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mjoelnir
Posts: 9388
Joined: Sun Feb 03, 2013 11:06 pm

Re: Boeing Financial Discussion 2020

Wed Mar 18, 2020 1:14 am

MSPNWA wrote:
morrisond wrote:
Pre-Max Boeing had very little debt. Share repurchases came from excess cash flow. Debt was only about $14B which is nothing for what Boeings revenues and profits were.


:checkmark: Their debt load pre-grounding was only about a year of free cash flow (Boeing has other substantial future retiree liabilities, but that isn't the same as debt). Paying back the owners from the profit is exactly what any small business would do as well. There was nothing wrong or unusual about how Boeing was conducting its business. Claiming that Boeing was loading up on debt to pay shareholders is simply false. Considering the language used, it appears it's only an emotional, ignorant opinion.

Sokes wrote:
If I have a house which is 500.000 $ worth and debt of 550.000 $ debt, is my debt 50.000$ or 550.000 $?
I believe you speak of negative equity, not of debt.


Morrisond was clearly talking about debt as the figure is consistent with Boeing's financial statements.

What it appears to me you're talking about is total liabilities. They are not the same thing. Debt is a liability. Not all liability is a debt.

mjoelnir wrote:
You use of course a very narrow definition of debt and of course avoid looking at liabilities and obligations.


And you have a inaccurate interpretation of debt by lumping all liabilities into the term.

Low or negative equity is simply not a certain sign of a financially weak company. It only means it could use a closer look. That closer look of Boeing shows us they were in an exceptionally strong financial position a couple years ago and are still in a strong position relative to the industry. They are the last company I would be worried about right now (and I know you're not worried about them). Every airline and subsequently every other manufacturer, including Airbus, are less secure financially. That's were my concerns are placed at the moment.


Debt, liabilities, obligations, just semantics. Liabilities is what you owe. You do not only have to pay your bank, but you also have to pay your suppliers.

Most of the debt is usually long term, you have time to raise or earn the cash.

Boeing has 97 billion USD of current liabilities to be served this year, including 15.5 billion Accounts payable (mostly suppliers), 22.9 billion Accrued liabilities, 55.6 billion Advances and progress billings and 7.3 billion Short-term debt and current portion of long-term debt.
Current liabilities have to be served this year. So Boeing has to provide the cash 45.7 billion,for suppliers and so on, and deliver the frames 55.6 billion, to cover the prepayments. If Boeing can not deliver all the frames, than part of the 55.6 billions have to be repaid also in cash. The 55.6 billion Boeing owes to the customers, money already payed for the ordered frames.

I would assume that you do not run a company, if you assume that liabilities do not way as heavy as debt.
 
Sokes
Posts: 831
Joined: Sat Mar 09, 2019 4:48 pm

Re: Boeing Financial Discussion 2020

Wed Mar 18, 2020 1:27 am

Ishrion wrote:
Boeing supports a minimum of $60 billion in funding

https://boeing.mediaroom.com/news-relea ... tem=130642


Boeing begs a minimum of 60 billion $.
Moreover:
"Funds would support the health of the broader aviation industry, because much of any liquidity support to Boeing will be used for payments to suppliers to maintain the health of the supply chain."

I really don't want to hear this from people who were only interested in share buybacks.
Earlier beggars used to ask for a Euro. They become more and more shameless.
Why can't the world be a little bit more autistic?
 
Sokes
Posts: 831
Joined: Sat Mar 09, 2019 4:48 pm

Re: Boeing Financial Discussion 2020

Wed Mar 18, 2020 1:52 am

MSPNWA wrote:

Morrisond was clearly talking about debt as the figure is consistent with Boeing's financial statements.
What it appears to me you're talking about is total liabilities. They are not the same thing. Debt is a liability. Not all liability is a debt.


I made a mistake. Without looking it up I assumed Morrisond spoke of negative equity. But it's not that bad. Boeing's negative equity is only 8,3 billion $.

I owe a supplier money, I call it debt. On a more differentiated level one can argue that Boeing has so much debt plus so much other liabilities.
Let's say I'm wrong, but Morrisond is misleading.

By the way: Boeing's debt (not liabilities) reached 27,3 billion $.
p.18 https://s2.q4cdn.com/661678649/files/do ... Report.pdf
That may not be an added problem, as most of that extra debt isn't lost, but added to inventory. It will be useful when the Max returns to service. Believers in cash flow will probably disagree.
Picking one value out of the financial statement isn't useful. One has to see the bigger picture.
And here, as Mjoelnir mentioned, putting deferred production cost into assets is something to discuss. And so is 8,3 billion $ negative equity.

MSPNWA wrote:
Low or negative equity is simply not a certain sign of a financially weak company. It only means it could use a closer look.

Evidence suggests otherwise.

MSPNWA wrote:
They are the last company I would be worried about right now (and I know you're not worried about them). Every airline and subsequently every other manufacturer, including Airbus, are less secure financially. That's were my concerns are placed at the moment.

Let's just agree that we disagree.
Why can't the world be a little bit more autistic?
 
frmrCapCadet
Posts: 3703
Joined: Thu May 29, 2008 8:24 pm

Re: Boeing Financial Discussion 2020

Wed Mar 18, 2020 2:52 am

Airframe manufacturing is a high risk, high capital expense, high manufacturing costs game. They should have kept upwards $45 billion in the bank. But maybe their plan was to ask for subsidies if something went wrong.
Buffet: the airline business...has eaten up capital...like..no other (business)
 
smartplane
Posts: 1307
Joined: Fri Aug 03, 2018 9:23 pm

Re: Boeing Financial Discussion 2020

Wed Mar 18, 2020 8:48 am

MSPNWA wrote:
Morrisond was clearly talking about debt as the figure is consistent with Boeing's financial statements.

What it appears to me you're talking about is total liabilities. They are not the same thing. Debt is a liability. Not all liability is debt.

You are correct with a going concern. But is Boeing a going concern right now? Will Boeing be a going concern in 30 days?

When a business ceases to be a going concern, total liabilities is THE number.
 
IWMBH
Posts: 485
Joined: Tue Apr 17, 2018 5:01 pm

Re: Boeing in Crisis

Wed Mar 18, 2020 8:49 am

mila wrote:
IWMBH wrote:
Aither wrote:
Except if airlines need less aircraft.


Even if airlines need less planes it will still be to much for a single airplane manufacturer. And, the corona-virus will be a temporary thing. Look at China, the amount of people with the decease are decreasing.

But we have Russia if they can get work around of US embargos and China soon so Boeing is not that much needed!


Yeah, no way. Russia doesn’t have plane that is comparable with any of Boeing planes in terms of efficiency, and I doubt they will get there. China will get there but that will take years. And even if China and Russia catch up there is no way the US government will allow its valuable plane industry to leave the US.
 
SteinarN
Posts: 171
Joined: Mon Dec 29, 2014 1:26 pm

Re: Boeing Financial Discussion 2020

Wed Mar 18, 2020 9:40 am

Boeing down about 14 percent to 106 in pre market now.
Boeing have now lost 75 percent of its market value since all time high a year ago.
 
mjoelnir
Posts: 9388
Joined: Sun Feb 03, 2013 11:06 pm

Re: Boeing Financial Discussion 2020

Wed Mar 18, 2020 9:42 am

MSPNWA wrote:
And you have a inaccurate interpretation of debt by lumping all liabilities into the term.

Low or negative equity is simply not a certain sign of a financially weak company. It only means it could use a closer look. That closer look of Boeing shows us they were in an exceptionally strong financial position a couple years ago and are still in a strong position relative to the industry. They are the last company I would be worried about right now (and I know you're not worried about them). Every airline and subsequently every other manufacturer, including Airbus, are less secure financially. That's were my concerns are placed at the moment.


In good times when the company is going strong, you can operate with a low equity. But when the times are bad equity is the sign of the ability of a company to cover it's liabilities.
Boeing's equity is minus 8.6 billion USD. But as Boeing uses program for cost accounting, you have to deduct the deferred cost booked to assets, as the deferred cost are an asset that does not exists. So you would have a negative equity of 28 billion USD compared to a company accounting to IFRS.

The second big point in Boeing's account is the relation of Advances and progress billings 51,551 million USD compared to the inventories.
The inventories are booked as 76,622 million USD, but there again you have to deduct the deferred cost about 20 billion USD.
So you have on one side the inventories with 56.6 billion USD against prepayments by customers of 51.6 billion USD. So the idea that selling off the inventories will produce huge amount cash is a misunderstanding. The inventories are mainly owned by the customers already.
 
olle
Posts: 1696
Joined: Tue Feb 06, 2007 3:38 am

Re: Boeing in Crisis

Wed Mar 18, 2020 10:32 am

TTailedTiger wrote:
If the US airlines have to be bailed out by the government then there should be stipulations that they must buy from US manufacturers whenever possible if they want the aid. That would include ordering from Boeing, GE, etc. This would eliminate or lessen the need to prop up Boeing and other US aviation suppliers. That relief money needs to go back into our economy.


So one Airbus assambled in USA would not be conidered? If WTO would not consider that move as illegal I would believe WTO would be totally dead.
 
Aither
Posts: 1235
Joined: Mon Oct 25, 2004 3:43 am

Re: Boeing Financial Discussion 2020

Wed Mar 18, 2020 10:55 am

There is a big difference between Airbus and Boeing regarding the commercial business : when the market will recover Airbus will recover. But Boeing?
Many have ordered the 737max because there was no production slots available for the A320neo. But now there will be.
The 777X is half dead before the first entry into service.
Only the 787 remains but the widebody market was already oversupplied, even before the crisis.
So you can put zillions in a business, if it can't sell its products, it's pointless.
Never trust the obvious
 
mila
Posts: 52
Joined: Mon May 16, 2011 10:47 am

Re: Boeing in Crisis

Wed Mar 18, 2020 6:17 pm

IWMBH wrote:
mila wrote:
IWMBH wrote:

Even if airlines need less planes it will still be to much for a single airplane manufacturer. And, the corona-virus will be a temporary thing. Look at China, the amount of people with the decease are decreasing.

