Obviously the Max is nothing but a huge cash drain, can’t see how the 747-8 makes money, the 777 8/ 9 are years from being in the black and the 787 really can’t hope to cover its development costs

That leaves the... 767 and 777 freighters ?

Individually, none of of these programs are a major concern on their own. However, when put together, Boeing's outlook is nothing short of a catastrophe.

The 787 is now bringing in cash, it's just that they can't book it as a profit right now as they already did that back when the deferred costs were growing and growing. With the deferred costs now being reduced with over a billion dollar every quarter it's all money coming in that has now has to be booked as a loss.

The 737 is of course not bringing in any money anymore as there are no civilian 737 NG deliveries left. But when Boeing will be able to start to deliver the MAX they will be able to deliver both the new produced planes + the currently stores planes for quite some time, bringing in more money from that exact moment than if there would have been no grounding. That's probably one of the main reasons why the stock price has held up as much as it did after the initial decline when the grounding started.

Another source of income are the service contracts, which is only partly related to new deliveries. More deliveries is more contracts, but there are far more already delivered planes.

While not a civilian aircraft, technically, you could argue that the KC-46 belongs on the list, too, being derived from the 767. And it’s basically grounded with no end in sight.

sonicruiser wrote:

Individually, none of of these programs are a major concern on their own. However, when put together, Boeing's outlook is nothing short of a catastrophe.

You and the OP need to learn how to read an income statement.

As a whole, Being 3Q2019 made more net income than Airbus did in the 1st HALF of 2019. For commercial aircraft alone, Boeing booked a $40 Million operating loss (nothing for a $100 Billion revenue/year company). Boeing's Defense and Global Services businesses together are rather larger than Commercial Airplanes and both showed healthy margins.

https://investors.boeing.com/investors/ ... fault.aspx

N766UA wrote:

While not a civilian aircraft, technically, you could argue that the KC-46 belongs on the list, too, being derived from the 767. And it’s basically grounded with no end in sight.

That's a poor characterization of the program, especially with regard to the topic of this thread which is revenue in the present year. https://docs.google.com/spreadsheets/d/ ... 2121076296 tells us 25 KC-46s have been delivered (see KC-46 tab) so deliveries aren't "grounded" nor are the planes themselves. Since most of these planes were built in earlier years their cost was in the books already so the revenue they provide is almost all taken as profit in this year.

I'll never understand why so many people want either Boeing or Airbus to fail. It's a teenage behavior.

BTW, Boeing is still doing just fine and, as someone said earlier, commercial aircraft are just one small piece of what Boeing does. Aviation is a hard game. The 787 and the MAX had their share of problems, but also brought Boeing some technological innovations and hard learned experiences which will be valuable down the road when they release their next new product. When thinking about the long term of a huge corporation like Boeing, sometimes those long term gains are more important than not having a fast selling aircraft today.

JJ777 wrote:

...sometimes those long term gains are more important than not having a fast selling aircraft today.

Correct. This is the mindset that ALL corporations need. Profits should not be the number one priority.

asr0dzjq wrote:

JJ777 wrote:

...sometimes those long term gains are more important than not having a fast selling aircraft today.

Correct. This is the mindset that ALL corporations need. Profits should not be the number one priority.

Aren’t “long term gains” profits? The problem often is quarterly reports and the blame there lies with SEC requirements for 10Q reports. I hated the misplaced attention paid to quarterly deliveries and sales. Get it right, 10Q be damned, but the law and Wall Street rules.

GF

Max Q wrote:

Obviously the Max is nothing but a huge cash drain, can’t see how the 747-8 makes money, the 777 8/ 9 are years from being in the black and the 787 really can’t hope to cover its development costs

That leaves the... 767 and 777 freighters ?

I believe that your basic premise is wrong:

The 747, 767, and 787 are all profitable at this time and generating positive cash flow for Boeing. The 748 may not be making much money; but, Boeing has been adamant that they would not accept orders that would be produced at a production loss (and has cited past cases where they turned down orders).

Admittedly, almost all of that cash has been sunk into produced 737 awaiting delivery.

Most people cannot seem to grasp that the deferred production cost is not a real "loss". One branch of Boeing owes another branch of Boeing the money. They don't own any creditors this money. So for example the commercial production department for the 787 pays money to the internal commercial product development department; both being part of the commercial aircraft division (those are not the real names - but, that is how it works). It's a bookkeeping method of amortization that affects when they have to pay taxes on the money. It has "zero" effect on cash flow.

