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Gremlinzzzz
Posts: 297
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Re: Boeing aims to evenly spilt narrowbody aircraft market share

Sat May 01, 2021 2:27 am

morrisond wrote:
You are still missing the fact that they book a reduction in the program cost and a profit. Of course if they have too reduce the accounting block further they will have to book a loss.

Yes they have become twice as good (or at least they were before Covid hit) at the margin on 787 - each one was paying back about $37 million plus recording a very nice profit on the bottom line. The $30 Billion has been paid back (probably). From the earnings transcript "However, on a cash basis, the 787 unit margin has held up relatively well even at lower production rates as many underlying profitability drivers remain intact."

They fixed the gross margin by taking the 787 to one production location - that has helped a lot.

From the transcript of the earnings call https://s2.q4cdn.com/661678649/files/do ... script.pdf

Greg Smith On the MAX "Cumulatively, we've accrued a $9.3 billion liability for the estimated potential concessions and other considerations. To date, we've reduced the liability by $4.9 billion through cash payments to customers and other forms of compensation, including $1.2 billion we paid this quarter. We have settlement agreements covering approximately $2.5 billion of the remaining liability balance of $4.4 billion." so only $4.4B to go on deliveries of 400 frames.

"Moving now to 777X; as Dave mentioned, we still expect first delivery of the 777X to occur in late 2023, and we are making good progress on our flight test efforts. We still expect that peak use of cash for 777X program was in 2020, and that cash flow will improve as we get closer to EIS and begin deliveries in late 2023. We anticipate the program to turn cash-flow-positive approximately one to two years after the first delivery."

"Our debt balance remains stable at $63.6 billion at the end of the quarter. As part of our ongoing prudent liquidity actions, we refinanced $9.8 billion of our delayed draw term loan that was due in early 2022 and expanded our revolving credit facility by $5.3 billion. These liquidity enhancing activities are in addition to the many actions we have discussed before, including suspending our dividend, reducing discretionary spending, matching 401(k) contributions in stock, prefunding pension with stock, and awarding most of our employees a one-time stock grant that will vest in three years in lieu of a merit increase. These actions reflect our continued de-risking strategy and are part of our balanced approach to ensure we're proactively meet future obligations.
We worked hard in the past to maintain disciplined cash management while seeking opportunities to strengthen our balance sheet, and we will continue these efforts. Once cash flow generation returns to more normal levels, reducing our debt level will be our top priority. We believe we currently have sufficient liquidity and are not planning to increase our debt levels. However, we will continue to actively manage our balance sheet. Our investment-grade credit rating is important to us, and we will continue to consider all aspects of our capital structure to strengthen our balance sheet."

Notice they increased the size of a revolver just in case but did not increase debt and don't plan on doing that.

"We expect the first quarter was the most challenging quarter from a cash perspective, and we expect the trend to improve for the remainder of the year as we ramp up 787 and 737 deliveries in subsequent periods. However, there could be some timing variation quarter-over-quarter, so quarterly trajectory could be uneven. As discussed, our cash flow profile is heavily dependent upon obtaining the remaining 737 MAX regulatory approvals, the commercial market recovery, and ongoing discussions with our customers on their fleet planning needs.
In aggregate, we continue to expect 2021 to be a use of cash. We expect that continued improvement on the 737 MAX program due to lower customer considerations and higher delivery payments as well as recovery in Commercial Services will enable us to turn positive cash flow in 2022. The key watch items that I highlighted earlier will be the differentiator in our outlook trajectory. Given the dynamic environment, we continue to monitor the risks and opportunities to ensure we're well-positioned for the future."

Calhoun on the future "Yeah. There's probably not much I can add there. But I'll just add my confidence that as production rates begin to return to what we would consider ultimately normal and then above, we should get more leverage than we've ever gotten simply because of all the actions that we've taken with respect to the fixed and readiness-to-serve costs that are out there. But maybe even a bigger part is the stability we will bring back to the production lines themselves. So that as we move the rates up, we can do so in a stable fashion. There is enormous productivity attached to that track."

Smith on 787 Deferred Production Cost "No, absolutely. Yeah. And actually, Carter, you got it right. I mean, it's all those other moving pieces that are
obviously unusual and didn't exist in the prior quarters. So once we kind of get through that and get kind of to a
normalized pace, you'll see deferred continue on the trajectory that we've outlined before. But near term, to your
point, there's a lot of moving pieces in there that are weighing into that number that are not, I would say, sitting on
a normalized level. But it will once we start continuing delivery. And long term, like I said, we will be on the same
path as we've talked about before. Now, I like I said on the past..."