But we have Russia if they can get work around of US embargos and China soon so Boeing is not that much needed!


Yeah, no way. Russia doesn’t have plane that is comparable with any of Boeing planes in terms of efficiency, and I doubt they will get there. China will get there but that will take years. And even if China and Russia catch up there is no way the US government will allow its valuable plane industry to leave the US.

That depends on how dirty US government plays, the more dirty the longer it takes but once done there is no way back for US companies in Russia, China and possible even EC.
 
SteinarN
Posts: 171
Joined: Mon Dec 29, 2014 1:26 pm

Re: Boeing Financial Discussion 2020

Wed Mar 18, 2020 6:38 pm

Boeing down to 90, down a whopping 27 percent today, at this writing.
That is down 80 percent from the all time high a year ago.
Last time it was at 90 was around May 2013.

This is nothing else than an unbelievable spectacular collapse.
 
smartplane
Posts: 1307
Joined: Fri Aug 03, 2018 9:23 pm

Re: Boeing Financial Discussion 2020

Wed Mar 18, 2020 6:39 pm

mjoelnir wrote:
In good times when the company is going strong, you can operate with a low equity. But when the times are bad equity is the sign of the ability of a company to cover it's liabilities.
Boeing's equity is minus 8.6 billion USD. But as Boeing uses program for cost accounting, you have to deduct the deferred cost booked to assets, as the deferred cost are an asset that does not exists. So you would have a negative equity of 28 billion USD compared to a company accounting to IFRS.

The second big point in Boeing's account is the relation of Advances and progress billings 51,551 million USD compared to the inventories.
The inventories are booked as 76,622 million USD, but there again you have to deduct the deferred cost about 20 billion USD.
So you have on one side the inventories with 56.6 billion USD against prepayments by customers of 51.6 billion USD. So the idea that selling off the inventories will produce huge amount cash is a misunderstanding. The inventories are mainly owned by the customers already.

In the good times, Boeing has no issues. Deferred costs, tax, share buybacks and retrospective credits are all manageable when the business is stable or growing.

Now we have the perfect storm, and a very severe one. The cash cow not generating cash (737). The aircraft and air passenger market has pancaked. No ability to raise capital or credit through conventional channels without assistance. Airline and lessor customers demanding to cash in retrospective credits on undelivered 737's, including compensation component.

Airbus has a different problem, having been consistently under-capitalised compared to the size of it's business and growth rate.
 
Dieuwer
Topic Author
Posts: 2065
Joined: Tue Dec 26, 2017 6:27 pm

Re: Boeing in Crisis

Wed Mar 18, 2020 7:54 pm

Dieuwer wrote:
oschkosch wrote:
Will the stock go lower than 150?

Gesendet von meinem SM-G950F mit Tapatalk


Lower than $100 you mean ;) :stirthepot:


$100 here we are.
 
SteinarN
Posts: 171
Joined: Mon Dec 29, 2014 1:26 pm

Re: Boeing in Crisis

Wed Mar 18, 2020 7:57 pm

Dieuwer wrote:
Dieuwer wrote:
oschkosch wrote:
Will the stock go lower than 150?

Gesendet von meinem SM-G950F mit Tapatalk


Lower than $100 you mean ;) :stirthepot:


$100 here we are.


Basically, yes.
It was at 90 earlier today, have recovered somewhat and are now at 102.
 
golfradio
Posts: 919
Joined: Mon Jun 15, 2009 5:35 pm

Re: Boeing Financial Discussion 2020

Wed Mar 18, 2020 8:10 pm

When times are good, boards and shareholders want the compoany to spend free cashflow for stock buybacks. As the stock prices ticks up, all the suited fatcats go home with obscene bonuses. Now they have nothing saved up for a rainy day and the managements come out with their begging bowls asking the employees and tax payers to take a haircut. If there was ever a time for wage regulation for executives and wall street sharks, it is now.

Airlines and Boeing want a bailout — but look how much they’ve spent on stock buybacks
CSeries forever. Bring back the old site.
 
morrisond
Posts: 2495
Joined: Thu Jan 07, 2010 12:22 am

Re: Boeing Financial Discussion 2020

Wed Mar 18, 2020 8:15 pm

mjoelnir wrote:
morrisond wrote:
SQ32 wrote:
Boeing being described by Zerohedge, as clowns and monkeys.


https://www.zerohedge.com/markets/botto ... lion-short

Stock price has crashed from $350 to $130 in a little over a month after it announced it was fully drawing down its revolver: Boeing. S&P cut Boeing's credit rating by two notches late on Monday, to BBB from A-, as its "cash flows for the next two years are going to be much weaker. And worst of all, Boeing will likely be downgraded again, as S&P kept it on Credit Watch negative, meaning it may be just a matter of time before Boeing is downgraded to junk,

Boeing is now also seeking "short-term aid" in talks with the White House and lawmakers; in other words a "bailout.

Boeing was perfectly happy to load up on as much debt as it could over the past decade, the bulk of the proceeds was used for none other than enriching its shareholders and management, with zero consideration for those same employees and suppliers that the company suddenly cares so much about now. And Boeing certainly didn't care about its passengers when it cut every corner it could find, to design the 737 MAX as cheaply as possible, a plane that was "designed by clowns, who are in turn supervised by monkeys", even if it meant the airplane would become a deathtrap.

Boeing has repurchased over $100 billion in stocks since 2013, helping push its stock to all-time highs not that long ago.


Pre-Max Boeing had very little debt. Share repurchases came from excess cash flow. Debt was only about $14B which is nothing for what Boeings revenues and profits were.


You use of course a very narrow definition of debt and of course avoid looking at liabilities and obligations.

Definition of debt Investopedia: Debt is an amount of money borrowed by one party from another. Debt is used by many corporations and individuals as a method of making large purchases that they could not afford under normal circumstances. A debt arrangement gives the borrowing party permission to borrow money under the condition that it is to be paid back at a later date, usually with interest.

Definition of total liabilities: Total liabilities are the combined debts and obligations that an individual or company owes to outside parties. All assets of a company are either owned by the entity and classified as equity or are subject to future obligations and recorded as a liability. On the balance sheet, total liabilities plus equity must equal total assets.

Definition of obligations: An obligation in finance is the responsibility to meet the terms of a contract. If an obligation is not met, the legal system often provides recourse for the injured party.
How an Obligation Works
Financial obligations represent any outstanding debts or regular payments that you must make. If you owe or will owe money to anybody, that is one of your financial obligations. Almost any form of money represents a financial obligation—coins, bank notes, or bonds are all promises that you will be credited with the accepted value of the item. Most formal financial obligations, like mortgages, student loans or scheduled service payments, are set down in written contracts signed by both parties. Brokers performing short selling and put options are dealing with obligations.


If you look at liabilities, that includes everything. What you owe to your suppliers, what you owe to your customers and so on. I know that Boeing did like to talk about low depts, aka only what Boeing owes to financial institutions and did not like to talk about the other liabilities, aka what Boeing owes to everybody else.

The next point is that a big part of Boeing's assets, exactly at the time of the decision for the MAX, where deferred cost, or you can talk about not existing.

The point is that all the time Boeing had a low equity, when you take the deferred cost out of the assets, a negative equity. With other words, for years Boeing's assets did not cover it's liabilities. So there was no excessive capital to use on share buy backs. There would rather have been a need to conserve capital.

You now see the result of billions of share buy backs. Boeing's stock price 5 years ago was 154.50 USD and is now 124.15. That after burning in that time nearly 40 billion USD on share buy backs.
Airbus, with no share buy backs during that time, 61.40 EUR five years ago, now 63.04 EUR.

So what have 40 billion stock buy backs bought Boeing, other than burning capital? How would Boeing stand today with a solid equity, rather than with all coffers empty?


No I was talking about debt and what was on the Balance sheet pre-max. Someone said that they bought back $100B in stock by issuing debt - which was wrong. That is all I was saying.

Deferred Cost is meaningless - they do not owe that to anyone. They have already paid that cost - when it is reducing all it does is lower reported earnings. There is no cash cost to this.

There was no need to have $40B cash sitting on the balance sheet. - Maybe $20B but not $40B - and BTW I was always one of those advocating for investing that excess cash flow into new product - not stock buybacks.
 
User avatar
InsideMan
Posts: 344
Joined: Thu Aug 04, 2011 9:49 am

Re: Boeing in Crisis

Wed Mar 18, 2020 8:32 pm

SteinarN wrote:
Dieuwer wrote:
Dieuwer wrote:

Lower than $100 you mean ;) :stirthepot:


$100 here we are.


Basically, yes.
It was at 90 earlier today, have recovered somewhat and are now at 102.


You don't really believe this is rock bottom, do you?
 
User avatar
BN727227Ultra
Posts: 669
Joined: Fri Jan 10, 2014 7:15 pm

Re: Boeing Financial Discussion 2020

Wed Mar 18, 2020 8:34 pm

The Treasury is going to be in the aerospace business, for a period certain (relatively, by government standards!) Just like twelve years ago they were in the automobile business. And the banking business. And the solar-panel business.
 
MohawkWeekend
Posts: 109
Joined: Tue Jan 08, 2019 2:06 pm

Re: Boeing Financial Discussion 2020

Wed Mar 18, 2020 8:39 pm

I agree. Maybe they'll force some real changes on how Boeing and unfortunately most American companies have operated for the last 30 years i.e. shareholders first and the outrageous executive compensation
    300 319 320 321 707 717 720 727 72S 737 73S 734 735 73G 738 739 747 757 762 ARJ B11 C212 CRJ CR2 CR7 CR9 CV5 D8S DC9 D9S D94 D95 D10 DH8 DTO EMB EM2 E135 E145 E190 FH7 F28 F100 FTRIMTR HRN L10 L15 M80 M90 SF3 SWM YS11
     
    mjoelnir
    Posts: 9388
    Joined: Sun Feb 03, 2013 11:06 pm

    Re: Boeing Financial Discussion 2020

    Wed Mar 18, 2020 8:54 pm

    morrisond wrote:
    mjoelnir wrote:
    morrisond wrote:

    Pre-Max Boeing had very little debt. Share repurchases came from excess cash flow. Debt was only about $14B which is nothing for what Boeings revenues and profits were.


