I looked around a little bit and didn't find anything related, so I'm going to share what I discovered while reading through what was buried in some financials and hope that the results will be revealing for some.

The actual prices that airlines pay for their aircraft are closely guarded secrets. OEM's often give out list prices, but those are heavily discounted - but the question then becomes, "Discounted by how much?", because no airlines pay list. The world is also an unfair place and some pigs are more equal then other pigs, wrote Orwell,

Every once in awhile, amidst all the noise that is put out to make it seem like the OEM's are raking it in (shareholders love that kind of news), you get a peek into the kitchen and see just how dirty the floors are. It takes a little accounting detective work, but I'll walk you through it;

This is the 10-Q released by LUV on 10-22-20

https://seekingalpha.com/filing/5206107

I direct your attention to the fine print on page 29, which gives us this:

In second quarter 2020, the Company entered into transactions with third parties, involving ten of the Company’s Boeing 737-800 aircraft and ten of the Company's Boeing 737 MAX 8 aircraft that qualified as sale-leaseback arrangements under applicable accounting guidance. The Company sold the ten 737-800 aircraft to a third party for $405 million, then immediately leased the aircraft back for approximately ten years. The Company sold the ten 737 MAX 8 aircraft to a third party for $410 million, then immediately leased the aircraft back for approximately 13 years. As such, the aircraft were de-recognized from Property and equipment at their remaining net book values. All of the leases from the sale-leasebacks are accounted for as operating leases, and thus are now reflected as part of the Company’s Operating lease right-of-use assets and operating lease liabilities in the accompanying unaudited Condensed Consolidated Balance Sheet. The 737-800 and 737 MAX 8 sale-leaseback transactions resulted in a recognized gain of $153 million and $69 million, respectively, reflected within Other operating expenses, net in the accompanying unaudited Condensed Consolidated Statement of Comprehensive Income.

So what happened here?

SouthWest needed some cash, so they sold some aircraft for some cash and leased them back.
10 - 737-800's
10 - 737 Max 8's

For the 800's they got $405 million, for the Max 8's they got $410 million, which means they rec'd $40.5 and $41 million each.
(This is pretty close to market value, so nothing too special here)

Here's the kicker:

The 737-800 and 737 MAX 8 sale-leaseback transactions resulted in a recognized gain of $153 million and $69 million, respectively,

So LUV had to account for a GAIN on the sale of these assets. $15.3 million (each) on the -800's & $6.9 million (each) on the Max 8's.

A gain means they paid one price, sold it at a higher price and had to account for it.

Now if I recall correctly, LUV depreciates their aircraft by setting a residual value of $15 million and depreciating the plane on a straight line over 25 years. If those Max's were (at worst) 3 years old, then the most they would have depreciated them would be...$3 million? Maybe less?

They got $41 million, they had to recognise a gain of ~$7 million ($34 million per aircraft on the books) with a depreciation charge at most of $3 million, gives you an upper limit of $37 million paid for their Max 8's. Probably closer to $36 million.

What I also found striking was the amount they made on the -800's. They sold them for $40.5 million each and took a gain of $15 million, which means they were on the books for $25 million a copy. Tough to figure out the dep on those, as there is a wide range of ages in the LUV fleet. But still, good bit of business - that.

I hope some of you found this informative and interesting.

I don't understand why a lessor would pay more than the market value only to lease it back. Something else is likely in play here.

Antarius wrote:

I don't understand why a lessor would pay more than the market value only to lease it back. Something else is likely in play here.

The amount the lessor paid the airline is pretty immaterial. What is important is the gain that LUV recognised on the sale of the asset and the estimated depreciation of the asset to determine the historical cost.

The lessor might have even agreed to pay more, as long as the lease terms would have accounted for it (increased lease rates over the term of the contract).

"Sure I'll give you $45 million a copy, as long as you pay an extra $100k a month for the next 72 months"

This doesn't change how LUV had to account for the disposal of the asset in it's filing to the SEC.

I guess what is also the underlying premise here, is that SouthWest doesn't even pay market price for their aircraft.

If 40.5 and 41 were the actual delta in value between an older NG and a MAX, not much of a case for better engines.
How much more do they pay for the same aircraft in ten years time? Does the purchase price increase about 4% a year to keep up with the time-value of money?

DenverTed wrote:

If 40.5 and 41 were the actual delta in value between an older NG and a MAX, not much of a case for better engines.
How much more do they pay for the same aircraft in ten years time? Does the purchase price increase about 4% a year to keep up with the time-value of money?

Well, here's the thing about aircraft lease arrangements; LUV did this in the second quarter, when the Max situation wasn't so great and people were loving the NG's, which were holding their values pretty well.That's kind of an anomaly due to the grounding. Secondly, as long as the terms of the lease are favourable to the lessor and they have cash on hand, they can offer you more up front (if you need the cash) as long as you pay it back over the long term.

Let's say the FMV of the -800's was $35 million a pop, but LUV needed the cash. Great - we'll give you $40, but ya gotta pay us back the extra $5 million (it was a 10 year lease) at an extra $50k a month. ($600k a year times 10 years = $6 million, making us a cool million profit). over what we would normally ask for a monthly lease on an -800 with a FMV of $35 million. it's like a bank loan wrapped up in a lease buyback...

crankypants wrote:

DenverTed wrote:

If 40.5 and 41 were the actual delta in value between an older NG and a MAX, not much of a case for better engines.
How much more do they pay for the same aircraft in ten years time? Does the purchase price increase about 4% a year to keep up with the time-value of money?

Well, here's the thing about aircraft lease arrangements; LUV did this in the second quarter, when the Max situation wasn't so great and people were loving the NG's, which were holding their values pretty well.That's kind of an anomaly due to the grounding. Secondly, as long as the terms of the lease are favourable to the lessor and they have cash on hand, they can offer you more up front (if you need the cash) as long as you pay it back over the long term.