On 787 Cash Flow "Outside of that, like I said, unit cash basis, program is really doing a great job and really holding up well at a very low rate. And again, that's a testament to all the hard work that's gone on over the years on stabilizing the factory and the operations and the productivity initiatives. So you're seeing the benefit of that.
So as the rate kind of stabilizes and goes up, and we certainly deliver those inventoried aircraft, that's going to be a big driver as I mentioned on cash flow between the balance of this year and then going into 2022."

On investing in the Company "We've invested over $60 billion over the last 10 years, and that has all been in key technologies and programs and all efforts within our factory, within our space. So we've not been short on investment by any means. And you saw even last year in the middle of the pandemic we're – continued to make the appropriate investments in the right area of the business."

Finally one for the future "Secondly, we've invested, as you know, in composites in our platforms for a very, very long time. The learning
curves associated with getting efficient at composite development are significant. I believe Boeing has a huge
advantage on that front. And so how we bridge that engineering modeling, that composite development work that
we've done over the years and then quick, simple assembly like we've demonstrated with the trainer airplane and
other defense programs, we have to do it at scale, and we have to prove to ourselves we can do it at scale. But in
my view those are going to be the advantages to that next airplane that gets developed. And I just love where
Boeing is positioned on that front when the time comes."

Read the full transcript - you will learn a lot.
I am not missing anything.

1. They talk about reducing liabilities in the 737 by making payments to customers. Great. Now where is the money coming from? It is coming from banks, and this is why their debt jumped up. They moved liability from Tom and they will be paying it to Harry with interest. Also note that the total liability added to the MAX was $20.3 billion. This is what interests me, not what has been paid using a loan, which is also yet to be paid back. We also do not know what it is going to cost to re-wire the current fleet or what it is going to cost to solve the latest issue. Charges will continue on this program.

You seem to be missing the forest from the trees.

2. On the 777X, they have already booked a forward loss. Another asset. That said, they are talking about the program being cash flow positive, but does that mean anything in the grand scheme? No. You can be cash flow positive and sinking in debt and red ink elsewhere. This is where Boeing is at and the funny thing is that you do not dispute it. That forward loss they booked is them telling us they wont make money put in development back; any other business you book that as a loss, and it is not just an accounting entry.

3. They talk about liquidity and debt levels. The liquidity they have right now is a function of accumulating more debt. They accumulated more debt because they can neither design good planes, nor can they do it at cost. Repeat work means that they are spending more into what should be mature programs, and being above cost means that you need a bigger accounting block.

4. On the 787, there is more than half program costs still not paid. This does not include the charge that they put in R&D. If we took that to mean this will be spread over 500 frames, then the argument is that on deferred cost alone, Boeing would need to make $30 million off each delivery. They will be doing this and still making a profit.
Mark my words, read my lips. This program is not going to make money, not when you have a shim issue that they have not been able to get ahead of. First time they had this issue was 2012 and 9 years on they still have not found a way to do the job competently. They could not meet agreements they made to the FAA concerning this in 2015. Expect more charges, and they can book them wherever they want, it is money out.

5. They talk about getting more leverage. How much more remains to be seen. It will be money out, and with interest.

6. What have we learnt in this last decade from Boeing? Is it that they can get it right? No, of course not, what we have learnt is that they cannot and problems with the 787, 737 or even widespread issues in the Military and Space ventures show this.

In conclusion, Boeing is slave to the banks and will be for quite some time. And should they need money for a new program in this decade, they will have to tap the debt markets.
 
Noshow
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Re: Boeing aims to evenly spilt narrowbody aircraft market share

Sat May 01, 2021 6:52 am

What they need is a strategic commitment by their investors.
-they want to stay in the commercial market long term
-they will get all the money they need to develop a new program family long term and not only milk heritage programs (meaning not much money short term for stock holders over some period)
-they end this useless fight within the company between sites and coasts and labor.
- it will take some time to clean up the mess but then they will need a new leadership team that is more engineering minded again and less Neutron Jack hardwired. This is about group level and big investors in the background.
-Good thing is they have the talent the know how and the capabilities if they are permitted to use them.
-it would be a bad sign if they are now selling sites and move to the east coast or similar.