    You use of course a very narrow definition of debt and of course avoid looking at liabilities and obligations.

    Definition of debt Investopedia: Debt is an amount of money borrowed by one party from another. Debt is used by many corporations and individuals as a method of making large purchases that they could not afford under normal circumstances. A debt arrangement gives the borrowing party permission to borrow money under the condition that it is to be paid back at a later date, usually with interest.

    Definition of total liabilities: Total liabilities are the combined debts and obligations that an individual or company owes to outside parties. All assets of a company are either owned by the entity and classified as equity or are subject to future obligations and recorded as a liability. On the balance sheet, total liabilities plus equity must equal total assets.

    Definition of obligations: An obligation in finance is the responsibility to meet the terms of a contract. If an obligation is not met, the legal system often provides recourse for the injured party.
    How an Obligation Works
    Financial obligations represent any outstanding debts or regular payments that you must make. If you owe or will owe money to anybody, that is one of your financial obligations. Almost any form of money represents a financial obligation—coins, bank notes, or bonds are all promises that you will be credited with the accepted value of the item. Most formal financial obligations, like mortgages, student loans or scheduled service payments, are set down in written contracts signed by both parties. Brokers performing short selling and put options are dealing with obligations.


    If you look at liabilities, that includes everything. What you owe to your suppliers, what you owe to your customers and so on. I know that Boeing did like to talk about low depts, aka only what Boeing owes to financial institutions and did not like to talk about the other liabilities, aka what Boeing owes to everybody else.

    The next point is that a big part of Boeing's assets, exactly at the time of the decision for the MAX, where deferred cost, or you can talk about not existing.

    The point is that all the time Boeing had a low equity, when you take the deferred cost out of the assets, a negative equity. With other words, for years Boeing's assets did not cover it's liabilities. So there was no excessive capital to use on share buy backs. There would rather have been a need to conserve capital.

    You now see the result of billions of share buy backs. Boeing's stock price 5 years ago was 154.50 USD and is now 124.15. That after burning in that time nearly 40 billion USD on share buy backs.
    Airbus, with no share buy backs during that time, 61.40 EUR five years ago, now 63.04 EUR.

    So what have 40 billion stock buy backs bought Boeing, other than burning capital? How would Boeing stand today with a solid equity, rather than with all coffers empty?


    No I was talking about debt and what was on the Balance sheet pre-max. Someone said that they bought back $100B in stock by issuing debt - which was wrong. That is all I was saying.

    Deferred Cost is meaningless - they do not owe that to anyone. They have already paid that cost - when it is reducing all it does is lower reported earnings. There is no cash cost to this.

    There was no need to have $40B cash sitting on the balance sheet. - Maybe $20B but not $40B - and BTW I was always one of those advocating for investing that excess cash flow into new product - not stock buybacks.


    You seem to be of the opinion that you can just defer cost and it goes quietly away. Bookkeeping magic done by Boeing.

    Deferring cost has influence on profits or net earnings and through that on equity. Compared to IFRS or normal US GAAP the accumulated profits are higher by the amount of the deferred cost. With simple words, part of the profits or net earnings declared have not been made. Equity is shown to high by the amount of deferred cost.
    Because deferred cost is booked to inventories, Boeing shows more assets than they really have. So looking at Boeing's inventories you have to lower the inventories by the amount of deferred cost to find the real value of the inventories.

    That all evens out when the deferred cost are booked. No disappearing magic possible,

    When the storm hits 20 billion of missing assets do matter.
     
    IWMBH
    Posts: 485
    Joined: Tue Apr 17, 2018 5:01 pm

    Re: Boeing in Crisis

    Wed Mar 18, 2020 9:19 pm

    mila wrote:
    IWMBH wrote:
    mila wrote:
    But we have Russia if they can get work around of US embargos and China soon so Boeing is not that much needed!


    Yeah, no way. Russia doesn’t have plane that is comparable with any of Boeing planes in terms of efficiency, and I doubt they will get there. China will get there but that will take years. And even if China and Russia catch up there is no way the US government will allow its valuable plane industry to leave the US.

    That depends on how dirty US government plays, the more dirty the longer it takes but once done there is no way back for US companies in Russia, China and possible even EC.


    Even then, Boeing will survive as a military supplier. But, if China, Russia and the EU kick Boeing out (especially the EU sounds very unlikely) it would trigger the trade war of the century.

    I don’t see Boeing disappear from the aircraft market for a long, long time. With our without “the dirty US government”, whatever that might be.
     
    SteinarN
    Posts: 171
    Joined: Mon Dec 29, 2014 1:26 pm

    Re: Boeing in Crisis

    Wed Mar 18, 2020 9:34 pm

    InsideMan wrote:
    SteinarN wrote:
    Dieuwer wrote:

    $100 here we are.


    Basically, yes.
    It was at 90 earlier today, have recovered somewhat and are now at 102.


    You don't really believe this is rock bottom, do you?


    I said nothing about what I believe. I have no crystal ball at all.
    That said, i dont think this is the bottom. I think Boeing (and Airbus) will have to reduce their production rate, maybe considerably, later this year, especially for the wide bodies. Well, Boeing can only reduce their production rates on the wide bodies, obviously.

    I think gaps will appear in the A320 delivery stream, gaps that potentially can be filled with Max's defectors. So, Boeing have the most downside potential going forward.
     
    morrisond
    Posts: 2495
    Joined: Thu Jan 07, 2010 12:22 am

    Re: Boeing Financial Discussion 2020

    Wed Mar 18, 2020 10:01 pm

    mjoelnir wrote:
    morrisond wrote:
    mjoelnir wrote:

    You use of course a very narrow definition of debt and of course avoid looking at liabilities and obligations.

    Definition of debt Investopedia: Debt is an amount of money borrowed by one party from another. Debt is used by many corporations and individuals as a method of making large purchases that they could not afford under normal circumstances. A debt arrangement gives the borrowing party permission to borrow money under the condition that it is to be paid back at a later date, usually with interest.

    Definition of total liabilities: Total liabilities are the combined debts and obligations that an individual or company owes to outside parties. All assets of a company are either owned by the entity and classified as equity or are subject to future obligations and recorded as a liability. On the balance sheet, total liabilities plus equity must equal total assets.

    Definition of obligations: An obligation in finance is the responsibility to meet the terms of a contract. If an obligation is not met, the legal system often provides recourse for the injured party.
    How an Obligation Works
    Financial obligations represent any outstanding debts or regular payments that you must make. If you owe or will owe money to anybody, that is one of your financial obligations. Almost any form of money represents a financial obligation—coins, bank notes, or bonds are all promises that you will be credited with the accepted value of the item. Most formal financial obligations, like mortgages, student loans or scheduled service payments, are set down in written contracts signed by both parties. Brokers performing short selling and put options are dealing with obligations.


    If you look at liabilities, that includes everything. What you owe to your suppliers, what you owe to your customers and so on. I know that Boeing did like to talk about low depts, aka only what Boeing owes to financial institutions and did not like to talk about the other liabilities, aka what Boeing owes to everybody else.

    The next point is that a big part of Boeing's assets, exactly at the time of the decision for the MAX, where deferred cost, or you can talk about not existing.

    The point is that all the time Boeing had a low equity, when you take the deferred cost out of the assets, a negative equity. With other words, for years Boeing's assets did not cover it's liabilities. So there was no excessive capital to use on share buy backs. There would rather have been a need to conserve capital.

    You now see the result of billions of share buy backs. Boeing's stock price 5 years ago was 154.50 USD and is now 124.15. That after burning in that time nearly 40 billion USD on share buy backs.
    Airbus, with no share buy backs during that time, 61.40 EUR five years ago, now 63.04 EUR.

    So what have 40 billion stock buy backs bought Boeing, other than burning capital? How would Boeing stand today with a solid equity, rather than with all coffers empty?


    No I was talking about debt and what was on the Balance sheet pre-max. Someone said that they bought back $100B in stock by issuing debt - which was wrong. That is all I was saying.

    Deferred Cost is meaningless - they do not owe that to anyone. They have already paid that cost - when it is reducing all it does is lower reported earnings. There is no cash cost to this.

    There was no need to have $40B cash sitting on the balance sheet. - Maybe $20B but not $40B - and BTW I was always one of those advocating for investing that excess cash flow into new product - not stock buybacks.


    You seem to be of the opinion that you can just defer cost and it goes quietly away. Bookkeeping magic done by Boeing.

    Deferring cost has influence on profits or net earnings and through that on equity. Compared to IFRS or normal US GAAP the accumulated profits are higher by the amount of the deferred cost. With simple words, part of the profits or net earnings declared have not been made. Equity is shown to high by the amount of deferred cost.
    Because deferred cost is booked to inventories, Boeing shows more assets than they really have. So looking at Boeing's inventories you have to lower the inventories by the amount of deferred cost to find the real value of the inventories.

    That all evens out when the deferred cost are booked. No disappearing magic possible,

    When the storm hits 20 billion of missing assets do matter.


    And exactly why does that matter now at all? It's not an asset they can sell for cash or something they have to pay back with cash. It has zero relevance.

    Unlike the MAX they don't have 100 complete 787's sitting around they can sell for cash -even if it would be cents on the dollar right now.

    No one ever assumed they are an asset like you are implying.
     
    boacvc10
    Posts: 510
    Joined: Tue Jul 25, 2006 2:31 pm

    Re: Boeing Financial Discussion 2020

    Wed Mar 18, 2020 10:30 pm

    smartplane wrote:
    mjoelnir wrote:

    Now we have the perfect storm, and a very severe one. The cash cow not generating cash (737). The aircraft and air passenger market has pancaked. No ability to raise capital or credit through conventional channels without assistance. Airline and lessor customers demanding to cash in retrospective credits on undelivered 737's, including compensation component.