Have a great day,

Boeing doesn't just build the 77W and 748 just for nostalgia. Deferred production costs and realized profits are very different on the 787 program. We don't know when the program turns cash positive or if it already has all we know is when they expect to get the profits originally forecasted for the smaller accounting block. Considering what they are experiencing with the MAX their balance sheet is quite healthy.

Every 787 that Boeing delivers brings in considerably more money than it costs to build at this point. As long as that is the case that is money Boeing can work with. All the money spent developing it at this point is irrelevant; the only case in which it would matter is if Boeing had borrowed the money and now had to pay it back. But that isn’t the case. In fact, it is probably a good thing for Boeing at this point because it is a huge tax write-off.

MIflyer12 wrote:

sonicruiser wrote:

Individually, none of of these programs are a major concern on their own. However, when put together, Boeing's outlook is nothing short of a catastrophe.

You and the OP need to learn how to read an income statement.

As a whole, Being 3Q2019 made more net income than Airbus did in the 1st HALF of 2019. For commercial aircraft alone, Boeing booked a $40 Million operating loss (nothing for a $100 Billion revenue/year company). Boeing's Defense and Global Services businesses together are rather larger than Commercial Airplanes and both showed healthy margins.

https://investors.boeing.com/investors/ ... fault.aspx

Ok. They will learn to read an income statement, and you will learn to read a Thread Title. Sounds Fair.

JJ777 wrote:

I'll never understand why so many people want either Boeing or Airbus to fail. It's a teenage behavior.

I do not believe anyone would like BCA to fail.

JJ777 wrote:

. Aviation is a hard game. The 787 and the MAX had their share of problems, but also brought Boeing some technological innovations and hard learned experiences which will be valuable down the road when they release their next new product. When thinking about the long term of a huge corporation like Boeing, sometimes those long term gains are more important than not having a fast selling aircraft today.

They obviously should have done much better in those regards, but I do agree that long-term is the way to go here. In fact, it is BCA's only realistic option. The 73MAX failure is not guaranteed to result in eventual profitability. If that gamble does not pan out, there really is not much else to prop up BCA's general profitability. While failure of BCA is not imminent, the seriousness of their predicament can not be overstated.

2175301 wrote:

Max Q wrote:

Obviously the Max is nothing but a huge cash drain, can’t see how the 747-8 makes money, the 777 8/ 9 are years from being in the black and the 787 really can’t hope to cover its development costs

That leaves the... 767 and 777 freighters ?

I believe that your basic premise is wrong:

The 747, 767, and 787 are all profitable at this time and generating positive cash flow for Boeing. The 748 may not be making much money; but, Boeing has been adamant that they would not accept orders that would be produced at a production loss (and has cited past cases where they turned down orders).

Admittedly, almost all of that cash has been sunk into produced 737 awaiting delivery.

Most people cannot seem to grasp that the deferred production cost is not a real "loss". One branch of Boeing owes another branch of Boeing the money. They don't own any creditors this money. So for example the commercial production department for the 787 pays money to the internal commercial product development department; both being part of the commercial aircraft division (those are not the real names - but, that is how it works). It's a bookkeeping method of amortization that affects when they have to pay taxes on the money. It has "zero" effect on cash flow.

Have a great day,

Good point regarding the 747-8. It is a very unique freighter. Nothing else can compete with it except used 74-400Fs. It might not be widely popular, but for the freight airlines that haul heavy and oddsized cargo, nothing can compete with it. I would expect Boeing to have quite a bit of margin in order to keep building it at such a low rate.

2175301 wrote:

The 747, 767, and 787 are all profitable at this time and generating positive cash flow for Boeing.

767 freighters are most likely nicely profitable, but the KC-46 is costing big bucks.

Weatherwatcher1 wrote:

2175301 wrote:

Max Q wrote:

Obviously the Max is nothing but a huge cash drain, can’t see how the 747-8 makes money, the 777 8/ 9 are years from being in the black and the 787 really can’t hope to cover its development costs

That leaves the... 767 and 777 freighters ?

I believe that your basic premise is wrong:

The 747, 767, and 787 are all profitable at this time and generating positive cash flow for Boeing. The 748 may not be making much money; but, Boeing has been adamant that they would not accept orders that would be produced at a production loss (and has cited past cases where they turned down orders).

Admittedly, almost all of that cash has been sunk into produced 737 awaiting delivery.

Most people cannot seem to grasp that the deferred production cost is not a real "loss". One branch of Boeing owes another branch of Boeing the money. They don't own any creditors this money. So for example the commercial production department for the 787 pays money to the internal commercial product development department; both being part of the commercial aircraft division (those are not the real names - but, that is how it works). It's a bookkeeping method of amortization that affects when they have to pay taxes on the money. It has "zero" effect on cash flow.

