckoning then, they very well could.

Selling "cheap" increases production volume and drives down cost, and as far as we know, all 787s are now cash flow positive.
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Re: Bloomberg:Airbus Says It Must Slash A350 Costs to Win Wide-Body Price War

Fri Jun 21, 2019 3:56 pm

Airbus assembles planes at several plants, but so does Boeing. However Airbus's customers (like Qatar) don't refuse to accept planes made in Hamburg vs. Toulouse, and no ladders have ever been found in Airbus avionics compartments. Airbus makes wings in Broughton and have to bring them over by plane to their assembly plants. Boeing makes their wings in Japan, which is a lot farther from US than UK from France or Germany. Parts of 787 fuselages are made by Italian Alenia.

Where Airbus IS "less effective" is in cutting costs at the expense of safety. Boeing has at least a dozen whistleblowers who are suing the company for unlawful termination and claim they were fired after raising safety concerns. I sure hope Mr.Faury won't be following those footsteps.

As for Michael Schöllhorn, he comes from Bosch, a German company that was once the beacon of German quality. They then moved 90% of their production to China and are now in the league with... pretty much everyone else, having barely escaped the fate of DeLonghi and Hasselblad (damn you, Alessandrini!). I hope that won't be the Airbus way, either.

I'm of a humble opinion that those quotes were ripped out of context and used to create some sort of narrative that Bloomberg decided to support at the moment. "Slashing costs" is a very dangerous affair, and recent events prove how slippery they can be. Trying to be "effective" at any cost has never brought anything good.
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Re: Bloomberg:Airbus Says It Must Slash A350 Costs to Win Wide-Body Price War

Fri Jun 21, 2019 3:58 pm

Sokes wrote:
I think it's a fair point to say that Boeing whith[SIC] this amount of deferred costs shouldn't sell B787s cheap.


Only if you're an accountant with a bean-counter-only mindset. Clearly, these guys are balancing that off with other considerations, like giving the A350 a bloody nose in the market when they have the variable cost advantage.

That's what management is supposed to do.
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Re: Bloomberg:Airbus Says It Must Slash A350 Costs to Win Wide-Body Price War

Fri Jun 21, 2019 4:04 pm

mham001 wrote:
Sokes wrote:

In 11 Quaters the sum of defered production cost and unamortised tooling and other non recurring cost came down from 31,380 billion $ to 24,561 billion $.
78.3% of defered production cost and unamortised tooling and other non recurring cost from 2Q16 is still not paid back.

I think it's a fair point to say that Boeing whith this amount of deferred costs shouldn't sell B787s cheap.


Why does this bother you? Are you an investor? It seems it does not bother most other investors as Boeing stock has soared over those same 11 quarters. Maybe because they understand it is nothing more than an accounting exercise and that Boeing does not actually owe the money to anybody but themselves?

I tend to think that Airbus has to get overhead costs down. For example, there is no way running A320 assembly lines all around the world is as efficient as running one 737 production facility with nearly the same output. Too much overhead.`


http://s2.q4cdn.com/661678649/files/doc ... 9-10-Q.PDF
In the last quarterly report on page 5 Boeing shows equity of 232 million $. If I understand it right Boeing in it's history retained earnings of 58 billion $, but repurchased shares for 54 billion $. This may have contributed to the soaring stock price.Then there are other factors, which you can look up yourself. At any rate 232 million equity remains.

Page 3 shows assets and liabilities. Both are 120 billion $.
It's complicated. Enough to say that Boeing is not owing the money to itself.
Funny that a company who has a balance sheet of 120 billion $ and which makes more than 2 billion $ profit/ quarter has 232 million $ equity.
So no, I'm not an investor.

They have to keep paying their suppliers for 737MAX parts but don't get income from it. I hope they won't have a quarter with 232 million $ loss, for that would make them bankrupt. Similar to Bombardier, so to say.
In short: Boeing shouldn't sell B787s cheap. And they should adopt a more conservative accounting.

ScottB wrote:
And in the most recent quarter (2019Q1) the 787 deferred production cost came down by over $900 million on 36 deliveries. Given that it seems unlikely the 787 will be obsolete in six years, Boeing's progress on amortizing deferred production cost seems acceptable. Moreover, management highlights the 787 (along with the 737, at least pre-MAX-grounding) as being a favorable contributor to profit margin.

You are right. I just hope you are right for the next five years.
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Re: Bloomberg:Airbus Says It Must Slash A350 Costs to Win Wide-Body Price War

Fri Jun 21, 2019 4:05 pm

keesje wrote:
Michael Schöllhorn, presenting this report, has learned fast since joining the Airbus / Aerospace 6 months ago.

Seems that Airbus has put a lot of faith in the experience he is bringing with him:

Schöllhorn, 53, took over as COO at Airbus’s commercial aircraft arm on Feb. 1 after 20 years at German auto-parts and appliance specialist Bosch Group, including as executive vice president for manufacturing and quality.

An Airbus spokesman directed Bloomberg to Faury’s comments following Schöllhorn’s appointment, which emphasized his experience in digitalization, process optimization, manufacturing, quality and supply-chain management. Faury said at the time the new recruit would help reach “the next levels of production efficiency.”

Ref: https://www.bloomberg.com/news/articles ... lash-costs

It's interesting how Airbus is bringing in a Bosch expert to help them reach the next levels of production efficiency.

The article also mentions how they want to mirror automobile high volume manufacturing techniques.

Boeing seemed to go through a phase where they were mirroring Toyota's techniques.

Bottom line is if the result is less expensive airliners, cheaper tickets, and a more profitable aviation industry, I'm all for it.

ScottB wrote:
That has to be what really keeps execs in Toulouse awake at night.

That, plus:

Factories have also become a tool for spurring sales, with one in Tianjin, China, strategically located to encourage orders in what is set become the world’s largest travel market. Another in Mobile, Alabama, has served to counter sensitivities surrounding U.S. carriers buying planes from the European company over Chicago-based Boeing.

That makes Airbus’s European plants more vulnerable to rationalization. Executives have already said that U.K.-based wing construction could be jeopardized by Brexit, though the company has no comparable facilities elsewhere and a shift would require significant investment.

We can imagine a god awful row with a lot of yellow vests may be in the future.
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Re: Bloomberg:Airbus Says It Must Slash A350 Costs to Win Wide-Body Price War

Fri Jun 21, 2019 4:05 pm

Revelation wrote:
Polot wrote:
Notice that they seem to be discussing more broad organizational changes than just learning how to screw apart some pieces quicker/cheaper.

Yes, people seem to be running with the A350 aritcle when it is just a follow on to:


which starts with:

Airbus SE is reviewing its jetliner factories across Europe as the group looks to trim costs and simplify a convoluted industrial structure resulting from its formation via a merger of national players.