    Airbus has a different problem, having been consistently under-capitalised compared to the size of it's business and growth rate.


    Any chance of:
    • Boeing being bought out (taken over) by another company with healthy cash at hand? (e.g., Apple or some other U.S. corporate entity/giant) Analysts were valuing the whole company at a modest price of less than $100B
    • If it is really is too big to fail (I agree it is too vital to fail), and the 737MAX with MCAS is an albatross, why should Boeing not take advantage of the global and US Gov't mandated forced closure of aviation business (here, Uncle Sam can help by issuing declaration giving legal cover) and declare Force Majeure citing the impossible situation as just cause, for no fault of their own.
    • They. then cannot and should not be penalized for breaking the supply contract for 737MAX but to resolve the outstanding commitment could softly negotiate with the customers to trade their 737MAX w/MCAS orders to newer aircraft and other designs - that have certification and are flying, and can be delivered after resumption of operations starting 4Q/2020 with guarantee they will be able to fly
    • All undelivered and non-flyable 737MAX aircraft could be scrapped or used as parts donors where feasible - like the auto indusry bailout (TARP) buy back of older cars, sort of
    • In my opinion, this major step would allow a soft landing (back door) for customers who will be severely affected by the global slowdown for 2020 and revise their procurement strategies with new financing arrangements and no old commitments - they can't possibly be still waiting for those long awaited 737MAX aircraft which may not be needed as the pandemic is not under control, and we may have very soft demand for air travel all the way to 2021. Would any passenger willingly travel to another country when a cure for the pandemic hasn't even been identified, much less planned to be available until at least 4Q/2020?This allows them to clear their accounting to a much healthier state of preparation for the inevitable takeover (other investment group, other corporation, US Gov't) and reorganization -keeping their business model intact.
    • Of course, the management team will have to take one for the team, but the company will survive.
    Up, up and Away!
     
    mjoelnir
    Posts: 9388
    Joined: Sun Feb 03, 2013 11:06 pm

    Re: Boeing Financial Discussion 2020

    Wed Mar 18, 2020 10:57 pm

    morrisond wrote:
    mjoelnir wrote:
    morrisond wrote:

    No I was talking about debt and what was on the Balance sheet pre-max. Someone said that they bought back $100B in stock by issuing debt - which was wrong. That is all I was saying.

    Deferred Cost is meaningless - they do not owe that to anyone. They have already paid that cost - when it is reducing all it does is lower reported earnings. There is no cash cost to this.

    There was no need to have $40B cash sitting on the balance sheet. - Maybe $20B but not $40B - and BTW I was always one of those advocating for investing that excess cash flow into new product - not stock buybacks.


    You seem to be of the opinion that you can just defer cost and it goes quietly away. Bookkeeping magic done by Boeing.

    Deferring cost has influence on profits or net earnings and through that on equity. Compared to IFRS or normal US GAAP the accumulated profits are higher by the amount of the deferred cost. With simple words, part of the profits or net earnings declared have not been made. Equity is shown to high by the amount of deferred cost.
    Because deferred cost is booked to inventories, Boeing shows more assets than they really have. So looking at Boeing's inventories you have to lower the inventories by the amount of deferred cost to find the real value of the inventories.

    That all evens out when the deferred cost are booked. No disappearing magic possible,

    When the storm hits 20 billion of missing assets do matter.


    And exactly why does that matter now at all? It's not an asset they can sell for cash or something they have to pay back with cash. It has zero relevance.

    Unlike the MAX they don't have 100 complete 787's sitting around they can sell for cash -even if it would be cents on the dollar right now.

    No one ever assumed they are an asset like you are implying.


    Usually that is what inventories are for, selling them for cash. Of course the inventory includes work in progress that you expect to sell for cash one day. If you can not sell them for cash, you usually need to write them off. I would dare you to try to sell somebody a 20 billion inventory of deferred cost. Are you prepared to buy it?
     
    FLALEFTY
    Posts: 555
    Joined: Tue Jan 31, 2006 11:33 am

    Re: Boeing Financial Discussion 2020

    Wed Mar 18, 2020 11:48 pm

    boacvc10 wrote:
    smartplane wrote:
    mjoelnir wrote:

    Now we have the perfect storm, and a very severe one. The cash cow not generating cash (737). The aircraft and air passenger market has pancaked. No ability to raise capital or credit through conventional channels without assistance. Airline and lessor customers demanding to cash in retrospective credits on undelivered 737's, including compensation component.

    Airbus has a different problem, having been consistently under-capitalised compared to the size of it's business and growth rate.


    Any chance of:
    • Boeing being bought out (taken over) by another company with healthy cash at hand? (e.g., Apple or some other U.S. corporate entity/giant) Analysts were valuing the whole company at a modest price of less than $100B
    • If it is really is too big to fail (I agree it is too vital to fail), and the 737MAX with MCAS is an albatross, why should Boeing not take advantage of the global and US Gov't mandated forced closure of aviation business (here, Uncle Sam can help by issuing declaration giving legal cover) and declare Force Majeure citing the impossible situation as just cause, for no fault of their own.
    • They. then cannot and should not be penalized for breaking the supply contract for 737MAX but to resolve the outstanding commitment could softly negotiate with the customers to trade their 737MAX w/MCAS orders to newer aircraft and other designs - that have certification and are flying, and can be delivered after resumption of operations starting 4Q/2020 with guarantee they will be able to fly
    • All undelivered and non-flyable 737MAX aircraft could be scrapped or used as parts donors where feasible - like the auto indusry bailout (TARP) buy back of older cars, sort of
    • In my opinion, this major step would allow a soft landing (back door) for customers who will be severely affected by the global slowdown for 2020 and revise their procurement strategies with new financing arrangements and no old commitments - they can't possibly be still waiting for those long awaited 737MAX aircraft which may not be needed as the pandemic is not under control, and we may have very soft demand for air travel all the way to 2021. Would any passenger willingly travel to another country when a cure for the pandemic hasn't even been identified, much less planned to be available until at least 4Q/2020?This allows them to clear their accounting to a much healthier state of preparation for the inevitable takeover (other investment group, other corporation, US Gov't) and reorganization -keeping their business model intact.
    • Of course, the management team will have to take one for the team, but the company will survive.


    I'll give you my list of "strings attached" to this bailout that I'd like to see:

    1) Close the HQ in Chicago and move it back to Seattle. This would shorten the communication chain between top management and the engineers building their planes. It would also cure management's attitude that "Boeing is bigger than just an airplane company."
    2) Commit to development of a modern replacement for the 737MAX immediately.
    3) Fire the C-Suite & fire the board. They approved the tactics by Boeing that got them into trouble in the first place. Instead, recruit the best "Red Team" of top aerospace managers to run Boeing, even if they have to haul them out of retirement.
    4) Spin off the Defense & Space operations & sell them to either Lockheed Martin or Northrop Grumman.
    5) Wind down the already-slowing 787 FAL in Charleston and move production back to Seattle. The cheap labor and taxpayer incentives provided by South Carolina are probably not offsetting the higher costs of long-distance management and complicated logistics to make CHS operations truly profitable.
    6) Back out of the Embraer Commercial takeover. Boeing lacks the funding & resources to fix Embraer's inability to build a modern regional jet that can meet US airlines' scope clauses.
    7) NO MORE STOCK BUYBACKS!
     
    User avatar
    Wahoo
    Posts: 18
    Joined: Mon Oct 02, 2006 11:18 pm

    Re: Boeing Financial Discussion 2020

    Thu Mar 19, 2020 2:26 am

    Is there anything, I mean anything that gives us hope Calhoun, C-suite and the shareholders wont fleece BCA again? Some law or even good hearts?
     
    morrisond
    Posts: 2495
    Joined: Thu Jan 07, 2010 12:22 am

    Re: Boeing Financial Discussion 2020

    Thu Mar 19, 2020 2:41 am

    mjoelnir wrote:
    morrisond wrote:
    mjoelnir wrote:

    You seem to be of the opinion that you can just defer cost and it goes quietly away. Bookkeeping magic done by Boeing.

    Deferring cost has influence on profits or net earnings and through that on equity. Compared to IFRS or normal US GAAP the accumulated profits are higher by the amount of the deferred cost. With simple words, part of the profits or net earnings declared have not been made. Equity is shown to high by the amount of deferred cost.
    Because deferred cost is booked to inventories, Boeing shows more assets than they really have. So looking at Boeing's inventories you have to lower the inventories by the amount of deferred cost to find the real value of the inventories.

    That all evens out when the deferred cost are booked. No disappearing magic possible,

    When the storm hits 20 billion of missing assets do matter.


    And exactly why does that matter now at all? It's not an asset they can sell for cash or something they have to pay back with cash. It has zero relevance.

    Unlike the MAX they don't have 100 complete 787's sitting around they can sell for cash -even if it would be cents on the dollar right now.

    No one ever assumed they are an asset like you are implying.


    Usually that is what inventories are for, selling them for cash. Of course the inventory includes work in progress that you expect to sell for cash one day. If you can not sell them for cash, you usually need to write them off. I would dare you to try to sell somebody a 20 billion inventory of deferred cost. Are you prepared to buy it?


    Exactly - that is what I am saying - it's an accounting entry and has zero value. No one cares as you do about some arcane measure of equity.

    The only three numbers that really matter is how much debt do they have - how much cash and what is the future cash flow.

    What we don't know is how many customers have suspended delivery of Non- max aircraft - they were still cash flow positive without MAX but if no customers can afford to take deliveries of 787 and 777 and services/parts revenue has probably fallen by 80% they will be shutting those lines very soon as well.

    Luckily they still have defense. Which is about 40% of revenue.
     