Have a great day,

Good point regarding the 747-8. It is a very unique freighter. Nothing else can compete with it except used 74-400Fs. It might not be widely popular, but for the freight airlines that haul heavy and oddsized cargo, nothing can compete with it. I would expect Boeing to have quite a bit of margin in order to keep building it at such a low rate.

At the moment, 747-8F might be generating good margins, or might not be -- depending on how you treat the sunk costs, and on plenty of other factors. And low production rate is not something Boeing wanted -- there were reasons to go from 2 frames a month to 0.5, and maximizing current profit wasn't among them.
The difficulty with that particular model (and I have to admit, I am a bit of a fan) is that there are 17 orders outstanding, and key suppliers appear to be wrapping up their participation in the program:
viewtopic.php?f=3&t=1435359&p=21806573
and their manufacturing equipment is being auctioned off:
https://patch.com/california/redondobea ... ne-auction

So, unless Boeing invests themselves in manufacturing these components, the program is in its sunset. And sunset is typically where all previously unrecognized costs and liabilities have to be faced. Not a good place to be in -- unless previous write-offs were aggressive enough, to make that transition less painful.

I humbly submit that many of our kind posters would benefit from an introduction to the basic principles of accounting...it's an arid and thankless domain, but would do much to introduce clarity to our discussion...will try to do a little write up tonight or tomorrow...


Faro

mjoelnir wrote:

SEPilot wrote:

Every 787 that Boeing delivers brings in considerably more money than it costs to build at this point. As long as that is the case that is money Boeing can work with. All the money spent developing it at this point is irrelevant; the only case in which it would matter is if Boeing had borrowed the money and now had to pay it back. But that isn’t the case. In fact, it is probably a good thing for Boeing at this point because it is a huge tax write-off.

There is not one US dollar in the whole Boeing operation that is not borrowed. If Boeing would own something, that is not bought with borrowed money, Boeing would be able to show some equity. Equity is the difference between what you own and what you owe.
In the Q3 2019 10-Q report, the shareholders equity is minus 4,116 million USD. that tells us that Boeing owes that amount more than Boeing owns.

What does this observation have to do with the thread topic or SEPilot's reply? Shareholder equity does not tell you whether Boeing's commercial aircraft programs are profitable.

MIflyer12 wrote:

sonicruiser wrote:

Individually, none of of these programs are a major concern on their own. However, when put together, Boeing's outlook is nothing short of a catastrophe.

You and the OP need to learn how to read an income statement.

As a whole, Being 3Q2019 made more net income than Airbus did in the 1st HALF of 2019. For commercial aircraft alone, Boeing booked a $40 Million operating loss (nothing for a $100 Billion revenue/year company). Boeing's Defense and Global Services businesses together are rather larger than Commercial Airplanes and both showed healthy margins.

https://investors.boeing.com/investors/ ... fault.aspx

Yea, the sky is falling comments do not make sense.

The company was cash flow negative, due to the MAX. They will survive.

The 787 is printing money (cash flow), but not enough to overcome built, but not delivered MAX.

Eventually the MAX will return to service and the rush of deliveries will change the picture.

This is like the Boeing people worrying about the A380. A distraction that is basically over.

Lightsaber

sonicruiser wrote:

Individually, none of of these programs are a major concern on their own. However, when put together, Boeing's outlook is nothing short of a catastrophe.

Would love to see the numbers showing this.

Revelation wrote:

N766UA wrote:

While not a civilian aircraft, technically, you could argue that the KC-46 belongs on the list, too, being derived from the 767. And it’s basically grounded with no end in sight.

...deliveries aren't "grounded" nor are the planes themselves.

Except they are, though.

https://www.upi.com/Defense-News/2019/0 ... 568649681/
https://www.defensenews.com/air/2019/11 ... nths-away/

N766UA wrote:

Revelation wrote:

N766UA wrote:

While not a civilian aircraft, technically, you could argue that the KC-46 belongs on the list, too, being derived from the 767. And it’s basically grounded with no end in sight.

...deliveries aren't "grounded" nor are the planes themselves.

Except they are, though.

https://www.upi.com/Defense-News/2019/0 ... 568649681/
https://www.defensenews.com/air/2019/11 ... nths-away/

I guess you didn't read my reply, my linked spreadsheet, nor even your own links.

The first link says:

The U.S. Air Force barred its KC-46 tanker planes from carrying cargo or passengers until a problem with cargo locks is resolved.