I honestly wish them a successful turnaround. You can see like in slow motion where this stock and bonus MDD style exploitation strategy leads to: nowhere. Bring back old school management style please. The way it has been lately it has not created value for big investors.
 
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Momo1435
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Re: Boeing aims to evenly spilt narrowbody aircraft market share

Sat May 01, 2021 7:07 am

Gremlinzzzz wrote:
2. On the 777X, they have already booked a forward loss. Another asset.


Could you explain the "another asset" remark here?

If Boeing made a charge it means that it's already booked this as a loss, they are not hiding this in the books as "Deferred Production Cost", it's not in any way an asset.


The problem with using program accounting for a program that goes completely left as much as the 787 that it takes too many years to correct this on the books. It's understandable why they use it, you don't want to book all the losses during the development stage all at once. But the Corona crisis + continuing technical / production issues show that a future profit is not always guaranteed. But even with the low number of deliveries and the production changes Boeing still kept on decreasing the Deferred Production Cost over this last year. So this asset they have on their books only decreased even though it was not transferred into cash. This inflated the booked losses, even though it didn't cost any cash in 2020, which means that you should technically see this as a write-off.

The main reason why Boeing debt level increased was because they could not deliver enough of their products in 2019 and 2020, so not enough cash was coming in to pay the current bills.

Boeing has 400 737 MAX and 100 787 on property, which will start to generate cash again when they are delivered, even if they are paid less then the costs. With the cash they can repay the debts, something which they have always done. Share buy/backs are basically the same as repaying a bank loan. If they want to raise the funds for a new program, they can either open a new loan or do a public offering, offering new shares to the market. I don't believe that will be a big issue as long the financial markets keep their trust in Boeing (They should be grateful for this duopoly with a very limited chance that new entrants will enter the market. This is why a large aircraft manufacturer can be considered too big to fail, while a similar large company like a commercial mainline airline is more likely to go bust).

Of course they will have to improve their production standards so they won't have all these issues anymore. They need this if they want to be profitable in the long run and as this last year shows have a solid financial buffer if a new external crisis similar to a new pandemic or a 9/11 happens again.
 
B777LRF
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Re: Boeing aims to evenly spilt narrowbody aircraft market share

Sat May 01, 2021 7:49 am

You can spin it anyway you like, and financial engineering certainly makes some interesting spins, but fact remains that if you spend 100 USD on designing, marketing and building a product, expecting to sell 11 of them at 10 USD each but only sell 9 of them at 9 USD each, you're looking at a loss. And that, in a nutshell, is where Boeing are with the Max, 747-8, 787 and 777X. They can program account and forward loss all they want, all it does is push the inevitable forward and is - apparently - sufficient to keep the utterly incompetent Wall Street vultures happy. And that should tell you all you need to know about "the market" and how Boeing are operating.
Signature. You just read one.
 
Gremlinzzzz
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Re: Boeing aims to evenly spilt narrowbody aircraft market share

Sat May 01, 2021 7:51 am

Momo1435 wrote:
Could you explain the "another asset" remark here?

If Boeing made a charge it means that it's already booked this as a loss, they are not hiding this in the books as "Deferred Production Cost", it's not in any way an asset.


The problem with using program accounting for a program that goes completely left as much as the 787 that it takes too many years to correct this on the books. It's understandable why they use it, you don't want to book all the losses during the development stage all at once. But the Corona crisis + continuing technical / production issues show that a future profit is not always guaranteed. But even with the low number of deliveries and the production changes Boeing still kept on decreasing the Deferred Production Cost over this last year. So this asset they have on their books only decreased even though it was not transferred into cash. This inflated the booked losses, even though it didn't cost any cash in 2020, which means that you should technically see this as a write-off.

The main reason why Boeing debt level increased was because they could not deliver enough of their products in 2019 and 2020, so not enough cash was coming in to pay the current bills.

Boeing has 400 737 MAX and 100 787 on property, which will start to generate cash again when they are delivered, even if they are paid less then the costs. With the cash they can repay the debts, something which they have always done. Share buy/backs are basically the same as repaying a bank loan. If they want to raise the funds for a new program, they can either open a new loan or do a public offering, offering new shares to the market. I don't believe that will be a big issue as long the financial markets keep their trust in Boeing (They should be grateful for this duopoly with a very limited chance that new entrants will enter the market. This is why a large aircraft manufacturer can be considered too big to fail, while a similar large company like a commercial mainline airline is more likely to go bust).