The study, led by new commercial-aircraft Chief Operating Officer Michael Schöllhorn, will examine plane-building activities in France, Germany, Spain and the U.K. with the aim of making them more efficient and identifying surplus operations, people with knowledge of the matter said.

The review may result in restructurings, small disposals, or work being shifted to other locations, said the people, who asked not to be named discussing internal matters. They didn’t say whether a timetable had been set.

Note how none of this is specific to A350.

Sokes wrote:
I think it's a fair point to say that Boeing whith this amount of deferred costs shouldn't sell B787s cheap.

Every time Boeing pays deferred costs it writes a check to: Boeing!

No cash leaves the corporation.

It's totally up to Boeing to decide when/where/why/how to pay deferred costs since it's just paying itself.

If Boeing wants to do like Airbus and wait till production ends and do a reckoning then, they very well could.

Selling "cheap" increases production volume and drives down cost, and as far as we know, all 787s are now cash flow positive.


End of story. Great write up. Wish there was a way write ups like this would flash on screen when term "deferred costs" are typed.

It will be interesting to see with the A380 running down production, USA and China finishing lines ramping up, how Airbus reshuffles. The A320s have locked in enormous cash flow and profit for decade+ to come, so they have flexibility to make the needed changed.
 
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Re: Bloomberg:Airbus Says It Must Slash A350 Costs to Win Wide-Body Price War

Fri Jun 21, 2019 4:22 pm

jeffrey0032j wrote:
ScottB wrote:
flee wrote:
Lets not forget that Boeing also has a different treatment for its costs. It is still carrying deferred production costs which have to be written off against each new frame of B787 produced. Airbus costs include all costs incurred. So that may help to explain why Boeing costs are apparently lower.

In reality, deferred production costs would inflate the cost of producing each 787 as that translates to Boeing's profit & loss (P&L) statement. If they actually spend, hypothetically, $80 million to manufacture a 787 and want to write off $20 million in deferred production costs per frame, that raises the notional production cost of a 787 to $100 million until they're done with writing off deferred production costs.

So it's actually pretty remarkable that Boeing has gotten costs down sufficiently (in large part by pressuring suppliers) to both price 787s very aggressively and be able to amortize the deferred production costs within a reasonable accounting block for the program. Imagine how much more competitive they could be if they hadn't royally screwed up the development program...

Yes, which is why there is an urgency at Airbus to cut costs. Once the current 787 accounting block comes to an end, any 787 off the line will be production costs + profits only. Adding in PIPs and additional production efficiencies, the 787 will get even cheaper and better.

Even though the A350 is some two years behind, it is imperative that they accelerate their cost reduction efforts. They know that Boeing will reap higher and higher profits as the deferred production costs are written off. Although there is no cash flow effect for Boeing, it has a great deal of influence on the selling prices of the B787s. And a low selling price will hurt the A350 if it cannot get its production costs down.
 
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Re: Bloomberg:Airbus Says It Must Slash A350 Costs to Win Wide-Body Price War

Fri Jun 21, 2019 4:26 pm

Revelation wrote:
If Boeing wants to do like Airbus and wait till production ends and do a reckoning then, they very well could.

I thought the A 380 was already through the books, but I'm not sure. Which plane do you refer to?
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Re: Bloomberg:Airbus Says It Must Slash A350 Costs to Win Wide-Body Price War

Fri Jun 21, 2019 4:42 pm

caljn wrote:
raffy wrote:
Well, according to Wikipedia, Boeing has delivered about 840 787's, while Airbus had delivered about 278 A350's. That's a 3 to 1 advantage in favor of Boeing for an aircraft that is equivalent to and perhaps, in some ways, even slightly inferior to the A350 performance-wise.

"Inferior" is an offensive, inelegant and inaccurate (in this case) word and its use reminds one of (nameless) politicians knowingly repeating lies until they become accepted. Are you an engineer? Please enlighten us with specificity where the objective "inferiority" lies.
And omit any sour grapes.


The value free term, as I have learned from reading this forum, is 'capable': i.e., the 777 is more capable than the 737 - it weighs more, holds more people, flies further, and can carry a lot of cargo. It costs more, burns more fuel, and is more expensive to fly, all of that is somewhat inclusive in the term 'capable'.

The 350 is more capable than the 787. Again not a 'value' term. If you need a plane a little bigger than the 787, and that can fly a little further the 350 is definitely a plane you might buy. If you don't need that capability you may be wasting some of your money when you buy it and when you fly it.

A good analogy is in vehicles - I have had big, medium, and small pickups and cars. Now in my old age I find the less capable and more comfortable RAV4s or CRVs as having just the right capability for us.
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Re: Bloomberg:Airbus Says It Must Slash A350 Costs to Win Wide-Body Price War

Fri Jun 21, 2019 4:44 pm

Sokes wrote:
Revelation wrote:
If Boeing wants to do like Airbus and wait till production ends and do a reckoning then, they very well could.

I thought the A 380 was already through the books, but I'm not sure. Which plane do you refer to?

Yes, Airbus took a $523M write off when they announced the A380 shut down, and Boeing could do a similar thing many many years in the future.

Given that Boeing is still making 737, 747 and 767 I think it might not be any time soon! :biggrin:
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Re: Bloomberg:Airbus Says It Must Slash A350 Costs to Win Wide-Body Price War

Fri Jun 21, 2019 5:01 pm

BREECH wrote:
Airbus assembles planes at several plants, but so does Boeing. However Airbus's customers (like Qatar) don't refuse to accept planes made in Hamburg vs. Toulouse, and no ladders have ever been found in Airbus avionics compartments. Airbus makes wings in Broughton and have to bring them over by plane to their assembly plants. Boeing makes their wings in Japan, which is a lot farther from US than UK from France or Germany. Parts of 787 fuselages are made by Italian Alenia.

Where Airbus IS "less effective" is in cutting costs at the expense of safety. Boeing has at least a dozen whistleblowers who are suing the company for unlawful termination and claim they were fired after raising safety concerns. I sure hope Mr.Faury won't be following those footsteps.

Interesting.....
 
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Re: Bloomberg:Airbus Says It Must Slash A350 Costs to Win Wide-Body Price War

Fri Jun 21, 2019 5:16 pm

Revelation wrote:
Sokes wrote:
Revelation wrote:
If Boeing wants to do like Airbus and wait till production ends and do a reckoning then, they very well could.

I thought the A 380 was already through the books, but I'm not sure. Which plane do you refer to?

Yes, Airbus took a $523M write off when they announced the A380 shut down, and Boeing could do a similar thing many many years in the future.