The USAF is still accepting deliveries (see my spreadsheet for ones in November!) and is still operating training and tanker missions.

They are not operating cargo missions due to the cargo lock issue, but guess what, USAF has C-17 to do that job, and your second link says the cargo lock issue should be solved in "months".

MIflyer12 wrote:

sonicruiser wrote:

Individually, none of of these programs are a major concern on their own. However, when put together, Boeing's outlook is nothing short of a catastrophe.

You and the OP need to learn how to read an income statement.

As a whole, Being 3Q2019 made more net income than Airbus did in the 1st HALF of 2019. For commercial aircraft alone, Boeing booked a $40 Million operating loss (nothing for a $100 Billion revenue/year company). Boeing's Defense and Global Services businesses together are rather larger than Commercial Airplanes and both showed healthy margins.

https://investors.boeing.com/investors/ ... fault.aspx

I don't see the logic of your comparison. In the same token, Airbus Q3 is performing better than Boeing YTD. Just selectively comparing the financial result is inappropriate. If you really want to compare, why not point out Boeing net income gets -95% compare to last year?

2175301 wrote:

Most people cannot seem to grasp that the deferred production cost is not a real "loss". One branch of Boeing owes another branch of Boeing the money.

mjoelnir wrote:

There is not one US dollar in the whole Boeing operation that is not borrowed. If Boeing would own something, that is not bought with borrowed money, Boeing would be able to show some equity. Equity is the difference between what you own and what you owe.
In the Q3 2019 10-Q report, the shareholders equity is minus 4,116 million USD. that tells us that Boeing owes that amount more than Boeing owns.

That's something I don't understand. How can share prices be so high when there is no equity? And I don't understand why banks lend money to a high risk industry, if the concerned company has no equity. Maybe politicians get favors/ advisory contracts from Boeing and in turn ask banks for a favor?

And while I assume the B787 brings a lot of needed cash flow at the moment, I don't understand how deferred production cost can be seen any different than a loss.
That apart I also believe the negative cash flow from the MAX is no problem. The money will come in once deliveries begin.

Sokes wrote:

2175301 wrote:

Most people cannot seem to grasp that the deferred production cost is not a real "loss". One branch of Boeing owes another branch of Boeing the money.

mjoelnir wrote:

There is not one US dollar in the whole Boeing operation that is not borrowed. If Boeing would own something, that is not bought with borrowed money, Boeing would be able to show some equity. Equity is the difference between what you own and what you owe.
In the Q3 2019 10-Q report, the shareholders equity is minus 4,116 million USD. that tells us that Boeing owes that amount more than Boeing owns.

That's something I don't understand. How can share prices be so high when there is no equity? And I don't understand why banks lend money to a high risk industry, if the concerned company has no equity. Maybe politicians get favors/ advisory contracts from Boeing and in turn ask banks for a favor?

And while I assume the B787 brings a lot of needed cash flow at the moment, I don't understand how deferred production cost can be seen any different than a loss.
That apart I also believe the negative cash flow from the MAX is no problem. The money will come in once deliveries begin.

1. Share price is the financial market’s valuation of a firm’s future free cash flow. Today’s equity is merely a boundary condition on a forward-looking analysis.

2. Boeing remains a creditworthy firm with an investment-grade debt rating. Nor are they mortgaging the company to fund operations.

3. Deferred costs are discussed extensively in other threads. It’s important to understand the difference between an accounting profit (what gets reported on the statement of income) and cash flow from operations (what Boeing earns for the work they perform).

Faro wrote:

I humbly submit that many of our kind posters would benefit from an introduction to the basic principles of accounting...it's an arid and thankless domain, but would do much to introduce clarity to our discussion...will try to do a little write up tonight or tomorrow...


Faro

Thanks Faro. Very little in this thread is clear to me, including the original question (and I had an introduction in accounting. And then some more...).

mjoelnir wrote:

DfwRevolution wrote:

mjoelnir wrote:

There is not one US dollar in the whole Boeing operation that is not borrowed. If Boeing would own something, that is not bought with borrowed money, Boeing would be able to show some equity. Equity is the difference between what you own and what you owe.
In the Q3 2019 10-Q report, the shareholders equity is minus 4,116 million USD. that tells us that Boeing owes that amount more than Boeing owns.

What does this observation have to do with the thread topic or SEPilot's reply? Shareholder equity does not tell you whether Boeing's commercial aircraft programs are profitable.