    MSPNWA
    Posts: 3665
    Joined: Thu Apr 23, 2009 2:48 am

    Re: Boeing Financial Discussion 2020

    Thu Mar 19, 2020 3:53 am

    mjoelnir wrote:
    I would assume that you do not run a company, if you assume that liabilities do not way as heavy as debt.


    Better watch out when it rains . . .

    Don't make poor assumptions . . . or call the kettle black. Your passion is only good for kicks and giggles. Should anyone care if a successful corporation can voluntarily shut its doors (which it never does) and have a positive balance remaining for shareholders? Of course not. It might be fun for a hypothetical what-if, but it's not at all useful for gauging the status of a corporation. People don't invest in a company for a cash distribution when it voluntarily shuts down.

    Boeing has had no trouble covering its liabilities and having plenty of revenue left over. And on a relative basis, it has borrowed very little money and has a low debt load. Those are the facts that matter.
     
    User avatar
    InsideMan
    Posts: 344
    Joined: Thu Aug 04, 2011 9:49 am

    Re: Boeing Financial Discussion 2020

    Thu Mar 19, 2020 8:15 am

    FLALEFTY wrote:
    boacvc10 wrote:
    smartplane wrote:


    Any chance of:
    • Boeing being bought out (taken over) by another company with healthy cash at hand? (e.g., Apple or some other U.S. corporate entity/giant) Analysts were valuing the whole company at a modest price of less than $100B
    • If it is really is too big to fail (I agree it is too vital to fail), and the 737MAX with MCAS is an albatross, why should Boeing not take advantage of the global and US Gov't mandated forced closure of aviation business (here, Uncle Sam can help by issuing declaration giving legal cover) and declare Force Majeure citing the impossible situation as just cause, for no fault of their own.
    • They. then cannot and should not be penalized for breaking the supply contract for 737MAX but to resolve the outstanding commitment could softly negotiate with the customers to trade their 737MAX w/MCAS orders to newer aircraft and other designs - that have certification and are flying, and can be delivered after resumption of operations starting 4Q/2020 with guarantee they will be able to fly
    • All undelivered and non-flyable 737MAX aircraft could be scrapped or used as parts donors where feasible - like the auto indusry bailout (TARP) buy back of older cars, sort of
    • In my opinion, this major step would allow a soft landing (back door) for customers who will be severely affected by the global slowdown for 2020 and revise their procurement strategies with new financing arrangements and no old commitments - they can't possibly be still waiting for those long awaited 737MAX aircraft which may not be needed as the pandemic is not under control, and we may have very soft demand for air travel all the way to 2021. Would any passenger willingly travel to another country when a cure for the pandemic hasn't even been identified, much less planned to be available until at least 4Q/2020?This allows them to clear their accounting to a much healthier state of preparation for the inevitable takeover (other investment group, other corporation, US Gov't) and reorganization -keeping their business model intact.
    • Of course, the management team will have to take one for the team, but the company will survive.


    I'll give you my list of "strings attached" to this bailout that I'd like to see:

    1) Close the HQ in Chicago and move it back to Seattle. This would shorten the communication chain between top management and the engineers building their planes. It would also cure management's attitude that "Boeing is bigger than just an airplane company."
    2) Commit to development of a modern replacement for the 737MAX immediately.
    3) Fire the C-Suite & fire the board. They approved the tactics by Boeing that got them into trouble in the first place. Instead, recruit the best "Red Team" of top aerospace managers to run Boeing, even if they have to haul them out of retirement.
    4) Spin off the Defense & Space operations & sell them to either Lockheed Martin or Northrop Grumman.
    5) Wind down the already-slowing 787 FAL in Charleston and move production back to Seattle. The cheap labor and taxpayer incentives provided by South Carolina are probably not offsetting the higher costs of long-distance management and complicated logistics to make CHS operations truly profitable.
    6) Back out of the Embraer Commercial takeover. Boeing lacks the funding & resources to fix Embraer's inability to build a modern regional jet that can meet US airlines' scope clauses.
    7) NO MORE STOCK BUYBACKS!


    Dont't agree with 5 and 6.
    You need different production sites and capacity and you need a broad portfolio.
    Now, maybe a bailout will have strings attached that influence 5 and 6 but it wouldn't be my priority.
    The rest is sound.
     
    User avatar
    keesje
    Posts: 13693
    Joined: Thu Apr 12, 2001 2:08 am

    Re: Boeing Financial Discussion 2020

    Thu Mar 19, 2020 9:36 am

    Embraer obviously also looks for what is best for them, it has to be a win-win. They aren't up for the grabs.
    https://www.reuters.com/article/us-heal ... SKBN216036

    Some other aerospace company, more healthy, might make Embraer an offer they can't refuse.
    Raytheon Collins, LM, NG, Comac, Leonardo, Safran, Dassault, CASA, KHI, Spirit, a JV of a few, who knows.

    It has to be a credible, promising proposition & acceptable to authorities. Airbus making a move to cover 80-120 seats and
    do a turboprop with Embraer seems e.g. not acceptable in terms of market competition.

    Medium term the industry might see some shifts away from the the facto duopoly we saw in recent years.
    "Never mistake motion for action." Ernest Hemingway
     
    mjoelnir
    Posts: 9388
    Joined: Sun Feb 03, 2013 11:06 pm

    Re: Boeing Financial Discussion 2020

    Thu Mar 19, 2020 9:53 am

    morrisond wrote:
    mjoelnir wrote:
    morrisond wrote:

    And exactly why does that matter now at all? It's not an asset they can sell for cash or something they have to pay back with cash. It has zero relevance.

    Unlike the MAX they don't have 100 complete 787's sitting around they can sell for cash -even if it would be cents on the dollar right now.

    No one ever assumed they are an asset like you are implying.


    Usually that is what inventories are for, selling them for cash. Of course the inventory includes work in progress that you expect to sell for cash one day. If you can not sell them for cash, you usually need to write them off. I would dare you to try to sell somebody a 20 billion inventory of deferred cost. Are you prepared to buy it?


    Exactly - that is what I am saying - it's an accounting entry and has zero value. No one cares as you do about some arcane measure of equity.

    The only three numbers that really matter is how much debt do they have - how much cash and what is the future cash flow.

    What we don't know is how many customers have suspended delivery of Non- max aircraft - they were still cash flow positive without MAX but if no customers can afford to take deliveries of 787 and 777 and services/parts revenue has probably fallen by 80% they will be shutting those lines very soon as well.

    Luckily they still have defense. Which is about 40% of revenue.


    It is exactly not what you are saying. Boeing declares inventory that does not exist. Boeing accounts for 20 billion USD that do not exist. Is that so difficult to understand? Or is it a case of denial?
    You own 3 apartments, but you declare that you own 4 to your creditors and the world. In your opinion that would not matter.

    The think that matters most in the moment are current liabilities, obligations you have to cover inside this year and that includes short term debts. Long term debts you can talk about with your bank. The current liabilities, that Boeing has to cover are enormous and they are growing not decreasing as it is.
    It is perhaps even more important to pay your supplier than your bank. The bank can extend the loan, but the supplier goes bust when you do not pay and what that does to your ability to build airplanes in the future I should not need to explain to you.

    Talking about debts to the exclusion of other liabilities is exactly part of the smokescreen having been used by the Boeing management and you are trying to keep up the smokescreen.
     
    StTim
    Posts: 3620
    Joined: Thu Aug 08, 2013 7:39 am

    Re: Boeing Financial Discussion 2020

    Thu Mar 19, 2020 10:27 am

    In UK law it is illegal to trade whilst insolvent.

    This is defined as “ A limited company becomes insolvent when it can no longer pay its bills when due, or its liabilities—including contingent liabilities such as redundancy payments—outweigh the company’s assets. ”

    https://en.m.wikipedia.org/wiki/Trading_while_insolvent

    I am sure $20bn of deferred costs could not be counted as an asset for these purposes.
     
    mjoelnir
    Posts: 9388
    Joined: Sun Feb 03, 2013 11:06 pm

    Re: Boeing Financial Discussion 2020

    Thu Mar 19, 2020 10:32 am

    StTim wrote:
    In UK law it is illegal to trade whilst insolvent.

    This is defined as “ A limited company becomes insolvent when it can no longer pay its bills when due, or its liabilities—including contingent liabilities such as redundancy payments—outweigh the company’s assets. ”

    https://en.m.wikipedia.org/wiki/Trading_while_insolvent

    I am sure $20bn of deferred costs could not be counted as an asset for these purposes.


    That is a concept that our USA friends do not understand. In a lot of countries it is straight to the bankruptcy court when your equity goes below zero and that does not include a concept like deferred cost.
     
    morrisond
    Posts: 2495
    Joined: Thu Jan 07, 2010 12:22 am

    Re: Boeing Financial Discussion 2020

    Thu Mar 19, 2020 12:52 pm

    mjoelnir wrote:
    morrisond wrote:
    mjoelnir wrote:

    Usually that is what inventories are for, selling them for cash. Of course the inventory includes work in progress that you expect to sell for cash one day. If you can not sell them for cash, you usually need to write them off. I would dare you to try to sell somebody a 20 billion inventory of deferred cost. Are you prepared to buy it?


    Exactly - that is what I am saying - it's an accounting entry and has zero value. No one cares as you do about some arcane measure of equity.

    The only three numbers that really matter is how much debt do they have - how much cash and what is the future cash flow.

    What we don't know is how many customers have suspended delivery of Non- max aircraft - they were still cash flow positive without MAX but if no customers can afford to take deliveries of 787 and 777 and services/parts revenue has probably fallen by 80% they will be shutting those lines very soon as well.

    Luckily they still have defense. Which is about 40% of revenue.


    It is exactly not what you are saying. Boeing declares inventory that does not exist. Boeing accounts for 20 billion USD that do not exist. Is that so difficult to understand? Or is it a case of denial?
    You own 3 apartments, but you declare that you own 4 to your creditors and the world. In your opinion that would not matter.