Let's say the FMV of the -800's was $35 million a pop, but LUV needed the cash. Great - we'll give you $40, but ya gotta pay us back the extra $5 million (it was a 10 year lease) at an extra $50k a month. ($600k a year times 10 years = $6 million, making us a cool million profit). over what we would normally ask for a monthly lease on an -800 with a FMV of $35 million. it's like a bank loan wrapped up in a lease buyback...

Out of curiosity why do you always refer to Southwest as “luv”? I know it’s our stock symbol, however everyone else I know refer to Southwest as well, Southwest or SWA.

SXDFC wrote:

crankypants wrote:

DenverTed wrote:

If 40.5 and 41 were the actual delta in value between an older NG and a MAX, not much of a case for better engines.
How much more do they pay for the same aircraft in ten years time? Does the purchase price increase about 4% a year to keep up with the time-value of money?

Well, here's the thing about aircraft lease arrangements; LUV did this in the second quarter, when the Max situation wasn't so great and people were loving the NG's, which were holding their values pretty well.That's kind of an anomaly due to the grounding. Secondly, as long as the terms of the lease are favourable to the lessor and they have cash on hand, they can offer you more up front (if you need the cash) as long as you pay it back over the long term.

Let's say the FMV of the -800's was $35 million a pop, but LUV needed the cash. Great - we'll give you $40, but ya gotta pay us back the extra $5 million (it was a 10 year lease) at an extra $50k a month. ($600k a year times 10 years = $6 million, making us a cool million profit). over what we would normally ask for a monthly lease on an -800 with a FMV of $35 million. it's like a bank loan wrapped up in a lease buyback...

Out of curiosity why do you always refer to Southwest as “luv”? I know it’s our stock symbol, however everyone else I know refer to Southwest as well, Southwest or SWA.

Old habits die hard? Mostly because I have come back to the aviation industry through the finance/stock market sector, in my old age and when discussing it elsewhere SouthWest has been LUV, Boeing has been BA, American has been AAL, Spirit has been SAVE and so forth.

Question for you, my SWA friend? What has the shop talk been over there, in ref to aircraft pricing? I hope all is well and from a finance perspective I think that you are one of the best airlines to weather this covid storm and will come out on the back end in fairly good shape. Airlines are a tough hit, right now - but if I were to invest long term, you and DAL would be it.

Be well

Interesting.... great detective work

I think it is in line with what the rumors were, namely that SWA/LUV usually gets an super sweet deal...

I understand pricing is normally not simple "we'll buy 100 planes at 35million a pop", it's more "we'll buy 10 planes at 40mill, then the next 10 at 39, and the next at 38" and then even more complicated functions with credits that get applied to later ones." But what would the actual book value be in these cases, would they average out the cost of the planes across the contract, or would it be at the price paid, so the early ones would look much more expensive than the later?

I assume also on the NG aircraft particularly, there was the chance for them to pick planes that had specifically low or high book prices relative to their actual value to limit/increase the asset write down? Would they have wanted to show a larger or smaller number there?

Good to read, all makes a lot of sense.
Maybe one thing; what if Southwest depreciates differently now? 25 Years seems pretty long nowadays as they are scrapping 15 year old 73Gs already. Also it makes sense to book an extra charge at the start because 2nd hand customized frames are always worth less than a new one. So perhaps the following is still possible: they bought these MAX'es say for 40 million, they wrote off 6 million for the first two years of service and the bad reputation and market value during the grounding in one year, before making a profit on the sale the next year.

MEA-707 wrote:

Good to read, all makes a lot of sense.
Maybe one thing; what if Southwest depreciates differently now? 25 Years seems pretty long nowadays as they are scrapping 15 year old 73Gs already. Also it makes sense to book an extra charge at the start because 2nd hand customized frames are always worth less than a new one. So perhaps the following is still possible: they bought these MAX'es say for 40 million, they wrote off 6 million for the first two years of service and the bad reputation and market value during the grounding in one year, before making a profit on the sale the next year.

I dunno about that - remember, this is an SEC filing for a publicly traded corporation. I'm not sure you can start switching asset classes and depreciating something faster just because you want to. There are rules for these things - depreciation is a way to expense the portion of the asset used for the time period it is used in. Matching revenues and expenses.

But hey - if you find anything new and interesting in some filing that is official, I welcome the chance to learn something new.

All I can add is that airplane transactions are very complicated. Sale lease backs are good at showing the value of the airplane on the used market (blue book value). The value of a new airplane is more complicated since there are millions of additional costs rolled into the contract. Everything from performance/reliability/maintenance/fuel efficiency guarantees to contracts for spare parts and services can get rolled into to a new airplane purchase. There are also non-recurring engineering costs for the airplane configuration and options that price out differently depending on features selected, buyer furnished equipment, and size of the order. There is a reason why we never see a nice round number for a new plane.

MEA-707 wrote:

Good to read, all makes a lot of sense.
Maybe one thing; what if Southwest depreciates differently now? 25 Years seems pretty long nowadays as they are scrapping 15 year old 73Gs already. Also it makes sense to book an extra charge at the start because 2nd hand customized frames are always worth less than a new one. So perhaps the following is still possible: they bought these MAX'es say for 40 million, they wrote off 6 million for the first two years of service and the bad reputation and market value during the grounding in one year, before making a profit on the sale the next year.

Also from the filing:

p11.
In addition, the Company has assessed whether any impairment of its amortizable assets existed, and has determined that no charges were deemed necessary under applicable accounting standards as of September 30, 2020.

They follow GAAP rules.