Of course they will have to improve their production standards so they won't have all these issues anymore. They need this if they want to be profitable in the long run and as this last year shows have a solid financial buffer if a new external crisis similar to a new pandemic or a 9/11 happens again.
Boeing counts their deferred production costs as assets and not as expenditure or liability.

I have always opined that if you need to go through a convoluted manner to try and explain how a business works, or how a product is structured in finance, then there is someone trying to hide something.

Straight off the bat, money spent on developing a product is money spent no matter how you want to account for it. The charges that they are taking too, we are often told are just accounting entries, and I know from experience that this is not what any business does because there is nothing out there like an accounting entry that does not have material cost.

It would also not matter whether or not Boeing was delivering planes. They would have had to take a loss to finance the shoddy work that they have undertaken this decade. That is the cost of doing business.

Finally, Boeing is not going to have an issue raising money because there is a lot of cheap credit floating around. That is a function of the central banks everywhere chasing some sort of inflation despite the fact that technology tends to be deflationary. Sooner or later, that inflation that has thus far gone to the stock market, because this is where returns are, will hit main street and the moment that happens, interest rates have to go up. This leads to a crashing stock market, people saving money (because this is what people do in tough times), this is followed by less spending on discretionary items.

It took a crisis in 2008 for people to know what banks were hiding hideous portfolios and some like Lehman that had been shuttling some of those ghastly investments back and forth got caught out. Boeing will not change unless a crisis hits so hard that it exposes just how bad their accounting practices are. The MAX simply showed how poor their production is and how horrible the culture has become. Financial struggle will expose just how poor their accounting standards are.

If not for regulatory capture the MAX, Dreamliner costs would have been higher and quality far better, but as we know, the FAA was a toothless dog, and all bark and no bite. Accounting standards more in line with what other companies should have been addressed, but as we know, the SEC which had an opportunity to kill this book keeping mess in 2016 is similarly not worth much.
Crisis is what leads these companies to clean up their act.
 
brindabella
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Re: Boeing aims to evenly spilt narrowbody aircraft market share

Sat May 01, 2021 8:30 am

To those a-netters out there who are also appalled at this arcane dogfight: this is a long, long way from the first time all this smoke and dust has been raised.
Infuriatingly.
The combatants are mainly new when compared to previous iterations, however one or two are on the same-old, same-old.

And yes, those previous iterations also consisted of the combatants shouting past each other using their own assumptions and making little or no effort to deal with the arguments
Billy
 
brindabella
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Re: Boeing aims to evenly spilt narrowbody aircraft market share

Sat May 01, 2021 8:36 am

... of the others. I posted a little bit some years ago after researching that:
FWIW, the published P&L + Balance Sheets showed ACTUAL debt around $11Bn..
Quite manageable for a Corporation of this size.
And the much-debated 787 program debt at the time was around $30Bn.
So, indeed the reality was and is: "This was money owed by Boeing to Boeing".
Billy
 
Noshow
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Re: Boeing aims to evenly spilt narrowbody aircraft market share

Sat May 01, 2021 8:36 am

If you don't earn money with your main products anymore it is better to face the reality and change things for the better. Open debate is a part of that not spin doctoring and denial. It's no dogfight to discuss different opinions. This goes for any other company as well.
 
Gremlinzzzz
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Re: Boeing aims to evenly spilt narrowbody aircraft market share

Sat May 01, 2021 8:41 am

B777LRF wrote:
You can spin it anyway you like, and financial engineering certainly makes some interesting spins, but fact remains that if you spend 100 USD on designing, marketing and building a product, expecting to sell 11 of them at 10 USD each but only sell 9 of them at 9 USD each, you're looking at a loss. And that, in a nutshell, is where Boeing are with the Max, 747-8, 787 and 777X. They can program account and forward loss all they want, all it does is push the inevitable forward and is - apparently - sufficient to keep the utterly incompetent Wall Street vultures happy. And that should tell you all you need to know about "the market" and how Boeing are operating.

But we are told that those are just accounting entries. Creative accounting standards (what some of us call poor accounting standards) are like poor design, they are a perishable good with an expiry date.

You can book entries, you can borrow, you can book entries in areas they ought not be booked. Eventually, that mountain of red ink and debt catches up and debt markets dry up.
 
Noshow
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Re: Boeing aims to evenly spilt narrowbody aircraft market share

Sat May 01, 2021 8:49 am

The accounting works just different on both sides of the Atlantic. Not sure I prefer the US way.
 