    The think that matters most in the moment are current liabilities, obligations you have to cover inside this year and that includes short term debts. Long term debts you can talk about with your bank. The current liabilities, that Boeing has to cover are enormous and they are growing not decreasing as it is.
    It is perhaps even more important to pay your supplier than your bank. The bank can extend the loan, but the supplier goes bust when you do not pay and what that does to your ability to build airplanes in the future I should not need to explain to you.

    Talking about debts to the exclusion of other liabilities is exactly part of the smokescreen having been used by the Boeing management and you are trying to keep up the smokescreen.


    Everyone except for you knows that that $20B of inventory wasn't real due to the way Boeing accounts for it's programs. I'm pretty sure Boeing's lenders know this.

    As I stated above - there biggest problem will be customers refusing delivery right now. I'm pretty sure that most Aerospace contracts worldwide are written so that suppliers only get paid upon delivery. We learned a lot about this with the MAX.

    That is why Boeing is requesting $60B for the industry not just itself.

    I'm sure we will see something similar for all Aerospace companies worldwide very soon as I would be stunned if production for all types isn't suspended or severely curtailed shortly. If Boeing and Airbus deliver 1,500ish frames in a normal year - once deliveries wind down in the next few weeks (if they haven't stopped already) I'll be stunned if its more than 300-400 deliveries combined in the next 12 months, with a lot of them Grounded MAX's probably at a discount as the are already built and Boeing has supported a lot of it's suppliers in the production of those frames so they would maximize cash flow in with the delivery of those frames.
     
    FluidFlow
    Posts: 567
    Joined: Wed Apr 10, 2019 6:39 am

    Re: Boeing Financial Discussion 2020

    Thu Mar 19, 2020 1:18 pm

    morrisond wrote:

    Everyone except for you knows that that $20B of inventory wasn't real due to the way Boeing accounts for it's programs. I'm pretty sure Boeing's lenders know this.



    They did, when Boeing had a healthy cash flow and a positive perspective. On the other hand in a situation like now, having $20Bn of fake inventory, on top of a lot of dept (14Bn just from the loan granted in January + the rest of the dept from before), means there is not a lot of room left to breath. I mean the market cap right of this minute is at around 70Bn. It will most probably go further down in the next few weeks.

    It might be time to actually correct the fake inventory and write if off, worst case would be to lose another 20-30Bn market cap but who would it really hurt anymore. Bailout is now anyway inevitable. The Problem is then at least partially solved but the only way to go forward from now is to massively reduce liabilities by winding down production and laying off staff. As hard as it sounds but 737 will probably stay at 30 per month for 3-5 years and 787 will also go down to into the 5-8 range. Take the Bailout money to pay off the supply chain and shrink the company back to healthy size.

    Everything is right now blown out of prerspective (as seen with 20Bn fake inventory). Times have changed. It will be hard for everyone. But better clean out the house now than dragging it on (see AZ).
     
    morrisond
    Posts: 2495
    Joined: Thu Jan 07, 2010 12:22 am

    Re: Boeing Financial Discussion 2020

    Thu Mar 19, 2020 2:29 pm

    FluidFlow wrote:
    morrisond wrote:

    Everyone except for you knows that that $20B of inventory wasn't real due to the way Boeing accounts for it's programs. I'm pretty sure Boeing's lenders know this.



    They did, when Boeing had a healthy cash flow and a positive perspective. On the other hand in a situation like now, having $20Bn of fake inventory, on top of a lot of dept (14Bn just from the loan granted in January + the rest of the dept from before), means there is not a lot of room left to breath. I mean the market cap right of this minute is at around 70Bn. It will most probably go further down in the next few weeks.

    It might be time to actually correct the fake inventory and write if off, worst case would be to lose another 20-30Bn market cap but who would it really hurt anymore. Bailout is now anyway inevitable. The Problem is then at least partially solved but the only way to go forward from now is to massively reduce liabilities by winding down production and laying off staff. As hard as it sounds but 737 will probably stay at 30 per month for 3-5 years and 787 will also go down to into the 5-8 range. Take the Bailout money to pay off the supply chain and shrink the company back to healthy size.

    Everything is right now blown out of prerspective (as seen with 20Bn fake inventory). Times have changed. It will be hard for everyone. But better clean out the house now than dragging it on (see AZ).


    I'm pretty sure the lenders in January knew the $20B isn't real either.

    You are right though they may have to write it off (or do a partial) if they have to change the assumptions on the program block as they have to discount already contracted frames to get Operators to take them.

    It would be great time to do it though as then it wouldn't artificially lower future profits.
     
    Exeiowa
    Posts: 253
    Joined: Fri Jul 06, 2018 4:49 pm

    Re: Boeing Financial Discussion 2020

    Thu Mar 19, 2020 2:46 pm

    morrisond wrote:
    FluidFlow wrote:
    morrisond wrote:

    Everyone except for you knows that that $20B of inventory wasn't real due to the way Boeing accounts for it's programs. I'm pretty sure Boeing's lenders know this.



    They did, when Boeing had a healthy cash flow and a positive perspective. On the other hand in a situation like now, having $20Bn of fake inventory, on top of a lot of dept (14Bn just from the loan granted in January + the rest of the dept from before), means there is not a lot of room left to breath. I mean the market cap right of this minute is at around 70Bn. It will most probably go further down in the next few weeks.

    It might be time to actually correct the fake inventory and write if off, worst case would be to lose another 20-30Bn market cap but who would it really hurt anymore. Bailout is now anyway inevitable. The Problem is then at least partially solved but the only way to go forward from now is to massively reduce liabilities by winding down production and laying off staff. As hard as it sounds but 737 will probably stay at 30 per month for 3-5 years and 787 will also go down to into the 5-8 range. Take the Bailout money to pay off the supply chain and shrink the company back to healthy size.

    Everything is right now blown out of prerspective (as seen with 20Bn fake inventory). Times have changed. It will be hard for everyone. But better clean out the house now than dragging it on (see AZ).


    I'm pretty sure the lenders in January knew the $20B isn't real either.

    You are right though they may have to write it off (or do a partial) if they have to change the assumptions on the program block as they have to discount already contracted frames to get Operators to take them.

    It would be great time to do it though as then it wouldn't artificially lower future profits.


    At that time they knew the 20 billion wasn't real, but at that point it did not matter to them. When things are looking bad suddenly people start recognizing the rocks that they previously ignored. We already in the last financial crisis decide to capitalize gains and socialize losses, its not surprising that companies now expect this as a backstop position. With the threat of unemployment and further harm to ordinary people if there demands are not met. And then when times are good lobby for lower taxation and artificial share elevation. The whole stock market behavior has shown how poor it is at judging the value of companies in the real world situations.

    As an aside many years ago I played a game called Railroad Tycoon. Share buy backs in that game where a certain root to financial ruin. So with all the talk of buy backs over the last few years it struck a chord in my brain. It turned out that maybe I was right to be concerned. Buybacks to me just look like away to evaporate money for no real purpose, as that money realized just goes to chasing limited assets to higher prices for no real gain. Its kind of the opposite of what capital markets are meant to do involving the efficient use of capital. But that boat sailed long ago when financial monkeying became more profitable than making things and providing services to people .
     
    morrisond
    Posts: 2495
    Joined: Thu Jan 07, 2010 12:22 am

    Re: Boeing Financial Discussion 2020

    Thu Mar 19, 2020 4:17 pm

    Exeiowa wrote:
    morrisond wrote:
    FluidFlow wrote:

    They did, when Boeing had a healthy cash flow and a positive perspective. On the other hand in a situation like now, having $20Bn of fake inventory, on top of a lot of dept (14Bn just from the loan granted in January + the rest of the dept from before), means there is not a lot of room left to breath. I mean the market cap right of this minute is at around 70Bn. It will most probably go further down in the next few weeks.

    It might be time to actually correct the fake inventory and write if off, worst case would be to lose another 20-30Bn market cap but who would it really hurt anymore. Bailout is now anyway inevitable. The Problem is then at least partially solved but the only way to go forward from now is to massively reduce liabilities by winding down production and laying off staff. As hard as it sounds but 737 will probably stay at 30 per month for 3-5 years and 787 will also go down to into the 5-8 range. Take the Bailout money to pay off the supply chain and shrink the company back to healthy size.

    Everything is right now blown out of prerspective (as seen with 20Bn fake inventory). Times have changed. It will be hard for everyone. But better clean out the house now than dragging it on (see AZ).


    I'm pretty sure the lenders in January knew the $20B isn't real either.

    You are right though they may have to write it off (or do a partial) if they have to change the assumptions on the program block as they have to discount already contracted frames to get Operators to take them.

    It would be great time to do it though as then it wouldn't artificially lower future profits.


    At that time they knew the 20 billion wasn't real, but at that point it did not matter to them. When things are looking bad suddenly people start recognizing the rocks that they previously ignored. We already in the last financial crisis decide to capitalize gains and socialize losses, its not surprising that companies now expect this as a backstop position. With the threat of unemployment and further harm to ordinary people if there demands are not met. And then when times are good lobby for lower taxation and artificial share elevation. The whole stock market behavior has shown how poor it is at judging the value of companies in the real world situations.

    As an aside many years ago I played a game called Railroad Tycoon. Share buy backs in that game where a certain root to financial ruin. So with all the talk of buy backs over the last few years it struck a chord in my brain. It turned out that maybe I was right to be concerned. Buybacks to me just look like away to evaporate money for no real purpose, as that money realized just goes to chasing limited assets to higher prices for no real gain. Its kind of the opposite of what capital markets are meant to do involving the efficient use of capital. But that boat sailed long ago when financial monkeying became more profitable than making things and providing services to people .


    What you are all missing is that it was never a rock. No one with a brain in the financial markets ever thought it was a real asset. In a textbook maybe - but the real markets don't really go by textbooks. Which sometimes can be very unfortunate. But in regards to the above discussed issue it is not.