It is an answer to the claim SEPilot makes about Boeing not borrowing, as Boeing has borrowed huge amounts, that some day have to be returned. All liabilities not covered by equity are borrowed, not only liabilities declared as loans.

Regarding profitability, Program for cost accounting allows you to show more profit than you make in reality, projecting a fake high profitability, by moving losses to the future. This fake profit exists as long as there are deferred cost. When one program is lowering it's deferred cost, the next program is there to accumulate it again.

Go re-read SEPilot’s statement for what it actually says and not what you think it says. Then go lean some basic accounting because you’re just dead wrong about what any of these terms mean in practice.

mjoelnir wrote:

Regarding profitability, Program for cost accounting allows you to show more profit than you make in reality, projecting a fake high profitability, by moving losses to the future. This fake profit exists as long as there are deferred cost. When one program is lowering it's deferred cost, the next program is there to accumulate it again.

Bjorn Fehrm addressed the differences between program accounting and unit counting in a 2015 article and says that program accounting is more transparent:

Airbus shows its revenues and costs on a division level but not on a program level. It is therefore not possible to know how much the first A350s cost Airbus to produce; it is hidden together with the margins that Airbus makes on other programs like the A320 and A330.

The real production costs of an aircraft like the 787 or A350 are very high for the first units. The financial data which is presented in connection with Program Accounting makes it possible to understand the real production costs of the 787 with good precision... The key take-away is not the figures but that fact that Program Accounting gives the external person a chance to understand the true production costs of an aircraft whereas unit accounting doesn’t.

The average production cost for the first 50 787 units can be estimated from Boeing’s accounting as $450m a copy (the first units cost over $1bn). The production cost of unit 50 can be estimated to $200m. With a learning curve of 85%, which is the normal in the industry (and which seems to be followed by the 787 after the initial troubled aircraft), the cost for aircraft 100 shall be 15% lower, or about $170m per aircraft. Double that again to unit 200 and we are at $145m. Right now, unit 330 goes out the door, which should have a production cost of around $125m. These values can be a bit off but not by much; the accounting around Boeing’s deferred production costs makes the figures pretty predictable.

Airbus and Boeing represent the two different ways of how the costs of production aircraft can be presented. Of the two, the more involved method, Program Accounting, contains a number of assumptions over future costs and the learning curve effect. At first glance this makes the understanding of the true costs of the aircraft program less transparent.

As the practice leads to the company presenting the deferred costs each quarter, combined with statements of how fast the cost break even point will be reached, Program Accounting enables an analysis of the production costs that Unit Accounting doesn’t.

https://leehamnews.com/2015/09/11/bjorn ... ion-costs/

scbriml wrote:

2175301 wrote:

The 747, 767, and 787 are all profitable at this time and generating positive cash flow for Boeing.

767 freighters are most likely nicely profitable, but the KC-46 is costing big bucks.

the KC-46 and the 767 have only the Airframe in common, Not even the Windshields are common to both airplanes and more than likely the Landing gear and the Engines may be common to both Airplanes. The USAF made so many changes to the airplane that any civil model would be a downgrade from the KC-46.

Sokes wrote:

2175301 wrote:

Most people cannot seem to grasp that the deferred production cost is not a real "loss". One branch of Boeing owes another branch of Boeing the money.

mjoelnir wrote:

There is not one US dollar in the whole Boeing operation that is not borrowed. If Boeing would own something, that is not bought with borrowed money, Boeing would be able to show some equity. Equity is the difference between what you own and what you owe.
In the Q3 2019 10-Q report, the shareholders equity is minus 4,116 million USD. that tells us that Boeing owes that amount more than Boeing owns.

That's something I don't understand. How can share prices be so high when there is no equity? And I don't understand why banks lend money to a high risk industry, if the concerned company has no equity. Maybe politicians get favors/ advisory contracts from Boeing and in turn ask banks for a favor?

And while I assume the B787 brings a lot of needed cash flow at the moment, I don't understand how deferred production cost can be seen any different than a loss.
That apart I also believe the negative cash flow from the MAX is no problem. The money will come in once deliveries begin.

Boeing has $54b worth of its own shares. This is an asset. Equity is what you owe to your shareholders which is a liability. They classified their own shares in equity as a minus item to their liability to shareolders. Carry that 54b to assets, you will end up with 50b equity. Capish?

Revelation wrote:

N766UA wrote:

While not a civilian aircraft, technically, you could argue that the KC-46 belongs on the list, too, being derived from the 767. And it’s basically grounded with no end in sight.