JibberJim wrote:

I understand pricing is normally not simple "we'll buy 100 planes at 35million a pop", it's more "we'll buy 10 planes at 40mill, then the next 10 at 39, and the next at 38" and then even more complicated functions with credits that get applied to later ones." But what would the actual book value be in these cases, would they average out the cost of the planes across the contract, or would it be at the price paid, so the early ones would look much more expensive than the later?

I assume also on the NG aircraft particularly, there was the chance for them to pick planes that had specifically low or high book prices relative to their actual value to limit/increase the asset write down? Would they have wanted to show a larger or smaller number there?

On the Max gain: At the time of sale, SWA had only 34 Max's in the fleet, taken over a very short period of time. These are new aircraft and the sample size of 10 out of 34 leads me to believe they were all priced fairly close at purchase.

On the NG's, I don't think it was about showing any number - it was about getting the life blood of the airlines; cash. In the same filing there was also a significant amount of capital raised through other means.

All hands on deck - we need as much cashola as possible and cut as deep as we can on the expense side of things.

Air Canada allegedly got a 75 percent discount...no wonder they switched.

TeamLH wrote:

Air Canada allegedly got a 75 percent discount...no wonder they switched.

If you could point to a public securities disclosure to back that up - as crankypants has - that might be an assertion worth something.

crankypants wrote:

MEA-707 wrote:

Good to read, all makes a lot of sense.
Maybe one thing; what if Southwest depreciates differently now? 25 Years seems pretty long nowadays as they are scrapping 15 year old 73Gs already. Also it makes sense to book an extra charge at the start because 2nd hand customized frames are always worth less than a new one. So perhaps the following is still possible: they bought these MAX'es say for 40 million, they wrote off 6 million for the first two years of service and the bad reputation and market value during the grounding in one year, before making a profit on the sale the next year.

Also from the filing:

p11.
In addition, the Company has assessed whether any impairment of its amortizable assets existed, and has determined that no charges were deemed necessary under applicable accounting standards as of September 30, 2020.

They follow GAAP rules.

T'is the season. A couple of other U.S. carrier recent 8-Ks or 10-Qs have the same statement almost verbatim.

JonesNL wrote:

I think it is in line with what the rumors were, namely that SWA/LUV usually gets an super sweet deal...

No truer words have ever been spoken. More proof:

https://seekingalpha.com/news/3645010-s ... e-in-march

Southwest Airlines (LUV -1.9%) says it expects to take delivery of 35 737 MAX aircraft from Boeing (BA -1.0%) through the end of 2021.

"Taking into account planned retirements of its 737-700 aircraft, the Company does not intend to grow its fleet in 2021, compared with its fleet of 747 aircraft as of December 31, 2019. The details of the Boeing Agreement, which included the settlement of 2020 estimated damages relating to the grounding of the Company’s 737 MAX 8 aircraft, are confidential. However, as a result of certain delivery credits provided in the Boeing Agreement, as well as progress payments made to date on undelivered aircraft, the Company currently estimates an immaterial amount of aircraft capital expenditures in fourth quarter 2020 and full year 2021."

The important bits:

However, as a result of certain delivery credits provided in the Boeing Agreement, as well as progress payments made to date on undelivered aircraft, the Company currently estimates an immaterial amount of aircraft capital expenditures in fourth quarter 2020 and full year 2021

Translation: SWA is getting the next 35 Max's from Boeing for 'an immaterial amount'. That means no more money.

Man - those guys at Love Field are good!

That sounds like they are using compensation credits for these frames, I think that this has come up in the past for various airlines (and possibly includes Southwest) that the way Boeing was to compensate airlines for the MAX issue was in the form of purchase credits rather than cash, it might be why defecting to "the other side" might be a little les tempting for this particular airline (see other threads).

Interesting post.

I know the scuttlebutt in 2019 was that an ULCC was offered 3 MAXs for 2 320s the company owned in a straight up swap.

Exeiowa wrote:

That sounds like they are using compensation credits for these frames, I think that this has come up in the past for various airlines (and possibly includes Southwest) that the way Boeing was to compensate airlines for the MAX issue was in the form of purchase credits rather than cash, it might be why defecting to "the other side" might be a little les tempting for this particular airline (see other threads).

Point being, Boeing is not generating and revenue or cash from the already built Max's...

Weatherwatcher1 wrote:

All I can add is that airplane transactions are very complicated. Sale lease backs are good at showing the value of the airplane on the used market (blue book value). The value of a new airplane is more complicated since there are millions of additional costs rolled into the contract. Everything from performance/reliability/maintenance/fuel efficiency guarantees to contracts for spare parts and services can get rolled into to a new airplane purchase. There are also non-recurring engineering costs for the airplane configuration and options that price out differently depending on features selected, buyer furnished equipment, and size of the order. There is a reason why we never see a nice round number for a new plane.

Little or nothing to be read into disclosed sale leaseback prices.

As others have mentioned, there are multiple motives. One can be to remove funding assets, but also to raise cash over and above the agreed / perceived actual value of the aircraft, for example by prematurely cashing in credits before they have matured.

On new aircraft, or those in a group still accumulating retrospective credits, the lessee may sweeten the pot by allocating a portion of credits to the lessor.

Unless you know the deal with credits, future leases also packaged, payments, and end of lease T&C's, no accurate value can be attributed by simple division and / or averaging. But you can have fun trying.

crankypants wrote:

Exeiowa wrote:

That sounds like they are using compensation credits for these frames, I think that this has come up in the past for various airlines (and possibly includes Southwest) that the way Boeing was to compensate airlines for the MAX issue was in the form of purchase credits rather than cash, it might be why defecting to "the other side" might be a little les tempting for this particular airline (see other threads).

Point being, Boeing is not generating and revenue or cash from the already built Max's...

Yet Boeing is not paying out valuable cash as compensation, and is getting some un-performing assets (planes in storage) off their inventory.