Gremlinzzzz
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Re: Boeing aims to evenly spilt narrowbody aircraft market share

Sat May 01, 2021 8:54 am

brindabella wrote:
... of the others. I posted a little bit some years ago after researching that:
FWIW, the published P&L + Balance Sheets showed ACTUAL debt around $11Bn..
Quite manageable for a Corporation of this size.
And the much-debated 787 program debt at the time was around $30Bn.
So, indeed the reality was and is: "This was money owed by Boeing to Boeing".

If you spend $36 billion to develop a product and refine production, you need to make $36 billion back.

If you do not make this back, the program makes a loss and the cash reserves shrink by a similar degree if they are not provisioned for by profits from other programs. The 777 classic and the 737 allowed Boeing to do this. Today, Boeing owes money on the 787 (and they will continue to invest money to correct shim issues or compensate airlines), the 747-8, the 777X (even before a unit is delivered) and we do not know what the 737 liabilities look like long term between the MAX and NG. The military side is also another money pit.

The balance sheet is going to look downright ugly if they do not make the right decision to issue some shares.
 
mjoelnir
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Re: Boeing aims to evenly spilt narrowbody aircraft market share

Sat May 01, 2021 10:53 am

brindabella wrote:
... of the others. I posted a little bit some years ago after researching that:
FWIW, the published P&L + Balance Sheets showed ACTUAL debt around $11Bn..
Quite manageable for a Corporation of this size.
And the much-debated 787 program debt at the time was around $30Bn.
So, indeed the reality was and is: "This was money owed by Boeing to Boeing".


What do you call actual debt?
Some people here have strange ideas about bookkeeping and annual or quarterly accounts, or are running a defense of Boeing's strange bookkeeping practices.

If you look at private live, what would people call debt? Only the mortgage on the house? Or could we agree that everything somebody owes and has to pay is debt, for example when your wife gets a child and there is a 10,000 USD bill outstanding from the hospital, or any other unpaid bill. If you are a one man contractor and have got a prepayment for a job, the prepayment is a debt until you have finished the job.

If we would define as actual debt the difference between assets and liabilities, what the company owns and owes, that are 18 billions today. Of course that is muddled, as Boeing, due to program for cost accounting, books cost to inventories and therefore shows assets that do not exist. So if we deduct the non existing assets, 16,7 billion for the 787 program and what shall we guess, how many billions have been deferred for the 737 and the 777, 20 and 10 billion?
A huge hole were the assets to not cover liabilities.

Debt is quite a loose term, if I look at the Cambridge dictionary: debt is something, especially money, that is owed to someone else, that would include everything you owe, equaling liabilities. If you want to restrict what debt means, you should qualify it.

If we look at Boeing Q1 2021 we see two statements of debt, short term debt at about 6 billion and long term debt at about 58 billion, together 64 billion and that are only the financial instruments, with other words money.

If I look at Boeings accounts, I look at the Q-10, a standardized form of reporting.
 
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Momo1435
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Re: Boeing aims to evenly spilt narrowbody aircraft market share

Sat May 01, 2021 11:14 am

Gremlinzzzz wrote:
Boeing counts their deferred production costs as assets and not as expenditure or liability.

I have always opined that if you need to go through a convoluted manner to try and explain how a business works, or how a product is structured in finance, then there is someone trying to hide something.

Straight off the bat, money spent on developing a product is money spent no matter how you want to account for it. The charges that they are taking too, we are often told are just accounting entries, and I know from experience that this is not what any business does because there is nothing out there like an accounting entry that does not have material cost.

It would also not matter whether or not Boeing was delivering planes. They would have had to take a loss to finance the shoddy work that they have undertaken this decade. That is the cost of doing business.

Finally, Boeing is not going to have an issue raising money because there is a lot of cheap credit floating around. That is a function of the central banks everywhere chasing some sort of inflation despite the fact that technology tends to be deflationary. Sooner or later, that inflation that has thus far gone to the stock market, because this is where returns are, will hit main street and the moment that happens, interest rates have to go up. This leads to a crashing stock market, people saving money (because this is what people do in tough times), this is followed by less spending on discretionary items.

It took a crisis in 2008 for people to know what banks were hiding hideous portfolios and some like Lehman that had been shuttling some of those ghastly investments back and forth got caught out. Boeing will not change unless a crisis hits so hard that it exposes just how bad their accounting practices are. The MAX simply showed how poor their production is and how horrible the culture has become. Financial struggle will expose just how poor their accounting standards are.