That's a poor characterization of the program, especially with regard to the topic of this thread which is revenue in the present year. https://docs.google.com/spreadsheets/d/ ... 2121076296 tells us 25 KC-46s have been delivered (see KC-46 tab) so deliveries aren't "grounded" nor are the planes themselves. Since most of these planes were built in earlier years their cost was in the books already so the revenue they provide is almost all taken as profit in this year.

Cost of everything you built is in your inventory until you sell them. Once the item is sold both revenue and cost recognized simultaneously. You invoice the sales value which is your revenue and deduct the item from inventory which is your cost. The difference between the two makes your profit if it is a positive value.

mjoelnir wrote:

In the moment Boeing is moving down the deferred cost on the 787 program, but it has already begun to run up the deferred cost on the 777X and 737MAX program.
So Boeing will keep showing more accumulated profits, than if they would be doing unit cost accounting, like the rest of the world.

And to be more transparent, Boeing would need to show their deferred cost on all programs, not only the 787.

Doesn't program accounting apply to each program, 787, 77X and MAX?
Don't each have their own accounting block since each is a separate program?
Under program accounting Boeing is showing less profit now, than they would if they had written them all off earlier doing unit cost accounting.

JohanTally wrote:

Boeing doesn't just build the 77W and 748 just for nostalgia. Deferred production costs and realized profits are very different on the 787 program. We don't know when the program turns cash positive or if it already has all we know is when they expect to get the profits originally forecasted for the smaller accounting block. Considering what they are experiencing with the MAX their balance sheet is quite healthy.

The 787 turned cash positive in 1Q 2016. In other words, it started bring cash into Boeing beyond production costs then. If you want a long conversation of deferred costs, see any number of past threads. No need to repeat what has already been angrily repeated many times before.

strfyr51 wrote:

scbriml wrote:

2175301 wrote:

The 747, 767, and 787 are all profitable at this time and generating positive cash flow for Boeing.

767 freighters are most likely nicely profitable, but the KC-46 is costing big bucks.

the KC-46 and the 767 have only the Airframe in common, Not even the Windshields are common to both airplanes and more than likely the Landing gear and the Engines may be common to both Airplanes. The USAF made so many changes to the airplane that any civil model would be a downgrade from the KC-46.

Why are the windshields different?

mjoelnir wrote:

9Patch wrote:

mjoelnir wrote:

In the moment Boeing is moving down the deferred cost on the 787 program, but it has already begun to run up the deferred cost on the 777X and 737MAX program.
So Boeing will keep showing more accumulated profits, than if they would be doing unit cost accounting, like the rest of the world.

And to be more transparent, Boeing would need to show their deferred cost on all programs, not only the 787.

Doesn't program accounting apply to each program, 787, 77X and MAX?
Don't each have their own accounting block since each is a separate program?
Under program accounting Boeing is showing less profit now, than they would if they had written them all off earlier doing unit cost accounting.

Yes, but only the deferred cost of the 787 is declared by Boeing. As only production cost are deferred, the biggest deferrals for the 737MAX will be done this year and the deferrals for the 777X have just started,

So Boeing will show the deferred cost on all programs.

All of this discussion of program cost, deferred costs, and accounting gimmicks just obscures the big picture. Just as with your family, Boeing has bills that have to be paid every month. If they are not paid vendors (or employees) start to scream (usually in court). If Boeing (or your family) does not have enough money to pay these bills they have to either pay them out of savings or borrow the money. The other option a company has that your family does not is to sell more stock. From what I have seen Boeing is not borrowing significant amounts of money, nor is their cash on hand is dramatically shrinking, nor are they offering any new stock. And I have not heard of any creditors pounding on their doors. So somehow Boeing is managing to absorb all the costs of the MAX debacle without any visible distress. All of this should be evident in their annual report. They are also not in any distress from the deferred production costs of the 787. Going forward things may change; if the MAX does not get ungrounded soon all bets are off. But every indication is that it will. Then Boeing will have to deal with compensation and penalty costs, but will have the income from the MAX deliveries to compensate. It is likely that those costs will be extremely high, but not enough to imperil Boeing. But the entire upper management needs to walk the plank.

9Patch wrote:

mjoelnir wrote:

9Patch wrote:

Doesn't program accounting apply to each program, 787, 77X and MAX?
Don't each have their own accounting block since each is a separate program?
Under program accounting Boeing is showing less profit now, than they would if they had written them all off earlier doing unit cost accounting.

Yes, but only the deferred cost of the 787 is declared by Boeing. As only production cost are deferred, the biggest deferrals for the 737MAX will be done this year and the deferrals for the 777X have just started,

So Boeing will show the deferred cost on all programs.