Presumably some of those $millions WN is raising in cash is going to their cost of incorporating the MAXes into their fleet, and will generate future revenue for Boeing via spares, services, etc.

There's no free lunch...

Revelation wrote:

crankypants wrote:

Exeiowa wrote:

That sounds like they are using compensation credits for these frames, I think that this has come up in the past for various airlines (and possibly includes Southwest) that the way Boeing was to compensate airlines for the MAX issue was in the form of purchase credits rather than cash, it might be why defecting to "the other side" might be a little les tempting for this particular airline (see other threads).

Point being, Boeing is not generating and revenue or cash from the already built Max's...

Yet Boeing is not paying out valuable cash as compensation, and is getting some un-performing assets (planes in storage) off their inventory.

Presumably some of those $millions WN is raising in cash is going to their cost of incorporating the MAXes into their fleet, and will generate future revenue for Boeing via spares, services, etc.

There's no free lunch...

Boeing paid out some $420 million to SWA in 2020 for the Max debacle. They spent a whole bunch of cash to manufacture those Max's. The fact that they are non revenue generating is very worrisome, which means there will be more of a loss to be written off.

In 2018, the last full year before the crashes and covid - BCA was 60% of sales and 66% of profit. Service & Military made up the other 40% of sales and one third of profit. Commercial carries the company.
Every free Max given away means one less in the backlog, another write off. You keep doing that and you may not make it to the future to reap any benefits from future service contracts.

No free lunch indeed - the butcher's bill has finally come for Boeing. $20 billion and counting...

crankypants wrote:

SXDFC wrote:

crankypants wrote:

Well, here's the thing about aircraft lease arrangements; LUV did this in the second quarter, when the Max situation wasn't so great and people were loving the NG's, which were holding their values pretty well.That's kind of an anomaly due to the grounding. Secondly, as long as the terms of the lease are favourable to the lessor and they have cash on hand, they can offer you more up front (if you need the cash) as long as you pay it back over the long term.

Let's say the FMV of the -800's was $35 million a pop, but LUV needed the cash. Great - we'll give you $40, but ya gotta pay us back the extra $5 million (it was a 10 year lease) at an extra $50k a month. ($600k a year times 10 years = $6 million, making us a cool million profit). over what we would normally ask for a monthly lease on an -800 with a FMV of $35 million. it's like a bank loan wrapped up in a lease buyback...

Out of curiosity why do you always refer to Southwest as “luv”? I know it’s our stock symbol, however everyone else I know refer to Southwest as well, Southwest or SWA.

Old habits die hard? Mostly because I have come back to the aviation industry through the finance/stock market sector, in my old age and when discussing it elsewhere SouthWest has been LUV, Boeing has been BA, American has been AAL, Spirit has been SAVE and so forth.

Question for you, my SWA friend? What has the shop talk been over there, in ref to aircraft pricing? I hope all is well and from a finance perspective I think that you are one of the best airlines to weather this covid storm and will come out on the back end in fairly good shape. Airlines are a tough hit, right now - but if I were to invest long term, you and DAL would be it.

Be well

Always good to get a great perspective. I used to help my dad clean a stock broker firm when I was a kid. I remember asking one of the guys to look up “LUV.” I can see where you’re coming from!

I don’t know much on the prices, but I always assumed we got some of the better pricing with Boeing... Of course I could be wrong.

Thanks for LUVing us!

Revelation wrote:

crankypants wrote:

Exeiowa wrote:

That sounds like they are using compensation credits for these frames, I think that this has come up in the past for various airlines (and possibly includes Southwest) that the way Boeing was to compensate airlines for the MAX issue was in the form of purchase credits rather than cash, it might be why defecting to "the other side" might be a little les tempting for this particular airline (see other threads).

Point being, Boeing is not generating and revenue or cash from the already built Max's...

Yet Boeing is not paying out valuable cash as compensation, and is getting some un-performing assets (planes in storage) off their inventory.

Presumably some of those $millions WN is raising in cash is going to their cost of incorporating the MAXes into their fleet, and will generate future revenue for Boeing via spares, services, etc.

There's no free lunch...

That sort of makes out "not paying out cash" with every MAX delivery as a win.
A pretty low bar IMO

There are some on here, including particularly vocal financiers that insist that the delivery of the grounded MAX frames will release a flood of cash with which to fund things like NMA and NSA.
I've always had my doubts, and for the very reasons that WN describe.
Seems the doubts were justified.
Deliveries of the MAX are going to ramp up over the next couple of years with very little to show for it for BCA

Rgds

It is unclear of the engines and APU are included in the lease deal with BOC Aviation.

Every MAX delivered creates services and future spare parts business and helps to keep the balance with the competition. Aside from any actual remaining profit per plane if there is any left.

I thought it was a common practice that airlines got discounts in the 60%-70% range for orders of multiple hundreds of airplanes. Southwest is hardly an outlier in this respect. I think AA got a similar discount when they placed their big narrowbody order some years ago.

astuteman wrote:

That sort of makes out "not paying out cash" with every MAX delivery as a win.
A pretty low bar IMO

How high do you think the bar should be, given the COVID-19 crisis and the MCAS tragedy?

AA has said each MAX delivery is a cash-positive event for them.

The money is coming from somewhere.

Some combination of lease/buyback cash, on top of reduction in purchase price by redeeming compensation credits and "normal" negotiated credits, maybe some negotiation on application of previously paid deposits, etc.

The vendors in general and Boeing in particular have little negotiating power. In the current climate each delivery is a win, be it cash positive or not.

Revelation wrote:

astuteman wrote:

That sort of makes out "not paying out cash" with every MAX delivery as a win.
A pretty low bar IMO

How high do you think the bar should be, given the COVID-19 crisis and the MCAS tragedy?