Given that Boeing is still making 737, 747 and 767 I think it might not be any time soon! :biggrin:

Yes, Boeing in the far future can close the B787 production line for a 523 million $ write off, provided they reduce their deferred production cost/ tooling by
24038 million $ till then.
I agree the B787 is a great plane. But at the moment Airbus and Boeing have big backlogs and markets can change. 7 good years, 7 bad years, to become biblical.
I'm wrong on another account: Boeing actually makes (or made) more than 2 billion $ profit/ quarter.
Let's compromise: Boeing isn't selling it's planes too cheap. But they should use their profits to reduce deferred costs instead of for share buybacks.
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Re: Bloomberg:Airbus Says It Must Slash A350 Costs to Win Wide-Body Price War

Fri Jun 21, 2019 5:18 pm

MIflyer12 wrote:
Sooner787 wrote:
I think winding down A380 production will go along way
towards reducing their overall costs.


That depends on where those costs go... Do you expect massive layoffs and factory closures? Or is Airbus just going to allocate those costs across other planes?

What is Airbus' obligation to those employees that were employed for A380 production?

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Re: Bloomberg:Airbus Says It Must Slash A350 Costs to Win Wide-Body Price War

Fri Jun 21, 2019 5:23 pm

BREECH wrote:
Airbus assembles planes at several plants, but so does Boeing. However Airbus's customers (like Qatar) don't refuse to accept planes made in Hamburg vs. Toulouse, and no ladders have ever been found in Airbus avionics compartments. Airbus makes wings in Broughton and have to bring them over by plane to their assembly plants. Boeing makes their wings in Japan, which is a lot farther from US than UK from France or Germany. Parts of 787 fuselages are made by Italian Alenia.

Where Airbus IS "less effective" is in cutting costs at the expense of safety. Boeing has at least a dozen whistleblowers who are suing the company for unlawful termination and claim they were fired after raising safety concerns. I sure hope Mr.Faury won't be following those footsteps.

As for Michael Schöllhorn, he comes from Bosch, a German company that was once the beacon of German quality. They then moved 90% of their production to China and are now in the league with... pretty much everyone else, having barely escaped the fate of DeLonghi and Hasselblad (damn you, Alessandrini!). I hope that won't be the Airbus way, either.

I'm of a humble opinion that those quotes were ripped out of context and used to create some sort of narrative that Bloomberg decided to support at the moment. "Slashing costs" is a very dangerous affair, and recent events prove how slippery they can be. Trying to be "effective" at any cost has never brought anything good.

Boeing was brutal with suppliers to cut costs. Later this year Boeing switches to 3D printed parts that save a further $2million to $3 million per 787.

I've seen a study on the A350 that showed how to save $1 million per A350 switching parts to 3D printing. It isn't as if Airbus doesn't adopt tech, the competitor was brutal in cost cutting which put the A350 at a disadvantage.

The upcoming PIPs will make the 787 even more competitive. I only know rumors of the weight removal, but every kg removed improves the value of an aircraft $500v(USD). Boeing is working to remove 2,500kg or a $1,250,000 value improvement or $210 million usd per year (for 168 B787s per year, assuming all models benefit). Boeing is working to improve MTOW.

Do not get hung up on IAM claims. Airlines demand extreame quality.

They all compete on economics. That can be fixed or variable costs. With 787s coming off the line in 3 years having cost reduction and value improvement of about $4 million per aircraft. The bar is moving.

Airbus must reduce the cost per A350. It is a great aircraft. But don't get hung up on fanboyism, it is too expensive to manufacture. Efficiency is relative.

Part of that is Boeing is trying to close the window for the C929. By obsoleting an aircraft before EIS, they can reduce Chinese state funding to COMAC.

Airlines like the 787. They like the A350. Unfortunately for Airbus, that means picking one over the other is just by business case.

Variable costs
Fixed costs
Revenue potential

We argue here over details that feed the above three criteria. At the end of the day, an airline sets up a large spreadsheet what simulates perhaps 200 missions. Each on cost to fly and revenue. The winner is the highest rate of returns.

The winning airlines now do system analysis where they bid off a hypothetical mixed fleet to maximize potential and put in risks such as a recession or a fuel price spike. So if, for example, QF is bidding a mix of A339/A359/A35K vs. 789/787-10/778/779, you do not get hung up on details, but buy the best mix of aircraft. It might be 789+A359+779 or any mix of the above.

These spreadsheets have part costs, engine costs, tire costs, financing, and everything that might change the decision (e.g., Airbus has tipped the scales on pilot training costs).

But to get serious, fixed costs must drop on the A359 and A35K.

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Re: Bloomberg:Airbus Says It Must Slash A350 Costs to Win Wide-Body Price War

Fri Jun 21, 2019 5:26 pm

par13del wrote:
BREECH wrote:
Airbus assembles planes at several plants, but so does Boeing. However Airbus's customers (like Qatar) don't refuse to accept planes made in Hamburg vs. Toulouse, and no ladders have ever been found in Airbus avionics compartments. Airbus makes wings in Broughton and have to bring them over by plane to their assembly plants. Boeing makes their wings in Japan, which is a lot farther from US than UK from France or Germany. Parts of 787 fuselages are made by Italian Alenia.

Where Airbus IS "less effective" is in cutting costs at the expense of safety. Boeing has at least a dozen whistleblowers who are suing the company for unlawful termination and claim they were fired after raising safety concerns. I sure hope Mr.Faury won't be following those footsteps.

Interesting.....



You've certainly throwing some shade there, please enlighten us as to the content of the unlawful termination litigation for context.
 
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Re: Bloomberg:Airbus Says It Must Slash A350 Costs to Win Wide-Body Price War

Fri Jun 21, 2019 5:51 pm

Sokes wrote:

http://s2.q4cdn.com/661678649/files/doc ... 9-10-Q.PDF
In the last quarterly report on page 5 Boeing shows equity of 232 million $. If I understand it right Boeing in it's history retained earnings of 58 billion $, but repurchased shares for 54 billion $. This may have contributed to the soaring stock price.Then there are other factors, which you can look up yourself. At any rate 232 million equity remains.

Page 3 shows assets and liabilities. Both are 120 billion $.
It's complicated. Enough to say that Boeing is not owing the money to itself.
Funny that a company who has a balance sheet of 120 billion $ and which makes more than 2 billion $ profit/ quarter has 232 million $ equity.
So no, I'm not an investor.

They have to keep paying their suppliers for 737MAX parts but don't get income from it. I hope they won't have a quarter with 232 million $ loss, for that would make them bankrupt. Similar to Bombardier, so to say.
In short: Boeing shouldn't sell B787s cheap. And they should adopt a more conservative accounting.


I'm no accountant but even I know that is so wrong. Do you know the difference between liabilities and debt? Loans? Current/long term liabilities? It is a good thing you don't invest....beyond that, this is off topic, Boeing is making good money selling the airplanes at the prices they are selling. Too bad, and no, Boeing would not go "bankrupt" under your scenario, ridiculous.
 