They already do.

If you study the Boeing Annual Report you will find that: Program deferred production cost are considered part of Commercial Aircraft Program "Inventories" and are part of the total "Assets". Should you download a series of annual reports (I suggest every 3 years) then you can look at the changes in the overall Boeing "assets" over the years and have a rough idea (be sure you understand the other things that go into "assets": details are in the annual report). Note see below for better more recent information

If you look at the notes for commercial aircraft program "Inventories" you will find discussion includes the 747 and 787. No other programs are specifically discussed; however, all deferred production cost for all commercial aircraft programs are contained in the commercial aircraft "inventories" line.

Buried in other parts of the reports are the accounting blocks for all the current programs, and a recent multi-year history of the changes.

There is a wealth of information in both Airbus and Boeing Annual Reports. I'll let each of you look for yourself. Key one in my personal opinion is "Profit" (after taxes).

Deferred production cost have been included appropriately in all past annual reports.

For those looking for more information and a hint as to what is going on..

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

This page has a specific listing of the 787 deferred production cost (and how it is dropping). Please see the above mentioned notes in the annual report as to how they think it will be paid off by which group or aircraft (contracts existing, vs projected sales).

Of more interest is if you compare the drop of the 787 deferred production cost, and the "inventories" for the Commercial Aircraft programs you will see:

That for 4Q17 - 3Q19 (and assuming I did my math right)

787 deferred production cost dropped $5.533 Billion
Inventories increased $10,657 Billion

Net change of $16.190 Billion

Then if you look at 4Q18-3Q19 you will see (assuming I did my math right)

787 deferred production cost dropped $3.142 Billion
Inventories increased $10,765 Billion

Net 2019 3 Quarters change of $13.907 Billion

I suggest that the inventory increase in 2019 is largely due to undelivered 737's. With perhaps a couple $Billion for the 777X program.

If you look at the 3rd quarterly report, Boeing indicates that they are $1.6 Billion in the hole on cash flow to add that $13.907 Billion of "inventory"

I cannot wait to see their financial report after they deliver much of the stored 737's; and of course the 787 program will continue to spin off cash and reduce the "inventory" value.

Have a great day,

Sokes wrote:

2175301 wrote:

Most people cannot seem to grasp that the deferred production cost is not a real "loss". One branch of Boeing owes another branch of Boeing the money.

mjoelnir wrote:

There is not one US dollar in the whole Boeing operation that is not borrowed. If Boeing would own something, that is not bought with borrowed money, Boeing would be able to show some equity. Equity is the difference between what you own and what you owe.
In the Q3 2019 10-Q report, the shareholders equity is minus 4,116 million USD. that tells us that Boeing owes that amount more than Boeing owns.

That's something I don't understand. How can share prices be so high when there is no equity? And I don't understand why banks lend money to a high risk industry, if the concerned company has no equity. Maybe politicians get favors/ advisory contracts from Boeing and in turn ask banks for a favor?

And while I assume the B787 brings a lot of needed cash flow at the moment, I don't understand how deferred production cost can be seen any different than a loss.
That apart I also believe the negative cash flow from the MAX is no problem. The money will come in once deliveries begin.

The reason share prices can be so high when there is no book equity, is that total equity on the balance sheet is not all that meaningful of a number when it comes to valuing a company. Due to accounting rules, equity on the balance sheet is a little different than what most of us would think of as equity.

As an example suppose an individual buys a house for one hundred thousand. Over time it increases in value to two hundred thousand, and the owner pays off 50 thousand of the mortgage. Most of us would think the homeowner has 150,000 in equity, Assuming good credit, an owner would have zero problem getting a home equity loan for 100,000 in that case. In accounting the concept of equity works differently. Businesses cannot show the increased value of an asset until it is sold. Under the accounting rules that a business uses we would say the person has 50,000 in equity, and probably less than that, because businesses are required to depreciate buildings.The reason negative equity is not a problem for Boeing is that the book value of its assets is much lower than the actual value of its assets. On its balance sheet Boeing lists property plant and equipment of 12.5 billion dollars. The real value is many multiples of that.

There are a lot of good reasons why accounting standard do not try to incorporate the real value of assets into financial statements. I think the main reason is that we accountants realize that there is not good accounting method for doing it. We focus our attention on providing the information that is valuable, and then let the markets decide what the value of an asset is. Currently the markets say value of the business that Boeing owns less the liabilities it owes is about 197 billion dollars. Markets are not perfect, but as an accountant I will tell you they are on the whole way more accurate than book value minus liabilities.