AA has said each MAX delivery is a cash-positive event for them.

The money is coming from somewhere.

Some combination of lease/buyback cash, on top of reduction in purchase price by redeeming compensation credits and "normal" negotiated credits, maybe some negotiation on application of previously paid deposits, etc.

The vendors in general and Boeing in particular have little negotiating power. In the current climate each delivery is a win, be it cash positive or not.

How high should the bar be? Look no further then to competition to see how you're doing...how many per month is Airbus pumping out?

You know where the money is coming from? Long term debt taken on by Boeing, to the tune of $63 billion.

Let me elaborate on the SWA issue;

In 2018, Boeing's best year, the margin it made at BCA was 12%. That includes wide and narrow bodies, but we'll be generous and say that a Max makes them 12%. Mind you, fixed costs were allocated over 800 aircraft, so today we are being extra generous.

Deposits and PDP's are a closely guarded secret, but the consensus is that the majority of cash trades hands at delivery - with some 25-33% given up front. Let's be nice and say Boeing scored 40% of it's cash up front, on those 35 Max's.

At $37 million a pop, BCA should have had revenues of about $1.3 billion, with a margin of about $155 million on that. If SWA gave them 40%, that means they got some $520 million in cash up front. If you take out the profit margin, it means that those 35 planes cost BCA some $1.15 billion to make.

Remove the cash rec'd and you are left with a loss of $635 million Boeing is eating on that deal. Money they borrowed and spent to produce those Max's - that they are not getting (and that number is a very optimistic projection).

Boeing also gave SWA some $420 million IN CASH, during 2020. So '20 & '21 has cost BA over $1 billion, for the SWA account alone. You think maybe Ryanair is also getting the same treatment? That O'Leary is a CHEAPSKATE!!!

And they had to borrow that money. We're not even going to get into what the lending costs are for that.

BUT...on the bright side of things, those kind of giveaways probably secured the order from SWA for the 737 Max 7, over the A220-300.

Noshow wrote:

Every MAX delivered creates services and future spare parts business and helps to keep the balance with the competition. Aside from any actual remaining profit per plane if there is any left.

This is the Boeing Q4/2018 financial statement:

https://s2.q4cdn.com/661678649/files/do ... elease.pdf

This was the best year Boeing ever had.

Revenues of $101 billion, Profit of $12 billion.

BCA made them some $8 billion in profit. Defence made them ~$1.5 billion. Services made them ~$2.5 billion.

Boeing goes, as their commercial aircraft sales go.

astuteman wrote:

Revelation wrote:

crankypants wrote:

Point being, Boeing is not generating and revenue or cash from the already built Max's...

Yet Boeing is not paying out valuable cash as compensation, and is getting some un-performing assets (planes in storage) off their inventory.

Presumably some of those $millions WN is raising in cash is going to their cost of incorporating the MAXes into their fleet, and will generate future revenue for Boeing via spares, services, etc.

There's no free lunch...

Deliveries of the MAX are going to ramp up over the next couple of years with very little to show for it for BCA

Rgds

That is the thing - they're many out there pointing to the glut of parked Max's as billions in potential revenue, that will fill the BA coffers and start the dividend/buyback gravy train on it's way, again. Meanwhile the reality of the situation is that they just went to market to secure another ~$14 billion to pay off their revolver - which it will surely use to fund operations in the future.

crankypants wrote:

Noshow wrote:

Every MAX delivered creates services and future spare parts business and helps to keep the balance with the competition. Aside from any actual remaining profit per plane if there is any left.

This is the Boeing Q4/2018 financial statement:

https://s2.q4cdn.com/661678649/files/do ... elease.pdf

This was the best year Boeing ever had.

Revenues of $101 billion, Profit of $12 billion.

BCA made them some $8 billion in profit. Defence made them ~$1.5 billion. Services made them ~$2.5 billion.

Boeing goes, as their commercial aircraft sales go.

I'm still unclear what your overall point is. I guess nothing here is surprising - white tails at a discount, commercial aviation in the dumps and Boeing dealing with it worse than others due to the MAX mess.

Unless there is something they should be doing differently now and aren't, there isn't anything new being uncovered.

Revelation wrote:

astuteman wrote:

That sort of makes out "not paying out cash" with every MAX delivery as a win.
A pretty low bar IMO

How high do you think the bar should be, given the COVID-19 crisis and the MCAS tragedy?

AA has said each MAX delivery is a cash-positive event for them.

The money is coming from somewhere.

AA is selling the planes at delivery, for more than they are buying them from Boeing, and leasing them back. This generates a gain and it also allows AA to recoup the progress payments paid to Boeing.

crankypants wrote:

How high should the bar be? Look no further then to competition to see how you're doing...how many per month is Airbus pumping out?

It seems you are suggesting we should compare a company digging out of a major tragedy with one is not.

To me that seems like willy waiving.

I think it'd be more useful to consider what is realistic given the current situation.

So is the majority of the inventory sitting at Boeing destined for WN, and those that are not, are covered by contracts similar to what WN has with Boeing?
As we are talking absolutes, how did smaller carriers get Boeing to use WN template as a basis for all contracts, during the MAX tragedy threads it was only mentioned that the MAX is / what it is because of WN, now we seem to be saying that others were involved and not just WN, is that accurate?

Revelation wrote:

crankypants wrote:

How high should the bar be? Look no further then to competition to see how you're doing...how many per month is Airbus pumping out?

It seems you are suggesting we should compare a company digging out of a major tragedy with one is not.

To me that seems like willy waiving.

I think it'd be more useful to consider what is realistic given the current situation.

I agree, while it is interesting to have an rundown of the numbers, there is hardly anything new or surprising about them. Boeing screwed up and is now paying for it dearly. It is useless to compare to Airbus at the current stage as they are both at an completely different state or even dimension. Come back in 2025 when MAX deliveries are running like an oiled machine, 777x is flying around and NMA orders are flowing in. There are still big challenges ahead, but that is the time frame I believe an comparison will make sense again...