If not for regulatory capture the MAX, Dreamliner costs would have been higher and quality far better, but as we know, the FAA was a toothless dog, and all bark and no bite. Accounting standards more in line with what other companies should have been addressed, but as we know, the SEC which had an opportunity to kill this book keeping mess in 2016 is similarly not worth much.
Crisis is what leads these companies to clean up their act.

When Boeing announces a charge it means that they actually don't account it as "deferred production costs", so the new $6.5B 777X charge is not booked as a new asset, it's a direct loss on the books as part of the $8.3 total write down they announced.

And of course cost have to be paid no matter if they deliver or not. That's the whole issue they have here, regardless of how their accounting works. But when they don't deliver no cash is coming in. You pay bills with cash, not with assets that are just there on the books but are not worth anything, like the deferred costs. If more money comes from sales it means that there's more money available to pay more bills, like paying the bills of a new program, pay back loans, or pay it out to the owners (which they obviously did too much these last couple of years). The 787 program can become cash-flow positive before the deferred costs are back to zero on the books.

Using program accounting and deferred costs (those are 2 different things) were never implemented to hide anything, it became a problem because Boeing had to spend way too much money on the 787 program. Creating too much uncertainty if these costs will actually be 'compensated' on the books by future operational profits and not by future large write downs / charges.

Like I said before in this thread, | believe that Boeing needs to clean up it act before they can look at starting a new program. They could also do a big clean up with the deferred costs as in decide to announce a couple of large charges where they write down a significant part of the asset 'deferred production costs'. They might already had done this already if the profits on the other programs would not have been slashed because of all the issues that they currently face.
 
mjoelnir
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Re: Boeing aims to evenly spilt narrowbody aircraft market share

Sat May 01, 2021 11:28 am

I had a look at the inventories in Boeing's Q-10 in Q1 2021.

The inventories include 16.6 billion deferred production cost in regards to the 787.
2.5 billion deferred production cost in regards to the 737.
3.1 billion credited in cash or other considerations to customers.

So there are 22.2 billion booked to inventories that are not assets in reality.

In regards to the 777, Boeing decided that the expected sales would not cover the deferred cost and booked 6,5 billion from deferred cost to loss. So deferred cost for the 777 program is immaterial as it is.

Deferred cost are production cost, not development cost.
 
mjoelnir
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Re: Boeing aims to evenly spilt narrowbody aircraft market share

Sat May 01, 2021 11:38 am

I do not see how Boeing would be able to come to 50:50 in narrow bodies without replacing the 737. It is the biggest slice of the commercial aircraft market.
The 737 is loosing ground as we watch. Even now after the MCAS grounding, deliveries do not get into gear. It could be of course, that getting the stored frames ready for delivery is just such a huge job, but there is also the possibility, that customers just are not prepared to accept deliveries.
If this does not change in the next month, the 737 will not help Boeing to reach 50:50. 30:70 would be more realistic.
 
Gremlinzzzz
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Re: Boeing aims to evenly spilt narrowbody aircraft market share

Sat May 01, 2021 11:51 am

Momo1435 wrote:
Gremlinzzzz wrote:
Boeing counts their deferred production costs as assets and not as expenditure or liability.

I have always opined that if you need to go through a convoluted manner to try and explain how a business works, or how a product is structured in finance, then there is someone trying to hide something.

Straight off the bat, money spent on developing a product is money spent no matter how you want to account for it. The charges that they are taking too, we are often told are just accounting entries, and I know from experience that this is not what any business does because there is nothing out there like an accounting entry that does not have material cost.

It would also not matter whether or not Boeing was delivering planes. They would have had to take a loss to finance the shoddy work that they have undertaken this decade. That is the cost of doing business.

Finally, Boeing is not going to have an issue raising money because there is a lot of cheap credit floating around. That is a function of the central banks everywhere chasing some sort of inflation despite the fact that technology tends to be deflationary. Sooner or later, that inflation that has thus far gone to the stock market, because this is where returns are, will hit main street and the moment that happens, interest rates have to go up. This leads to a crashing stock market, people saving money (because this is what people do in tough times), this is followed by less spending on discretionary items.