2175301 wrote:

I cannot wait to see their financial report after they deliver much of the stored 737's; and of course the 787 program will continue to spin off cash and reduce the "inventory" value.

Have a great day,

2020 is probably going to be an awesome year for Boeing. But as things stand right now cash coming in from the 787 will drop a lot, as they have a lot less deliveries than available production slot going forward from there.
Anyone an idea how flexible Boeing is with volume from the supplier side? If we have a 168 order/year frame agreement we may be fine with just 150 units being taken up.... but at some point below that we are just going to park the rest on his doorstep and send the invoice .....

Best regards
Thomas

tommy1808 wrote:

2020 is probably going to be an awesome year for Boeing.

That is under the assumption that the 737 MAX issue will be solved in 2020.

Spiderguy252 wrote:

tommy1808 wrote:

2020 is probably going to be an awesome year for Boeing.

That is under the assumption that the 737 MAX issue will be solved in 2020.

While i´d be very disappointing if the MAX debacle doesn´t end with a bunch of people serving time i see no good reason to not tust the modification made in so far we know about them. Seems MCAS will now be implemented in a way that should have been used the first go around.

best regards
Thomas

tommy1808 wrote:

2175301 wrote:

I cannot wait to see their financial report after they deliver much of the stored 737's; and of course the 787 program will continue to spin off cash and reduce the "inventory" value.

Have a great day,

2020 is probably going to be an awesome year for Boeing. But as things stand right now cash coming in from the 787 will drop a lot, as they have a lot less deliveries than available production slot going forward from there.
Anyone an idea how flexible Boeing is with volume from the supplier side? If we have a 168 order/year frame agreement we may be fine with just 150 units being taken up.... but at some point below that we are just going to park the rest on his doorstep and send the invoice .....

Best regards
Thomas

Boeing's production gap doesn't begin until 2022. Both Airbus and Boeing "bank on a splurge of orders early next decade to fill the production gaps. Each says there will be a retirement surge beginning in about 2022."
https://leehamnews.com/2019/09/04/airbu ... tion-rate/

DfwRevolution wrote:

1. Share price is the financial market’s valuation of a firm’s future free cash flow.

That may explain why Warren Buffet is so successful.

DfwRevolution wrote:

Today’s equity is merely a boundary condition on a forward-looking analysis.

What???

kayik wrote:

Boeing has $54b worth of its own shares. This is an asset.

No, it's not.
https://s2.q4cdn.com/661678649/files/do ... ad4efb.pdf
under "Condensed Consolidated Statements of Financial Position" and there under "shareholder equity" you will find
Retained earnings 53,986 billion $. However in brackets, which means you have to minus, there is
Treasury stock, at cost - 449,472,403 and 444,619,970 shares (54,924) billion $.
So share buybacks ate up all retained earnings, which is why
Total shareholders’ equity (4,116) billion $, so again negative.
If Boeing had to sell this stock tomorrow, Boeing would have a lot of equity.

kayik wrote:

Equity is what you owe to your shareholders which is a liability.

No.

kayik wrote:

They classified their own shares in equity as a minus item to their liability to shareolders. Carry that 54b to assets, you will end up with 50b equity. Capish?

No. They classified their own shares in equity as a minus item because it reduced their equity.
What is a liability to shareholders?

SEPilot wrote:

From what I have seen Boeing is not borrowing significant amounts of money...

From above's link: Total current liabilities 91,846 billion $

SEPilot wrote:

... nor is their cash on hand is dramatically shrinking, nor are they offering any new stock. And I have not heard of any creditors pounding on their doors. So somehow Boeing is managing to absorb all the costs of the MAX debacle without any visible distress. All of this should be evident in their annual report. They are also not in any distress from the deferred production costs of the 787.

True. But the same can be said for the economy of 1927 or any bubble 2 years before it's burst.

WBM wrote:

...
Currently the markets say value of the business that Boeing owns less the liabilities it owes is about 197 billion dollars. Markets are not perfect, but as an accountant I will tell you they are on the whole way more accurate than book value minus liabilities.

Good point with depreciated buildings not showing in the books. But I disagree about markets. They depend more on interest rates than anything else.

Stokes, your understanding of a balance sheet is very different from mine. The whole purpose of a balance sheet is that assets and liabilities are equal. Therefore stockholder equity is entered as a liability. It is NOT a debt that has to be repaid. I don’t know if debt repayment is a line item in the annual report, but you should be able to find it. It won’t be very much for Boeing.

Wow, alot of economic experts around here