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Re: Bloomberg:Airbus Says It Must Slash A350 Costs to Win Wide-Body Price War

Fri Jun 21, 2019 5:53 pm

Sokes wrote:
Yes, Boeing in the far future can close the B787 production line for a 523 million $ write off, provided they reduce their deferred production cost/ tooling by
24038 million $ till then.

If they need to write it off sooner than the deferred costs go to zero, they have a lot bigger problems than the deferred cost.

Sokes wrote:
I agree the B787 is a great plane. But at the moment Airbus and Boeing have big backlogs and markets can change. 7 good years, 7 bad years, to become biblical.

737: 52-1 good years (because this year sucks for 737!)
747: 50 good years
767: 38 good years

Even 7 bad years will pay in to the deferred cost as long as they still are making them.

Sokes wrote:
Let's compromise: Boeing isn't selling it's planes too cheap. But they should use their profits to reduce deferred costs instead of for share buybacks.

Hmm, my 401K probably has some Boeing in it somewhere, as does pretty much every retirement plan in the US if not the world.

Perhaps we can agree that Boeing should try to avoid deferring $28B of costs on NMA like it did on 787? :biggrin:
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Re: Bloomberg:Airbus Says It Must Slash A350 Costs to Win Wide-Body Price War

Fri Jun 21, 2019 6:05 pm

Sokes wrote:
Revelation wrote:
Sokes wrote:
I thought the A 380 was already through the books, but I'm not sure. Which plane do you refer to?

Yes, Airbus took a $523M write off when they announced the A380 shut down, and Boeing could do a similar thing many many years in the future.

Given that Boeing is still making 737, 747 and 767 I think it might not be any time soon! :biggrin:

Yes, Boeing in the far future can close the B787 production line for a 523 million $ write off, provided they reduce their deferred production cost/ tooling by
24038 million $ till then.
I agree the B787 is a great plane. But at the moment Airbus and Boeing have big backlogs and markets can change. 7 good years, 7 bad years, to become biblical.
I'm wrong on another account: Boeing actually makes (or made) more than 2 billion $ profit/ quarter.
Let's compromise: Boeing isn't selling it's planes too cheap. But they should use their profits to reduce deferred costs instead of for share buybacks.


It's not an either or on Share buybacks or reduce Deferred Production costs on 787. Reducing 787 Deferred Production costs faster has no effect at all on how much Cash Boeing has to spend on Dividends, Share Buybacks, Future Investment or the 737 MAX fiasco compensation.

If you reduce deferred production costs faster all you do is reduce reported earnings. It has zero effect on how much Cash Boeing has to spend.

If you are looking for a better use of actual cash I would suggest upping investment in new product and investing in the reduction of production cost is a lot better idea than share repurchases as a way to improve future shareholder value but that is another discussion. The investment world is hooked on the placebo of short term EPS increases.
 
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Re: Bloomberg:Airbus Says It Must Slash A350 Costs to Win Wide-Body Price War

Fri Jun 21, 2019 6:06 pm

A little more on costs.
Production costs of an aircraft= Cost at rate 25 per year * 1.9093* Rate (per year)^-.201

So Boeing going from 13/month (144/year) to 168 per year should have reduced costs 4% or about $4 million per aircraft.
3D printing anoth $2 million to $ 3 million
Vendor concessions another $6 million or do (my best guess).
Or Boeing will reduce the cost per 787 by $12 million or more in 2 years. Airbus must compete.

Each 787 is cash flowing at over $20 million each prior to these cost reductions. Do the posts wishing it to go away or focusing on sunk costs are missing the point, Boeing doesn't have much debt. The differed costs are future tax deductions. At some point in 2020, Boeing will make $30 million in cash flow per 787 or Boeing cuts the sales price by say $10 million per aircraft.

It isn't that the A350 isn't a great aircraft, but it has two major faults:
1. Airbus didn't save enough at risk short term slots to win orders out long term. Boeing is selling 2030+ slots today by offering 2020 or 2021 delivery. So stop the talk on can Boeing sell. They will. Airbus will to.
2. Cost estimates to build and flight test (to delivery center) on the 787 are all over the map, but about $85 to $95 million seem about right. That drops to $72 to $84 million at the end of 2020, versus estimates on the A350 of $105 to $125 for A359, with an inherent learning curve drop if $12 to $15 million or $95 to $110 million at the end of 2020.

So the A350, by my estimates, costs $20 to $24 million USD more to make than a competing 787-10. After the empty weight drop and MTOW increase, the revenue potential converges (still some difference, but less).

At this time, an A350 must save in variable costs or generate in revenue about $2.5 million per year or $200k+ per month to pay for the difference in manufacturing costs.

Ouch.
I see ways for Airbus to cut costs per aircraft if $10 million more.

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Re: Bloomberg:Airbus Says It Must Slash A350 Costs to Win Wide-Body Price War

Fri Jun 21, 2019 6:19 pm

lightsaber wrote:
I only know rumors of the weight removal, but every kg removed improves the value of an aircraft $500v(USD). Boeing is working to remove 2,500kg or a $1,250,000 value improvement or $210 million usd per year (for 168 B787s per year, assuming all models benefit).

All those numbers are some theorhetical marketing blurb not much different than "peak power" they used to put on stereos in the 90s. Even if it were true, which it isn't, it's the improvement of value for the airline, not for Boeing. So you can't calculate this as "for 168 per year".

lightsaber wrote:
So the A350, by my estimates, costs $20 to $24 million USD more to make than a competing 787-10.
Ouch.

You do remember that A350 is a much larger airliner?
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Re: Bloomberg:Airbus Says It Must Slash A350 Costs to Win Wide-Body Price War

Fri Jun 21, 2019 6:43 pm

Revelation wrote:
It's totally up to Boeing to decide when/where/why/how to pay deferred costs since it's just paying itself.

If Boeing wants to do like Airbus and wait till production ends and do a reckoning then, they very well could.

I was under the impression that Airbus wrote off their deferred costs at the beginning of the program, not at the end.
Or are you referring to other costs of shutting down a program, not deferred costs?
 
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Re: Bloomberg:Airbus Says It Must Slash A350 Costs to Win Wide-Body Price War

Fri Jun 21, 2019 6:48 pm

BREECH wrote:
lightsaber wrote:
I only know rumors of the weight removal, but every kg removed improves the value of an aircraft $500v(USD). Boeing is working to remove 2,500kg or a $1,250,000 value improvement or $210 million usd per year (for 168 B787s per year, assuming all models benefit).