JonesNL wrote:

Revelation wrote:

crankypants wrote:

How high should the bar be? Look no further then to competition to see how you're doing...how many per month is Airbus pumping out?

It seems you are suggesting we should compare a company digging out of a major tragedy with one is not.

To me that seems like willy waiving.

I think it'd be more useful to consider what is realistic given the current situation.

I agree, while it is interesting to have an rundown of the numbers, there is hardly anything new or surprising about them. Boeing screwed up and is now paying for it dearly. It is useless to compare to Airbus at the current stage as they are both at an completely different state or even dimension. Come back in 2025 when MAX deliveries are running like an oiled machine, 777x is flying around and NMA orders are flowing in. There are still big challenges ahead, but that is the time frame I believe an comparison will make sense again...

For me, the context is, and I referenced it in my first post, that there is a quorum on here (and a vocal one at that) that thinks the backlog of completed MAX frames is going to release a flood of cash for Boeing.
Crankypants pointed this out also, and I think is the point of his post, rather that willy waving per se - at least it was for me

It is reassuring to see the number of responses that point out the more likely reality of the situation.

Rgds

Antarius wrote:

crankypants wrote:

Noshow wrote:

Every MAX delivered creates services and future spare parts business and helps to keep the balance with the competition. Aside from any actual remaining profit per plane if there is any left.

This is the Boeing Q4/2018 financial statement:

https://s2.q4cdn.com/661678649/files/do ... elease.pdf

This was the best year Boeing ever had.

Revenues of $101 billion, Profit of $12 billion.

BCA made them some $8 billion in profit. Defence made them ~$1.5 billion. Services made them ~$2.5 billion.

Boeing goes, as their commercial aircraft sales go.

I'm still unclear what your overall point is. I guess nothing here is surprising - white tails at a discount, commercial aviation in the dumps and Boeing dealing with it worse than others due to the MAX mess.

Unless there is something they should be doing differently now and aren't, there isn't anything new being uncovered.

And that despite crankypants acutally making a beautiful job of presenting interesting numbers. I grasp his point quite easily.

No, the general idea is not new. Putting down some analysis and deriving more or less precise numbers is still *always* a good idea. Not every added information must be a wheel-discovery like revelation.

CRJockey wrote:

Antarius wrote:

crankypants wrote:

This is the Boeing Q4/2018 financial statement:

https://s2.q4cdn.com/661678649/files/do ... elease.pdf

This was the best year Boeing ever had.

Revenues of $101 billion, Profit of $12 billion.

BCA made them some $8 billion in profit. Defence made them ~$1.5 billion. Services made them ~$2.5 billion.

Boeing goes, as their commercial aircraft sales go.

I'm still unclear what your overall point is. I guess nothing here is surprising - white tails at a discount, commercial aviation in the dumps and Boeing dealing with it worse than others due to the MAX mess.

Unless there is something they should be doing differently now and aren't, there isn't anything new being uncovered.

And that despite crankypants acutally making a beautiful job of presenting interesting numbers. I grasp his point quite easily.

No, the general idea is not new. Putting down some analysis and deriving more or less precise numbers is still *always* a good idea. Not every added information must be a wheel-discovery like revelation.

Agreed. crankypants did excellent investigative work, relevant for anyone who own or thinks of owning Boeing stock, for example.
The broad consensus out there is that MAX debacle has cost Boeing a lot, but apparently these costs are already either in the past, or fully accounted for.
Now, with more exact figures unearthed, it appears that this consensus ("all bad things already spoken for") might not necessarily be the actual case.

astuteman wrote:

JonesNL wrote:

Revelation wrote:

It seems you are suggesting we should compare a company digging out of a major tragedy with one is not.

To me that seems like willy waiving.

I think it'd be more useful to consider what is realistic given the current situation.

I agree, while it is interesting to have an rundown of the numbers, there is hardly anything new or surprising about them. Boeing screwed up and is now paying for it dearly. It is useless to compare to Airbus at the current stage as they are both at an completely different state or even dimension. Come back in 2025 when MAX deliveries are running like an oiled machine, 777x is flying around and NMA orders are flowing in. There are still big challenges ahead, but that is the time frame I believe an comparison will make sense again...

For me, the context is, and I referenced it in my first post, that there is a quorum on here (and a vocal one at that) that thinks the backlog of completed MAX frames is going to release a flood of cash for Boeing.
Crankypants pointed this out also, and I think is the point of his post, rather that willy waving per se - at least it was for me

It is reassuring to see the number of responses that point out the more likely reality of the situation.

Rgds

Well, the cashflow resulting of the MAX inventories was never going to substantial or else they would have been mentioned during several earning calls. Boeing wants to deliver all MAX inventory this year, but expects to be cash positive in 2022. That tells me that inventory deliveries don't bring in much due to the delay/grounding penalties...

JonesNL wrote:

Revelation wrote:

crankypants wrote:

How high should the bar be? Look no further then to competition to see how you're doing...how many per month is Airbus pumping out?

It seems you are suggesting we should compare a company digging out of a major tragedy with one is not.

To me that seems like willy waiving.

I think it'd be more useful to consider what is realistic given the current situation.

I agree, while it is interesting to have an rundown of the numbers, there is hardly anything new or surprising about them. Boeing screwed up and is now paying for it dearly. It is useless to compare to Airbus at the current stage as they are both at an completely different state or even dimension. Come back in 2025 when MAX deliveries are running like an oiled machine, 777x is flying around and NMA orders are flowing in. There are still big challenges ahead, but that is the time frame I believe an comparison will make sense again...