    If many asset managers had stuck to the lessons learned after the Great Depression that were taught in the financial texts of the 50's and 60's they would be doing a lot better right now.
     
    texl1649
    Posts: 1163
    Joined: Thu Aug 02, 2007 5:38 am

    Re: Boeing Financial Discussion 2020

    Thu Mar 19, 2020 4:23 pm

    scbriml wrote:
    Sokes wrote:
    scbriml wrote:

    That won’t happen - Boeing has too many friends in Washington.


    I always enjoy your posts and you get a lot of meaning in them even though they are usually short. My posts are rather long. Makes me wonder if I should take didactic lessons from you.



    I’m sure many would say not! :lol:


    In the space of a few trading days Boeing is now a $54 billion market cap. organization. It is conceptually possible at this point they are ripe for a KKR/Carlyle group take-over.
     
    Exeiowa
    Posts: 253
    Joined: Fri Jul 06, 2018 4:49 pm

    Re: Boeing Financial Discussion 2020

    Thu Mar 19, 2020 4:29 pm

    All you are really saying is that the markets did not provide an accurate value, which I am agreeing with.
     
    beechnut
    Posts: 853
    Joined: Wed Apr 21, 2004 12:27 am

    Re: Boeing Financial Discussion 2020

    Thu Mar 19, 2020 4:32 pm

    Maybe Bombardier could buy out Boeing....Bwahahaha!
     
    Sokes
    Posts: 831
    Joined: Sat Mar 09, 2019 4:48 pm

    Re: Boeing Financial Discussion 2020

    Thu Mar 19, 2020 4:47 pm

    morrisond wrote:
    ...
    Deferred Cost is meaningless - they do not owe that to anyone. They have already paid that cost - when it is reducing all it does is lower reported earnings. There is no cash cost to this.

    There was no need to have $40B cash sitting on the balance sheet. - Maybe $20B but not $40B - and BTW I was always one of those advocating for investing that excess cash flow into new product - not stock buybacks.


    True. All it does is to lower reported earnings in future. That is if the A330 Neo isn't so cheap as to force Boeing to sell the B787 at production cost. In which case write-downs will be necessary.

    morrisond wrote:

    And exactly why does that matter now at all? It's not an asset they can sell for cash or something they have to pay back with cash. It has zero relevance.

    Unlike the MAX they don't have 100 complete 787's sitting around they can sell for cash -even if it would be cents on the dollar right now.

    No one ever assumed they are an asset like you are implying.

    It's not an asset for trade. But in the balance sheet it is an asset.

    "Commercial aircraft programs inventory includes deferred production costs and supplier advances.
    Deferred production costs represent actual costs incurred for production of early units that exceed the
    estimated average cost of all units in the program accounting quantity. Higher production costs are
    experienced at the beginning of a new or derivative airplane program. Units produced early in a program
    require substantially more effort (labor and other resources) than units produced later in a program because
    of volume efficiencies and the effects of learning. We expect that these deferred costs will be fully recovered
    when all units included in the accounting quantity are delivered as the expected unit cost for later deliveries
    is below the estimated average cost of all units in the program. Supplier advances represent payments
    for parts we have contracted to receive from suppliers in the future.As parts are received, supplier advances
    are amortized to work in process."
    p.63, https://s2.q4cdn.com/661678649/files/do ... Report.pdf

    Page 53 of the report shows "assets" versus "liabilities and equity"
    Inventories, which include deferred production cost, are an asset.


    Let's assume by now Boeing would have reduced deferred cost by 15 billion $ more. Assets would be 15 billion $ less.
    a) With the same amount of share buybacks liabilities would be the same, but equity would show -23 billion $ instead of -8 billion $.
    133 billion assets = 141 billion liabilities + (- 8) billion equity now
    118 billion assets = 141 billion liabilities + (-23) billion equity instead

    b) With less profits shown the management may have spent 15 billion $ less on share buybacks. Assets would be reduced by 15 billion $. "Equity + liability" would also be reduced by 15 billion $.
    118 billion assets = 126 billion liabilities + (-8) billion equity

    How can you say that deferred cost is meaningless? Can somebody explain to me why deferred cost is money Boeing owes to itself?


    It is understood if Boeing builds up deferred production costs for 50 frames or so. But B787 deferred costs were increasing till 4Q2017.
    http://www.boeing.com/investors/account ... production
    Financial year isn't calendar year, but for rough idea Boeing delivered 636 B787 till end of 2017.
    https://en.wikipedia.org/wiki/Boeing_78 ... deliveries

    By now nearly 1000 planes were delivered, and including two billion $ unamortized tooling there is roughly 20 billion $ left.
    That's not conservative accounting.
    Why can't the world be a little bit more autistic?
     
    morrisond
    Posts: 2495
    Joined: Thu Jan 07, 2010 12:22 am

    Re: Boeing Financial Discussion 2020

    Thu Mar 19, 2020 5:36 pm

    Sokes wrote:
    morrisond wrote:
    ...
    Deferred Cost is meaningless - they do not owe that to anyone. They have already paid that cost - when it is reducing all it does is lower reported earnings. There is no cash cost to this.

    There was no need to have $40B cash sitting on the balance sheet. - Maybe $20B but not $40B - and BTW I was always one of those advocating for investing that excess cash flow into new product - not stock buybacks.


    True. All it does is to lower reported earnings in future. That is if the A330 Neo isn't so cheap as to force Boeing to sell the B787 at production cost. In which case write-downs will be necessary.

    morrisond wrote:

    And exactly why does that matter now at all? It's not an asset they can sell for cash or something they have to pay back with cash. It has zero relevance.

    Unlike the MAX they don't have 100 complete 787's sitting around they can sell for cash -even if it would be cents on the dollar right now.

    No one ever assumed they are an asset like you are implying.

    It's not an asset for trade. But in the balance sheet it is an asset.

    "Commercial aircraft programs inventory includes deferred production costs and supplier advances.
    Deferred production costs represent actual costs incurred for production of early units that exceed the
    estimated average cost of all units in the program accounting quantity. Higher production costs are
    experienced at the beginning of a new or derivative airplane program. Units produced early in a program
    require substantially more effort (labor and other resources) than units produced later in a program because
    of volume efficiencies and the effects of learning. We expect that these deferred costs will be fully recovered
    when all units included in the accounting quantity are delivered as the expected unit cost for later deliveries
    is below the estimated average cost of all units in the program. Supplier advances represent payments
    for parts we have contracted to receive from suppliers in the future.As parts are received, supplier advances
    are amortized to work in process."
    p.63, https://s2.q4cdn.com/661678649/files/do ... Report.pdf

    Page 53 of the report shows "assets" versus "liabilities and equity"
    Inventories, which include deferred production cost, are an asset.


    Let's assume by now Boeing would have reduced deferred cost by 15 billion $ more. Assets would be 15 billion $ less.
    a) With the same amount of share buybacks liabilities would be the same, but equity would show -23 billion $ instead of -8 billion $.
    133 billion assets = 141 billion liabilities + (- 8) billion equity now
    118 billion assets = 141 billion liabilities + (-23) billion equity instead

    b) With less profits shown the management may have spent 15 billion $ less on share buybacks. Assets would be reduced by 15 billion $. "Equity + liability" would also be reduced by 15 billion $.
    118 billion assets = 126 billion liabilities + (-8) billion equity

    How can you say that deferred cost is meaningless? Can somebody explain to me why deferred cost is money Boeing owes to itself?


    It is understood if Boeing builds up deferred production costs for 50 frames or so. But B787 deferred costs were increasing till 4Q2017.
    http://www.boeing.com/investors/account ... production
    Financial year isn't calendar year, but for rough idea Boeing delivered 636 B787 till end of 2017.
    https://en.wikipedia.org/wiki/Boeing_78 ... deliveries

    By now nearly 1000 planes were delivered, and including two billion $ unamortized tooling there is roughly 20 billion $ left.
    That's not conservative accounting.


    Very simply they have already spent that deferred cost and "Paid" for that Inventory. I has no cash cost to them to pay back that account - it is just a book keeping entry and does not impact cash flow.
     
    mjoelnir
    Posts: 9388
    Joined: Sun Feb 03, 2013 11:06 pm

    Re: Boeing Financial Discussion 2020

    Thu Mar 19, 2020 6:16 pm

    morrisond wrote:
    Sokes wrote:
    morrisond wrote:
    ...
    Deferred Cost is meaningless - they do not owe that to anyone. They have already paid that cost - when it is reducing all it does is lower reported earnings. There is no cash cost to this.

    There was no need to have $40B cash sitting on the balance sheet. - Maybe $20B but not $40B - and BTW I was always one of those advocating for investing that excess cash flow into new product - not stock buybacks.


    True. All it does is to lower reported earnings in future. That is if the A330 Neo isn't so cheap as to force Boeing to sell the B787 at production cost. In which case write-downs will be necessary.

    morrisond wrote:

    And exactly why does that matter now at all? It's not an asset they can sell for cash or something they have to pay back with cash. It has zero relevance.

    Unlike the MAX they don't have 100 complete 787's sitting around they can sell for cash -even if it would be cents on the dollar right now.

    No one ever assumed they are an asset like you are implying.

    It's not an asset for trade. But in the balance sheet it is an asset.

    "Commercial aircraft programs inventory includes deferred production costs and supplier advances.
    Deferred production costs represent actual costs incurred for production of early units that exceed the
    estimated average cost of all units in the program accounting quantity. Higher production costs are
    experienced at the beginning of a new or derivative airplane program. Units produced early in a program
    require substantially more effort (labor and other resources) than units produced later in a program because
    of volume efficiencies and the effects of learning. We expect that these deferred costs will be fully recovered
    when all units included in the accounting quantity are delivered as the expected unit cost for later deliveries
    is below the estimated average cost of all units in the program. Supplier advances represent payments
    for parts we have contracted to receive from suppliers in the future.As parts are received, supplier advances
    are amortized to work in process."
    p.63, https://s2.q4cdn.com/661678649/files/do ... Report.pdf

    Page 53 of the report shows "assets" versus "liabilities and equity"
    Inventories, which include deferred production cost, are an asset.