All those numbers are some theorhetical marketing blurb not much different than "peak power" they used to put on stereos in the 90s. Even if it were true, which it isn't, it's the improvement of value for the airline, not for Boeing. So you can't calculate this as "for 168 per year".

Value is important and is what wins orders. An airline may accept paying say $20 million more for today’s A350 versus today’s 787. Will they accept paying $20 million more for tomorrow’s A350 vs tomorrow’s 787? The answer to that all depends on what you are getting for your money with each aircraft, and what the airline actually needs.

BREECH wrote:
lightsaber wrote:
So the A350, by my estimates, costs $20 to $24 million USD more to make than a competing 787-10.
Ouch.

You do remember that A350 is a much larger airliner?

The A359 is not a much larger airliner than the 787-10.
 
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Re: Bloomberg:Airbus Says It Must Slash A350 Costs to Win Wide-Body Price War

Fri Jun 21, 2019 7:20 pm

BREECH wrote:
lightsaber wrote:
I only know rumors of the weight removal, but every kg removed improves the value of an aircraft $500v(USD). Boeing is working to remove 2,500kg or a $1,250,000 value improvement or $210 million usd per year (for 168 B787s per year, assuming all models benefit).

All those numbers are some theorhetical marketing blurb not much different than "peak power" they used to put on stereos in the 90s. Even if it were true, which it isn't, it's the improvement of value for the airline, not for Boeing. So you can't calculate this as "for 168 per year".

lightsaber wrote:
So the A350, by my estimates, costs $20 to $24 million USD more to make than a competing 787-10.
Ouch.

You do remember that A350 is a much larger airliner?

The value is indeed value for the airline. For Air New Zealand, I believe it made all the difference.

Yes, I do know the 787-10 and A359 compete closely. It is larger. But that cost different is enough to change the business case.

As I noted earlier:
Fixed costs
Variable costs
Revenue potential

The A350 has some additional revenue potential. If that is well above the $200,000 per month in lease costs (my estimate), it sells. If not the 787 sells.

At some point the business case is go bigger to a 779.

We like to talk comfort, but comfort is just one sub part of revenue potential. For example, DL has done a better job than most garnering premium Y revenue. So I can see them preferring an A350 or A330 over a 787 for revenue potential. AA hasn't done a good job earning premium Y, so the 9-across 787 cuts costs, hence their 788 order (that pretty much required Boeing to cut $12 million per aircraft in costs, per my estimate of the sales price).

So many here talk in absolutes on so many issues that are but one to three cells of the decision spreadsheet. I've had the privilege of being handed customer spreadsheets. After getting a few, one designs an aircraft to be the best for those customers. Then one looks at growth potential and intentionally compromises the aircraft to add future growth (say structure to enable future fuel or stretch, a la 777).

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Re: Bloomberg:Airbus Says It Must Slash A350 Costs to Win Wide-Body Price War

Fri Jun 21, 2019 7:23 pm

lightsaber wrote:
jeffrey0032j wrote:
ScottB wrote:

In reality, deferred production costs would inflate the cost of producing each 787 as that translates to Boeing's profit & loss (P&L) statement. If they actually spend, hypothetically, $80 million to manufacture a 787 and want to write off $20 million in deferred production costs per frame, that raises the notional production cost of a 787 to $100 million until they're done with writing off deferred production costs.

So it's actually pretty remarkable that Boeing has gotten costs down sufficiently (in large part by pressuring suppliers) to both price 787s very aggressively and be able to amortize the deferred production costs within a reasonable accounting block for the program. Imagine how much more competitive they could be if they hadn't royally screwed up the development program...

Yes, which is why there is an urgency at Airbus to cut costs. Once the current 787 accounting block comes to an end, any 787 off the line will be production costs + profits only. Adding in PIPs and additional production efficiencies, the 787 will get even cheaper and better.

This is a good point. Once five events happen, the 787 will be far more competitive:
1. Differed costs paid off or enough sales happen to extend the block.
2. 787-10 production ramps up. There are still links in the transition.
3. Weight reduction PIP occurs (rumored 2.5 tons)
4. MTOW increase occurs (rumored 6 tons)
5. GE CMC PIP from GE9x happens (I assume RR will follow, but when?)

I also believe the 778/9 will pressure A350-1000 pricing. We can debate until we are blue, but Boeing has sandwhiched the A350.

Lightsaber

Not forgetting that Boeing will most likely make the 788 more common with the 789. That will drive down production costs and possibly improve the performance of the 788. If this is timed properly, the long range 332 replacement market could be dominated by 788s, the 333/772 by a mix of 789 (long haul) and 78X (regional/transatlantic). And thus, while many are thinking that Airbus could squeeze the 787 with the 330neo and 350, I see it as the 330 being edged out of any market other than a painful 16in 9 abreast layout, and the 350 being squeezed by an improved 787 and 777X. Add in a possible NMA, and the future for the A330 starts to look less rosy.

And we could possibly see the improved production methods from the NMA being implemented on the 787 and 777X lines, even if the NMA doesn't come to fruition.
 
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Re: Bloomberg:Airbus Says It Must Slash A350 Costs to Win Wide-Body Price War

Fri Jun 21, 2019 7:27 pm

Polot wrote:
The A359 is not a much larger airliner than the 787-10.

60 tons difference in MTOW, 10 tons difference in payload... that's 20% in my book. Oh, and a foot of fuselage width.
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Re: Bloomberg:Airbus Says It Must Slash A350 Costs to Win Wide-Body Price War

Fri Jun 21, 2019 8:01 pm

BREECH wrote:
Polot wrote:
The A359 is not a much larger airliner than the 787-10.

60 tons difference in MTOW, 10 tons difference in payload... that's 20% in my book. Oh, and a foot of fuselage width.

Now estimate the revenue benefit and variable cost difference. Discuss the business case.

For DL TPAC, I see your point. But UA flies 787s to North China as that is the best solution.

If bigger is better, compare to the 779, very optimized for payload at range. Wider too.

The example is taxis. My father always wants the cheapest Uber or taxi and complains if the car is too small. I go cheap most days, but if I want big, I have a limo service. What are customers willing to pay for? The answer is airline and even route specific.

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Re: Bloomberg:Airbus Says It Must Slash A350 Costs to Win Wide-Body Price War

Fri Jun 21, 2019 8:03 pm

mham001 wrote:
I'm no accountant but even I know that is so wrong. Do you know the difference between liabilities and debt? Loans? Current/long term liabilities? It is a good thing you don't invest....beyond that, this is off topic, Boeing is making good money selling the airplanes at the prices they are selling. Too bad, and no, Boeing would not go "bankrupt" under your scenario, ridiculous.


Assuming that I don't understand the difference between liability and debt:
Do you suggest that my statements are wrong or that Boeing is owing the money to itself?