No, this is not a urinating contest - it was never intended to be. It's just a cold hard look at some numbers and is perhaps a wake up call to those who bandied about the usual dog whistle refrains:

- Boeing is one member of a duopoly
- The 737 Max inventory is a pile of cash waiting to happen
- The NMA orders will flow in
- SWA would never order the A220
- 787 program is fantastic for BA
- Wait 'til the 777X is flying around

and a host of other reasons that get thrown out without analysing the underlying premises.

Boeing just had to write off $6.5 billion on the 777X program, which will now have an EIS of 2023 - 10 years after launch. A profit will never be booked on that aircraft. Neither will the 787 program. Neither will the 737 Max program.

While the deaths in the Max situation are indeed a tragedy for those involved, for Boeing it is completely self inflicted, they did it to themselves and continue to do so with their other aircraft. Their mindset doesn't seem to be changing anytime soon.

No, this was not a BA vs AB thread, but the question was asked by Revelation - how do we measure the performance of Boeing? Who else do we compare Boeing to, if not Airbus? We do it all the time, in other threads and in the market side of things, when we look at financial health.

I did not take the conversation there and my only focus was on what I believed to be fresh insight into the financial situation regarding the Max - and Boeing, at large,

BTW - I kind of looked around and am involved at a few other aviation/financial websites. I'd love to read more about the SWA/737Max cost structure and what others have come up with, regarding this numerical analysis. Since this is not news for you, I'd appreciate it if you could point me in the right direction and pass along a few other sources. Thanks and sorry if you thought I was trying to re-invent the wheel. I guess I didn't realise that everyone had parsed the financials, run the numbers on this and come to the same conclusion. My bad.

crankypants wrote:

JonesNL wrote:

Revelation wrote:

It seems you are suggesting we should compare a company digging out of a major tragedy with one is not.

To me that seems like willy waiving.

I think it'd be more useful to consider what is realistic given the current situation.

I agree, while it is interesting to have an rundown of the numbers, there is hardly anything new or surprising about them. Boeing screwed up and is now paying for it dearly. It is useless to compare to Airbus at the current stage as they are both at an completely different state or even dimension. Come back in 2025 when MAX deliveries are running like an oiled machine, 777x is flying around and NMA orders are flowing in. There are still big challenges ahead, but that is the time frame I believe an comparison will make sense again...

No, this is not a urinating contest - it was never intended to be. It's just a cold hard look at some numbers and is perhaps a wake up call to those who bandied about the usual dog whistle refrains:

- Boeing is one member of a duopoly
- The 737 Max inventory is a pile of cash waiting to happen
- The NMA orders will flow in
- SWA would never order the A220
- 787 program is fantastic for BA
- Wait 'til the 777X is flying around

and a host of other reasons that get thrown out without analysing the underlying premises.

Boeing just had to write off $6.5 billion on the 777X program, which will now have an EIS of 2023 - 10 years after launch. A profit will never be booked on that aircraft. Neither will the 787 program. Neither will the 737 Max program.

While the deaths in the Max situation are indeed a tragedy for those involved, for Boeing it is completely self inflicted, they did it to themselves and continue to do so with their other aircraft. Their mindset doesn't seem to be changing anytime soon.

No, this was not a BA vs AB thread, but the question was asked by Revelation - how do we measure the performance of Boeing? Who else do we compare Boeing to, if not Airbus? We do it all the time, in other threads and in the market side of things, when we look at financial health.

I did not take the conversation there and my only focus was on what I believed to be fresh insight into the financial situation regarding the Max - and Boeing, at large,

BTW - I kind of looked around and am involved at a few other aviation/financial websites. I'd love to read more about the SWA/737Max cost structure and what others have come up with, regarding this numerical analysis. Since this is not news for you, I'd appreciate it if you could point me in the right direction and pass along a few other sources. Thanks and sorry if you thought I was trying to re-invent the wheel. I guess I didn't realise that everyone had parsed the financials, run the numbers on this and come to the same conclusion. My bad.

No need to apologize, and your financial analysis is more then appreciated. The exact numbers were not known by me (and most others I guess). So, you analysis is really helpful, but the story that the numbers are telling is not an revelation, there are in line with the communication of Boeing and industry stakeholders. There are to many articles to dig through to come up with the data you want, but SWA's relationship with Boeing and Boeings financial cashflow details are widespread available.

The refrains you mention are just opinions of avid fans who are trying to look at it from the bright side. Like mentioned up thread; things are being told or not being told on earning calls give you a much better idea of what really is going on.

par13del wrote:

So is the majority of the inventory sitting at Boeing destined for WN, and those that are not, are covered by contracts similar to what WN has with Boeing?
As we are talking absolutes, how did smaller carriers get Boeing to use WN template as a basis for all contracts, during the MAX tragedy threads it was only mentioned that the MAX is / what it is because of WN, now we seem to be saying that others were involved and not just WN, is that accurate?

This.
This sir, is the billion dollar question, isn't it? How many other carriers are getting their aircraft as cheaply as SWA? I'm pretty sure that Ryanair is, but have no proof. What would the gross number of orders required to gain such a handout?

flyDubai has 250 on order. Lionair has 250. Ryanair 210. Vietjet 200.

I have never claimed to be the smartest guy, so I'm guessing that there are other airline analysts (at each carrier) that have parsed the financials of other airlines and have come to the same conclusion. We may never know.

We'll only have the 'big picture' financials and as long as the long term debt mounts and margins are negative - we'll 'know'.

JonesNL wrote:

crankypants wrote:

JonesNL wrote:

I agree, while it is interesting to have an rundown of the numbers, there is hardly anything new or surprising about them. Boeing screwed up and is now paying for it dearly. It is useless to compare to Airbus at the current stage as they are both at an completely different state or even dimension. Come back in 2025 when MAX deliveries are running like an oiled machine, 777x is flying around and NMA orders are flowing in. There are still big challenges ahead, but that is the time frame I believe an comparison will make sense again...