    Let's assume by now Boeing would have reduced deferred cost by 15 billion $ more. Assets would be 15 billion $ less.
    a) With the same amount of share buybacks liabilities would be the same, but equity would show -23 billion $ instead of -8 billion $.
    133 billion assets = 141 billion liabilities + (- 8) billion equity now
    118 billion assets = 141 billion liabilities + (-23) billion equity instead

    b) With less profits shown the management may have spent 15 billion $ less on share buybacks. Assets would be reduced by 15 billion $. "Equity + liability" would also be reduced by 15 billion $.
    118 billion assets = 126 billion liabilities + (-8) billion equity

    How can you say that deferred cost is meaningless? Can somebody explain to me why deferred cost is money Boeing owes to itself?


    It is understood if Boeing builds up deferred production costs for 50 frames or so. But B787 deferred costs were increasing till 4Q2017.
    http://www.boeing.com/investors/account ... production
    Financial year isn't calendar year, but for rough idea Boeing delivered 636 B787 till end of 2017.
    https://en.wikipedia.org/wiki/Boeing_78 ... deliveries

    By now nearly 1000 planes were delivered, and including two billion $ unamortized tooling there is roughly 20 billion $ left.
    That's not conservative accounting.


    Very simply they have already spent that deferred cost and "Paid" for that Inventory. I has no cash cost to them to pay back that account - it is just a book keeping entry and does not impact cash flow.


    They show the deferred cost as profits and inventory in their books. The profits they did not make and the inventory is non existent. They have not paid for the inventories, they paid the costs for the frames that have already been delivered. If the company would stop today, Boeing would have to declare 20 billion USD extra losses and reduce the inventory by 20 billion USD.
    Simple mathematics.
    You still believe in magic, like when you do not book cost it simply disappears.
     
    Bordeauxline
    Posts: 3
    Joined: Sat Jan 11, 2020 1:14 pm

    Re: Boeing Financial Discussion 2020

    Thu Mar 19, 2020 6:47 pm

    morrisond wrote:
    Very simply they have already spent that deferred cost and "Paid" for that Inventory. I has no cash cost to them to pay back that account - it is just a book keeping entry and does not impact cash flow.

    Hello I read a.net since a decade, and I respect the discussion here because I keep learning new things about aviation and production.

    I am not sure about the discussion, so I would like to understand :
    Has this already paid inventory still the same value as during production time (one year or 6 months ago before coronavirus) ? With the difficulties airliners are facing, isn't this indeed just wares that isn't going to generate cash soon ? Can it still be accounted as "value" or should it be reevaluated, in order to have a clear view of this production cost and resulting wares value ?
     
    User avatar
    Phosphorus
    Posts: 829
    Joined: Tue May 16, 2017 11:38 am

    Re: Boeing Financial Discussion 2020

    Thu Mar 19, 2020 6:58 pm

    texl1649 wrote:
    scbriml wrote:
    Sokes wrote:

    I always enjoy your posts and you get a lot of meaning in them even though they are usually short. My posts are rather long. Makes me wonder if I should take didactic lessons from you.



    I’m sure many would say not! :lol:


    In the space of a few trading days Boeing is now a $54 billion market cap. organization. It is conceptually possible at this point they are ripe for a KKR/Carlyle group take-over.


    Trouble is, KKR-type boys are not used to need to continue pumping money after an LBO. They would expect the reverse -- to find some liquid assets to asset-strip -- to pay back some debt and to line their own pockets. Instead, they would find a "juicy" asset of 20bn$ of "deferred costs" (try peddling that to anyone), a potentially unlimited liability in MAX program, and a massive need for current cash to keep lights on and pay off the supply chain for goods delivered (and supply chain would not be too kind nor patient, as it's perceived to be one thing to deal with a revered plane design house, and another -- with junk-bond types).
    Think what you like of KKR's of this world, but they are rarely idiots. So straight LBO would probably not happen.

    You could imagine an LBO in a combination with pre-packaged bankruptcy deal. Wait until the value of the company drops low enough, take it over, split into:
    1) MAX International
    2) Boeing Commercial Aircraft (all civilian programs, except MAX)
    3) Defense and Space group
    File a pre-pack bankruptcy (or maybe several independent filings, with MAX going first), with sale of "Defense and Space" -- money to be used to pay LBO cost. Also, it will ensure D&S will end up in good hands, safe and sound. Might earn a few brownie points with the government.

    Extricate Boeing Commercial Aircraft and keep it. 20bn$ of deferred costs on the balance sheet will make sure BCA will probably not pay profit taxes for a very long time.

    MAX international sinks or swims on its own.
    AN4 A40 L4T TU3 TU5 IL6 ILW I93 F50 F70 100 146 ARJ AT7 DH4 L10 CRJ ERJ E90 E95 DC-9 MD-8X YK4 YK2 SF3 S20 319 320 321 332 333 343 346 722 732 733 734 735 73G 738 739 744 74M 757 767 777
    Ceterum autem censeo, Moscovia esse delendam
     
    morrisond
    Posts: 2495
    Joined: Thu Jan 07, 2010 12:22 am

    Re: Boeing Financial Discussion 2020

    Thu Mar 19, 2020 7:16 pm

    mjoelnir wrote:
    morrisond wrote:
    Sokes wrote:

    True. All it does is to lower reported earnings in future. That is if the A330 Neo isn't so cheap as to force Boeing to sell the B787 at production cost. In which case write-downs will be necessary.


    It's not an asset for trade. But in the balance sheet it is an asset.

    "Commercial aircraft programs inventory includes deferred production costs and supplier advances.
    Deferred production costs represent actual costs incurred for production of early units that exceed the
    estimated average cost of all units in the program accounting quantity. Higher production costs are
    experienced at the beginning of a new or derivative airplane program. Units produced early in a program
    require substantially more effort (labor and other resources) than units produced later in a program because
    of volume efficiencies and the effects of learning. We expect that these deferred costs will be fully recovered
    when all units included in the accounting quantity are delivered as the expected unit cost for later deliveries
    is below the estimated average cost of all units in the program. Supplier advances represent payments
    for parts we have contracted to receive from suppliers in the future.As parts are received, supplier advances
    are amortized to work in process."
    p.63, https://s2.q4cdn.com/661678649/files/do ... Report.pdf

    Page 53 of the report shows "assets" versus "liabilities and equity"
    Inventories, which include deferred production cost, are an asset.


    Let's assume by now Boeing would have reduced deferred cost by 15 billion $ more. Assets would be 15 billion $ less.
    a) With the same amount of share buybacks liabilities would be the same, but equity would show -23 billion $ instead of -8 billion $.
    133 billion assets = 141 billion liabilities + (- 8) billion equity now
    118 billion assets = 141 billion liabilities + (-23) billion equity instead

    b) With less profits shown the management may have spent 15 billion $ less on share buybacks. Assets would be reduced by 15 billion $. "Equity + liability" would also be reduced by 15 billion $.
    118 billion assets = 126 billion liabilities + (-8) billion equity

    How can you say that deferred cost is meaningless? Can somebody explain to me why deferred cost is money Boeing owes to itself?


    It is understood if Boeing builds up deferred production costs for 50 frames or so. But B787 deferred costs were increasing till 4Q2017.
    http://www.boeing.com/investors/account ... production
    Financial year isn't calendar year, but for rough idea Boeing delivered 636 B787 till end of 2017.
    https://en.wikipedia.org/wiki/Boeing_78 ... deliveries

    By now nearly 1000 planes were delivered, and including two billion $ unamortized tooling there is roughly 20 billion $ left.
    That's not conservative accounting.


    Very simply they have already spent that deferred cost and "Paid" for that Inventory. I has no cash cost to them to pay back that account - it is just a book keeping entry and does not impact cash flow.


    They show the deferred cost as profits and inventory in their books. The profits they did not make and the inventory is non existent. They have not paid for the inventories, they paid the costs for the frames that have already been delivered. If the company would stop today, Boeing would have to declare 20 billion USD extra losses and reduce the inventory by 20 billion USD.
    Simple mathematics.
    You still believe in magic, like when you do not book cost it simply disappears.


    And if they stopped today would it matter if the write off was $100B or $120B - it has zero relevance. That $20B in deferred cost does nothing to impact there future cash flow.

    Cash flow is what matters - Not P&L on an income statement adjusted to pay less taxes than might have been.

    Bankers lend on cash flow not on EPS. It is not magic - just reality.
     
    smartplane
    Posts: 1307
    Joined: Fri Aug 03, 2018 9:23 pm

    Re: Boeing Financial Discussion 2020

    Thu Mar 19, 2020 7:53 pm

    morrisond wrote:
    mjoelnir wrote:
    morrisond wrote:

    Very simply they have already spent that deferred cost and "Paid" for that Inventory. I has no cash cost to them to pay back that account - it is just a book keeping entry and does not impact cash flow.


    They show the deferred cost as profits and inventory in their books. The profits they did not make and the inventory is non existent. They have not paid for the inventories, they paid the costs for the frames that have already been delivered. If the company would stop today, Boeing would have to declare 20 billion USD extra losses and reduce the inventory by 20 billion USD.
    Simple mathematics.
    You still believe in magic, like when you do not book cost it simply disappears.


    And if they stopped today would it matter if the write off was $100B or $120B - it has zero relevance. That $20B in deferred cost does nothing to impact there future cash flow.

    Cash flow is what matters - Not P&L on an income statement adjusted to pay less taxes than might have been.

    Bankers lend on cash flow not on EPS. It is not magic - just reality.

    Yes, bankers do lend on cash flow.

    But when the current debt is no longer supported by cash flow and / or the customers want to borrow more, then the balance sheet is scrutinised every which way.

    As a going concern, in a static, or even a short term falling market, no one bats an eyelid, but now.......

    Effectively, Boeing shareholders put their hands in a cookie jar, which was USD20b light, deferring the inevitable, and tax too.

    Which group of sane lenders, are keen, or in today's environment able, to fund the hole? Are your clients willing? Boeing doesn't need International Rescue - US tax payers will do.
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