I agree Boeing won't get bankrupt. I exaggerated to make a point that a company of the size of Boeing shouldn't spend huge amounts on share buybacks when according to the books they are close to bankruptcy.
I'm amazed everybody defends the Boeing management. Criticizing the Boeing management is not the same as being hostile to Boeing.

Revelation wrote:
...
737: 52-1 good years (because this year sucks for 737!)
747: 50 good years
767: 38 good years

Even 7 bad years will pay in to the deferred cost as long as they still are making them.

Sokes wrote:
Let's compromise: Boeing isn't selling it's planes too cheap. But they should use their profits to reduce deferred costs instead of for share buybacks.

Hmm, my 401K probably has some Boeing in it somewhere, as does pretty much every retirement plan in the US if not the world.

Perhaps we can agree that Boeing should try to avoid deferring $28B of costs on NMA like it did on 787? :biggrin:


When Rome was sacked everbody was surprised. It wasn't sacked for much longer than 50 years.
And who would have thought at Comet's time how British aviation is going to fare?
The book "How nations fail" gives a fabulous account how Venice in a rather short time lost it's importance.
I don't believe in predicting the future out of 50 year charts. Wealth is always at risk, mostly from stupid decisions from top.

Please don't take this personal, but I have to become polemic now:
Robert Reich wrote in one of his books that he was always told not to touch Wall Street. As a German I was puzzled. I assume it is the way your retirements are structured. By the time you are 45 or so you become obsessed with the value of your retirement and become traitors of your class.
Which might explain why everybody here defends the Boeing management.

I wish Boeing well for it's NMA. I also think the plane is needed and hope for a smooth development.


morrisond wrote:
...
If you reduce deferred production costs faster all you do is reduce reported earnings. It has zero effect on how much Cash Boeing has to spend.
...
If you are looking for a better use of actual cash I would suggest upping investment in new product and investing in the reduction of production cost is a lot better idea than share repurchases as a way to improve future shareholder value

Reduced earning means less money extracted for share buybacks. So I disagree.

Amen for the second part.
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Re: Bloomberg:Airbus Says It Must Slash A350 Costs to Win Wide-Body Price War

Fri Jun 21, 2019 8:10 pm

BREECH wrote:
Polot wrote:
The A359 is not a much larger airliner than the 787-10.

60 tons difference in MTOW, 10 tons difference in payload... that's 20% in my book. Oh, and a foot of fuselage width.

So all that does not put the A350 in a different class like more 777-200ER, I guess not when you are saying it is superior to the 787.
 
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Re: Bloomberg:Airbus Says It Must Slash A350 Costs to Win Wide-Body Price War

Fri Jun 21, 2019 8:11 pm

How much of the cost is under control of the aircraft manufacturers? Are engines? Cabin furnishings?
 
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Re: Bloomberg:Airbus Says It Must Slash A350 Costs to Win Wide-Body Price War

Fri Jun 21, 2019 8:17 pm

BREECH wrote:
Polot wrote:
The A359 is not a much larger airliner than the 787-10.

60 tons difference in MTOW, 10 tons difference in payload... that's 20% in my book. Oh, and a foot of fuselage width.

A foot in fuselage width (actually only 5” when you look at interior width) that only means extra passengers if you are willing to go to 10 abreast in Y. Which fine, but A.net opinion will then have to do a 180 in regards to interior comfort between the jets ;) Why not mention the 5’ in length the 787-10 has on the A359?

10t and 60 t higher MTOW is only nice if you need it (and has nothing to do with size). If not...will then the 787-10 starts to look mighty appealing.
 
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Re: Bloomberg:Airbus Says It Must Slash A350 Costs to Win Wide-Body Price War

Fri Jun 21, 2019 8:24 pm

Sokes wrote:

morrisond wrote:
...
If you reduce deferred production costs faster all you do is reduce reported earnings. It has zero effect on how much Cash Boeing has to spend.
...
If you are looking for a better use of actual cash I would suggest upping investment in new product and investing in the reduction of production cost is a lot better idea than share repurchases as a way to improve future shareholder value

Reduced earning means less money extracted for share buybacks. So I disagree.

Amen for the second part.


Paying off "deferred production" is nothing more than moving money from one Boeing pocket to another Boeing pocket - unlike paying off a creditor. Boeing still has all of the cash and can use it to buy back stock or anything else for that matter. So in this case it does NOT mean less money extracted for share buybacks.
 
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Re: Bloomberg:Airbus Says It Must Slash A350 Costs to Win Wide-Body Price War

Fri Jun 21, 2019 8:31 pm

When a new management arrives it always focus on costs reduction. It's just the easy and quick thing to decide and do. It takes time for a new management to understand other factors that could negatively impact sales. This always happen like this, in all the industries.
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Re: Bloomberg:Airbus Says It Must Slash A350 Costs to Win Wide-Body Price War

Fri Jun 21, 2019 9:07 pm

Sokes wrote:
I agree Boeing won't get bankrupt. I exaggerated to make a point that a company of the size of Boeing shouldn't spend huge amounts on share buybacks when according to the books they are close to bankruptcy.


Looking at an equity number of $232 million and declaring that means they're close to bankruptcy shows near-zero understanding of a balance sheet. All that tells us is that the company has been returning most excess capital to its shareholders. Holding on to cash isn't going to pay down deferred production cost simply because the deferred production cost was expended years ago -- funded out of cash flow and/or debt at the time of the program development. That deferred production cost right now sits on the balance sheet as an ASSET -- it is part of the company's inventories.

Sure, they could pay down some debt but Boeing's long-term debt is pretty modest for a company with $15 billion per year in operating cash flow.

Sokes wrote:
And who would have thought at Comet's time how British aviation is going to fare?


The biggest risks to Boeing (and Airbus, for that matter) are macroeconomic and regulatory. The latter IMO would include climate-related virtue-signaling taxes which would seriously impact the viability of air travel. I think it will be incredibly difficult for any new manufacturer in the next two decades to significantly disrupt the market given that Airbus and Boeing have subsumed the two largest threats on the low end and given that the widebody space has a much higher barrier to entry. Given recent history with the SSJ, ARJ, and C919, it seems likely the CR929 may struggle to enter service before 2030.

BREECH wrote:
Oh, and a foot of fuselage width.


A foot of fuselage width (and it's actually only 19 cm, or a bit under 8 in) is no advantage if you can't use it to squeeze in an additional seat per row or more containers in the cargo hold. The A350 cabin is only 5 in wider, and unless you can get passengers to pay more for half an inch of seat width, the operator is eating the costs of more weight and bigger drag for no additional revenue.

BREECH wrote:
60 tons difference in MTOW, 10 tons difference in payload


This is only meaningful for carriers who need the additional payload/range and are willing to accept the higher acquisition and operating costs to get them.
 