No, this is not a urinating contest - it was never intended to be. It's just a cold hard look at some numbers and is perhaps a wake up call to those who bandied about the usual dog whistle refrains:

- Boeing is one member of a duopoly
- The 737 Max inventory is a pile of cash waiting to happen
- The NMA orders will flow in
- SWA would never order the A220
- 787 program is fantastic for BA
- Wait 'til the 777X is flying around

and a host of other reasons that get thrown out without analysing the underlying premises.

Boeing just had to write off $6.5 billion on the 777X program, which will now have an EIS of 2023 - 10 years after launch. A profit will never be booked on that aircraft. Neither will the 787 program. Neither will the 737 Max program.

While the deaths in the Max situation are indeed a tragedy for those involved, for Boeing it is completely self inflicted, they did it to themselves and continue to do so with their other aircraft. Their mindset doesn't seem to be changing anytime soon.

No, this was not a BA vs AB thread, but the question was asked by Revelation - how do we measure the performance of Boeing? Who else do we compare Boeing to, if not Airbus? We do it all the time, in other threads and in the market side of things, when we look at financial health.

I did not take the conversation there and my only focus was on what I believed to be fresh insight into the financial situation regarding the Max - and Boeing, at large,

BTW - I kind of looked around and am involved at a few other aviation/financial websites. I'd love to read more about the SWA/737Max cost structure and what others have come up with, regarding this numerical analysis. Since this is not news for you, I'd appreciate it if you could point me in the right direction and pass along a few other sources. Thanks and sorry if you thought I was trying to re-invent the wheel. I guess I didn't realise that everyone had parsed the financials, run the numbers on this and come to the same conclusion. My bad.

No need to apologize, and your financial analysis is more then appreciated. The exact numbers were not known by me (and most others I guess). So, you analysis is really helpful, but the story that the numbers are telling is not an revelation, there are in line with the communication of Boeing and industry stakeholders. There are to many articles to dig through to come up with the data you want, but SWA's relationship with Boeing and Boeings financial cashflow details are widespread available.

The refrains you mention are just opinions of avid fans who are trying to look at it from the bright side. Like mentioned up thread; things are being told or not being told on earning calls give you a much better idea of what really is going on.

Jonesy - those earnings calls are pretty tricky, if you ask me. The current crop of c-suite boys seem to be mainly concerned with keeping the share price high, as opposed to revealing just how deep a hole they are in. Some reading between the lines is definitely required, but then it can be explained away as alarmist interpretations, by those same fans you mention.

Who saw the $6.5 billion write down on the 777X coming? Everything from the genX engine issues to the fuselage stress test was down played, until the bill came due.

On a side note: given your handle - are you a Brad Gushue fan?
Regards

crankypants wrote:

No, this was not a BA vs AB thread, but the question was asked by Revelation - how do we measure the performance of Boeing? Who else do we compare Boeing to, if not Airbus? We do it all the time, in other threads and in the market side of things, when we look at financial health.

We do it all the time because they often are in comparable positions.

Now you want to have a race between a person with a bad cold vs a person undergoing chemotherapy and radiation.

You don't think that's a willy waiving contest?

Well, the person who has cancer smoked and drank, so let's go ahead anyway.

What?

Phosphorus wrote:

CRJockey wrote:

Antarius wrote:

I'm still unclear what your overall point is. I guess nothing here is surprising - white tails at a discount, commercial aviation in the dumps and Boeing dealing with it worse than others due to the MAX mess.

Unless there is something they should be doing differently now and aren't, there isn't anything new being uncovered.

And that despite crankypants acutally making a beautiful job of presenting interesting numbers. I grasp his point quite easily.

No, the general idea is not new. Putting down some analysis and deriving more or less precise numbers is still *always* a good idea. Not every added information must be a wheel-discovery like revelation.

Agreed. crankypants did excellent investigative work, relevant for anyone who own or thinks of owning Boeing stock, for example.
The broad consensus out there is that MAX debacle has cost Boeing a lot, but apparently these costs are already either in the past, or fully accounted for.
Now, with more exact figures unearthed, it appears that this consensus ("all bad things already spoken for") might not necessarily be the actual case.

Thanks for your kind words - all of you; astuteman, Phosporus, CRjockey et al.

The 'baked in' question...quite the dilemma. Methinks the next shoe to drop will be the 787 fix on the fuselage join issue, with BA probably taking a writedown on that program. The information is not only relevant for those wanting to own Boeing stock, but also for those out there who would be considering shorting Boeing stock. The problem with that, however - is with the Fed backstopping the bond market and BA customers getting continual bailouts, they indirectly get supported as customers are able to keep the order book generally intact.

When the faucet is turned off and the music stops, those without a chair are going to be taking quite a haircut. It's all a matter, however, of determining WHEN the music stops. Know that - and you can retire to an island in the Caribbean.

Revelation wrote:

crankypants wrote:

No, this was not a BA vs AB thread, but the question was asked by Revelation - how do we measure the performance of Boeing? Who else do we compare Boeing to, if not Airbus? We do it all the time, in other threads and in the market side of things, when we look at financial health.

We do it all the time because they often are in comparable positions.

Now you want to have a race between a person with a bad cold vs a person undergoing chemotherapy and radiation.

You don't think that's a willy waiving contest?

Well, the person who has cancer smoked and drank, so let's go ahead anyway.

What?

You know, due to my personal inherent lack of fanboyism for either manufacturer, I really don’t care who gets critically discussed or outright roasted.

But I can’t remember any kind of similar reservation when a good Airbus critique was held.

Why do you feel there should be any restraint? Or do I misunderstand you?