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Re: Bloomberg:Airbus Says It Must Slash A350 Costs to Win Wide-Body Price War

Fri Jun 21, 2019 9:13 pm

Dupli wrote:
How much of the cost is under control of the aircraft manufacturers? Are engines? Cabin furnishings?

Which is why Boeing has been 'incentivising' it's engine OEM's, to get sales over the line, effectively sharing it's cost of production savings with them (and by default choosing a 'winner' when 2 engine choices). The engine OEM's will need to shape up, or one will be owned by Boeing and Airbus respectively.

Boeing has had to, by default, become more vertically integrated. A considerable number of 787 and 748 suppliers have triggered escape clauses, requiring Boeing to acquire specialised equipment and even building leases and staff.

Are all these costs being charged to the aircraft model, or kept at original contract levels with the difference absorbed elsewhere?
 
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Re: Bloomberg:Airbus Says It Must Slash A350 Costs to Win Wide-Body Price War

Fri Jun 21, 2019 9:21 pm

Revelation wrote:

If Boeing wants to do like Airbus and wait till production ends and do a reckoning then, they very well could.


Except that is not how Airbus does it and you should know that. Airbus takes the hits as they come.
 
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Re: Bloomberg:Airbus Says It Must Slash A350 Costs to Win Wide-Body Price War

Fri Jun 21, 2019 9:31 pm

smartplane wrote:
Boeing has had to, by default, become more vertically integrated. A considerable number of 787 and 748 suppliers have triggered escape clauses, requiring Boeing to acquire specialised equipment and even building leases and staff.

Are all these costs being charged to the aircraft model, or kept at original contract levels with the difference absorbed elsewhere?


From an accounting standpoint, if Boeing is buying equipment/tooling/operations from (former) suppliers, these would go on the books as assets while the cash would be subtracted from the corresponding line item. If they're paying in excess of fair market value for any of these operations or equipment, they might have to add to their goodwill item. Equipment or tooling would be depreciated as usual (and may be charged against unamortized program assets) while they'd record the actual production cost of parts rather than the amount paid to the suppliers for said parts.
 
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Re: Bloomberg:Airbus Says It Must Slash A350 Costs to Win Wide-Body Price War

Fri Jun 21, 2019 9:42 pm

Sokes wrote:
Please don't take this personal, but I have to become polemic now:
Robert Reich wrote in one of his books that he was always told not to touch Wall Street. As a German I was puzzled. I assume it is the way your retirements are structured. By the time you are 45 or so you become obsessed with the value of your retirement and become traitors of your class.
Which might explain why everybody here defends the Boeing management.

I wish Boeing well for it's NMA. I also think the plane is needed and hope for a smooth development.

Don't take this personally either, but to use an American expression, I think you're over thinking this a bit.

Personally, I think A vs B is more tribalism than fiscal self interest.

If your explanation held we wouldn't see the the fervent tribalism of the Team A players most of whom have state pensions.

But like your post, this is just my opinion.
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Re: Bloomberg:Airbus Says It Must Slash A350 Costs to Win Wide-Body Price War

Fri Jun 21, 2019 10:00 pm

ScottB wrote:
smartplane wrote:
Boeing has had to, by default, become more vertically integrated. A considerable number of 787 and 748 suppliers have triggered escape clauses, requiring Boeing to acquire specialised equipment and even building leases and staff.

Are all these costs being charged to the aircraft model, or kept at original contract levels with the difference absorbed elsewhere?


From an accounting standpoint, if Boeing is buying equipment/tooling/operations from (former) suppliers, these would go on the books as assets while the cash would be subtracted from the corresponding line item. If they're paying in excess of fair market value for any of these operations or equipment, they might have to add to their goodwill item. Equipment or tooling would be depreciated as usual (and may be charged against unamortized program assets) while they'd record the actual production cost of parts rather than the amount paid to the suppliers for said parts.

Thanks Scott, but my thinking aloud question, is if Boeing acquires said production facilities, presumably product 787 is invoiced for the contracted price/s as negotiated with the original supplier, even if less than the cost to produce. Does product 787 wear the loss, or another Boeing business unit or cost centre? Ditto 748?

In other words, are the 'real' 787 cost reductions the same as the published reductions? Clearly massive reductions have been achieved, but is there an element of over statement? Likewise, is the 748 in reality much closer to breakeven or loss?
 
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Re: Bloomberg:Airbus Says It Must Slash A350 Costs to Win Wide-Body Price War

Fri Jun 21, 2019 10:09 pm

So is there any information on what Airbus actually plans to do to reduce A350 production costs? The sales gap between the A350 and 787 certainly implies that sales would benefit from lower production costs.

Long lead times don’t appear to be an issue with A350 in the last 3 years:
  • starlux secured 2021 delivery slots with their 2019 order
  • Turkish got 2020 slots with their 2018 order
  • China Southern go 2019 slots with their 2017 order
 
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Re: Bloomberg:Airbus Says It Must Slash A350 Costs to Win Wide-Body Price War

Fri Jun 21, 2019 11:02 pm

jeffrey0032j wrote:
And thus, while many are thinking that Airbus could squeeze the 787 with the 330neo and 350, I see it as the 330 being edged out of any market other than a painful 16in 9 abreast layout, and the 350 being squeezed by an improved 787 and 777X. Add in a possible NMA, and the future for the A330 starts to look less rosy.


I don't see mentioned - in the last twenty posts from the end - the problem of costs of building both A330neos and A350s. Rather than a pincer move on 787 this can be seen as diluting volumes for both 330neos and A350 (and duplicating tooling costs). They're not going to build aircraft with a lot fewer employees (politically impossible) or with lower wages and benefits as Boeing got in S Carolina (ditto).
 
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Re: Bloomberg:Airbus Says It Must Slash A350 Costs to Win Wide-Body Price War

Fri Jun 21, 2019 11:23 pm

Dupli wrote:
How much of the cost is under control of the aircraft manufacturers? Are engines? Cabin furnishings?

That depends on how you define control.

Engines are launched under brutal contracts that usually have them going out the door at a loss where parts and support help.

Cabin furnishings are becoming fewer sourced to cut costs. Zodiac has industry leading lavatory designs that cut weight and are cheaper to manufacture, if done right.

Much if the cost is engineered at design. One reason 3D printing works so well on the 787 is correcting designs that are bad from a manufacturing cost perspective when previously cast, machined, coated, and assembled.

Management's job is to identify big cost savings. The A350 has some rediculously expensive parts in the landing gear area. Don't get me wrong, absolutely brilliant in design, they just cost too much to make. In fact, to save money aluminum is currently being used. 3D printing out of titanium will save $180k per aircraft as while the material costs more, the manufacturing is where the cost is. At design, there was no way to 3D print those parts.

There is cost to be reduced from all aircraft. For example, the redesign of the MRJ is getting cheaper fuel subsystem components. Not a big deal, but every bit helps.

To make engines cheaper, Pratt vertically assembles them now. IIRC, it saves about 300 labor hours per engine, but cost a few hundred million dollars for the assembly line and partial design for vertical assembly.

Now that it is an assembly line, one may optimize each subset of stations and then accelerate the line. Just having on a line enables 100 to 150 labor hours of future optimization per engine.

The 787, 777x, and future NMA are doing tremendous wing assembly optimization. Once upon a time, over two thirds of the injuries in an aircraft factory were at wing assembly. That forced automation in modern countries as lost day injuries are expensive. Now the next level of automation is going through at Mitsubishi and Boeing. The A350 has a great wing, but one reason Boeing is going insane on production volumes (787 at 168, 777x planned at 100+, NMA at high volume) is to pay for the billions of USD in tooling. Part if that heafty differed production cost of the 787 was to throw away hundreds of millions in tooling and replace with a billion+ that does stuff cheaper. Much at Spirit.

Barrel stuffing is finally realizing its potential in cost cutting. We're seeing aircraft never designed for barrel stuffing being stuffed.

This is a perpetual event on cost cutting. Because of the NMA/A330/787/A350/C929/777x Dynamics, it is just an unusually brutal round.

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Absynth
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Re: Bloomberg:Airbus Says It Must Slash A350 Costs to Win Wide-Body Price War

Fri Jun 21, 2019 11:33 pm

MIflyer12 wrote:
jeffrey0032j wrote:
And thus, while many are thinking that Airbus could squeeze the 787 with the 330neo and 350, I see it as the 330 being edged out of any market other than a painful 16in 9 abreast layout, and the 350 being squeezed by an improved 787 and 777X. Add in a possible NMA, and the future for the A330 starts to look less rosy.


I don't see mentioned - in the last twenty posts from the end - the problem of costs of building both A330neos and A350s. Rather than a pincer move on 787 this can be seen as diluting volumes for both 330neos and A350 (and duplicating tooling costs). They're not going to build aircraft with a lot fewer employees (politically impossible) or with lower wages and benefits as Boeing got in S Carolina (ditto).


The A330neo was a strategic mistake if you ask me. The A330 is 8 abreast yet hardly smaller than the 9 abreast 787. They should have taken their time and invest in a ground-up, smaller and more efficient 8 abreast plane that would sit better between the 321 and 350. It could have launched around the same timeframe as the 797. Cost may be one thing keeping buyers away from the 350, but it needs a more efficient, smaller brother as well.
 
9Patch
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Re: Bloomberg:Airbus Says It Must Slash A350 Costs to Win Wide-Body Price War

Fri Jun 21, 2019 11:49 pm

Strato2 wrote:
Revelation wrote:

If Boeing wants to do like Airbus and wait till production ends and do a reckoning then, they very well could.

Except that is not how Airbus does it and you should know that. Airbus takes the hits as they come.

We also know that Airbus is trying to get thier government launch aid forgiven, so they don't have to take that hit.
 
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lightsaber
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Re: Bloomberg:Airbus Says It Must Slash A350 Costs to Win Wide-Body Price War

Sat Jun 22, 2019 12:02 am

Absynth wrote:
MIflyer12 wrote:
jeffrey0032j wrote:
And thus, while many are thinking that Airbus could squeeze the 787 with the 330neo and 350, I see it as the 330 being edged out of any market other than a painful 16in 9 abreast layout, and the 350 being squeezed by an improved 787 and 777X. Add in a possible NMA, and the future for the A330 starts to look less rosy.


I don't see mentioned - in the last twenty posts from the end - the problem of costs of building both A330neos and A350s. Rather than a pincer move on 787 this can be seen as diluting volumes for both 330neos and A350 (and duplicating tooling costs). They're not going to build aircraft with a lot fewer employees (politically impossible) or with lower wages and benefits as Boeing got in S Carolina (ditto).


The A330neo was a strategic mistake if you ask me. The A330 is 8 abreast yet hardly smaller than the 9 abreast 787. They should have taken their time and invest in a ground-up, smaller and more efficient 8 abreast plane that would sit better between the 321 and 350. It could have launched around the same timeframe as the 797. Cost may be one thing keeping buyers away from the 350, but it needs a more efficient, smaller brother as well.

I agree. I worked on a more efficient 8-abreast aircraft for Airbus in 2000.

Instead they launched the A380.

There are too many widebodies in production. I'll ignore the quads and still there are too many. When you add the NMA, if launched, I see quite a brutal market. Perhaps why Boeing was brutal on 787 costs?

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Ruscoe
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Re: Bloomberg:Airbus Says It Must Slash A350 Costs to Win Wide-Body Price War

Sat Jun 22, 2019 12:03 am

ITSTours wrote:
Is it Boeing doing well on cost reduction, or is it Airbus doing badly?
Or both?


That's a good question. Taking away the MAX debacle, looking at their figures, they obviously have been doing some serious cost reductions. Several years ago, Boeing came to the conclusion that Airbus can build airplanes as well as they can, so the way to win is on price.
I believe the labour/industrial situation in the USA will allow Boeing to do this.
This might mean Airbus has to base more production in the USA, and this is where the structure of Airbus with France and Germany, along with Spain holding enough shares to give them a lot of influence, may let them down.
I know it is a hard one, for those not politically minded, but a lot of the "talk" by the new senior management at Airbus seems to have a larger political element than it should have.
Imagine if it became obvious that in order to increase efficiency that the Frenchs Airbus production had to move to Germany, how likely that would be to happen, so what chance moving Airbus production to the USA. I know about the 321, but that is a side show.
Specifically for the A350, I think the problem is that the remaining 600 or so 350's to produce have been sold with too little margin, in order to take the sale from the 787, and hence the need to cut costs, to save it.
It is not just that Airbus have to cut costs to sell the 350's. it is that they have to cut costs to make any decent money on the ones they have already sold, as well as procure future sales.
The root cause of Airbus 350 problems is very basic, it is the structure of the ownership, not the aircraft.
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seabosdca
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Re: Bloomberg:Airbus Says It Must Slash A350 Costs to Win Wide-Body Price War

Sat Jun 22, 2019 12:44 am

lightsaber wrote:
3. Weight reduction PIP occurs (rumored 2.5 tons)


:eyepopping:

That's one I hadn't heard before. A 2.5 t lighter 787-9 with 260 t MTOW is going to make a serious run at the current 280 t A350-900 with respect to payload range. And those changes will meaningfully expand the universe of TPAC and long TATL missions the 787-10 can fly with an economic payload.

Airbus has been very good at incremental improvement and I'm sure it's not standing still either, though.

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