It took a crisis in 2008 for people to know what banks were hiding hideous portfolios and some like Lehman that had been shuttling some of those ghastly investments back and forth got caught out. Boeing will not change unless a crisis hits so hard that it exposes just how bad their accounting practices are. The MAX simply showed how poor their production is and how horrible the culture has become. Financial struggle will expose just how poor their accounting standards are.

If not for regulatory capture the MAX, Dreamliner costs would have been higher and quality far better, but as we know, the FAA was a toothless dog, and all bark and no bite. Accounting standards more in line with what other companies should have been addressed, but as we know, the SEC which had an opportunity to kill this book keeping mess in 2016 is similarly not worth much.
Crisis is what leads these companies to clean up their act.

When Boeing announces a charge it means that they actually don't account it as "deferred production costs", so the new $6.5B 777X charge is not booked as a new asset, it's a direct loss on the books as part of the $8.3 total write down they announced.

And of course cost have to be paid no matter if they deliver or not. That's the whole issue they have here, regardless of how their accounting works. But when they don't deliver no cash is coming in. You pay bills with cash, not with assets that are just there on the books but are not worth anything, like the deferred costs. If more money comes from sales it means that there's more money available to pay more bills, like paying the bills of a new program, pay back loans, or pay it out to the owners (which they obviously did too much these last couple of years). The 787 program can become cash-flow positive before the deferred costs are back to zero on the books.

Using program accounting and deferred costs (those are 2 different things) were never implemented to hide anything, it became a problem because Boeing had to spend way too much money on the 787 program. Creating too much uncertainty if these costs will actually be 'compensated' on the books by future operational profits and not by future large write downs / charges.

Like I said before in this thread, | believe that Boeing needs to clean up it act before they can look at starting a new program. They could also do a big clean up with the deferred costs as in decide to announce a couple of large charges where they write down a significant part of the asset 'deferred production costs'. They might already had done this already if the profits on the other programs would not have been slashed because of all the issues that they currently face.
I stated that people that obsess over cash flow rarely ever value a business for what it is worth. It is part of the picture, it is in one of my posts from the previous page.

I also stated that Boeing posts profits not earned. Normal businesses pay down cost before they report profits and they provision for bets gone bad.

I similarly stated that thesje fellas are in the business of cooking books. Assets for years have included deferred costs and they are still there today.

This is the walking dead. Enron was making money until it wasn't. Lehman had good books until they needed money and there was no one to lend them.
Boeing according to some is healthy and debt manageable. I do not see it, not with the mess they have. Max issues are not going away and the accumulated debt is eye watering. You have 787 issues that affect majority if not the whole fleet and issues on the NG.

This is the walking dead. More charges will come.
 
morrisond
Posts: 3414
Joined: Thu Jan 07, 2010 12:22 am

Re: Boeing aims to evenly spilt narrowbody aircraft market share

Sat May 01, 2021 12:15 pm

You all still don't get it.

You have to think of Deferred Costs as Pre-Paid costs and that is why they are an asset.

The same as if they bought a piece of equipment and they depreciate it over time. The value of the asset would decline.

You will notice though that there was no corresponding debt increase to pay for that asset. The offsetting entry on the balance sheet would have shown up in higher retained earnings as expenses climbed and lower retained earnings as the balance was paid off.

The money to pay for that asset either came from debt or the profitability of the company that was not paid out to shareholders. We know it didn't come from debt.

Just like any asset (but in this case they are calling the Development costs of the 787 the piece of equipment) when you earn money on it some of the earnings go to depreciation and some fall on the bottom line. However the portion that goes to depreciation is a non-cash expense. Cash flow is equal is to depreciation plus whatever falls to the bottom line.

For the 787 so far they depreciated the asset by about $15B and it also has added significantly to the bottom line. How much? Who knows for sure as they don't disclose it however some analysts estimate 777 Margin at about 30% and 787 over 20%.

787 has delivered about 1,000 frames. That is probably somewhere around $120-130 Billion in revenue plus parts and service contracts that have added more and are hugely profitable. It is not inconceivable that they have already fully paid their initial $30B investment. In any case it's a lot more than just the decrease in the deferred production cost.
 
morrisond
Posts: 3414
Joined: Thu Jan 07, 2010 12:22 am

Re: Boeing aims to evenly spilt narrowbody aircraft market share

Sat May 01, 2021 12:20 pm

Momo1435 wrote:
Gremlinzzzz wrote:
Boeing counts their deferred production costs as assets and not as expenditure or liability.

I have always opined that if you need to go through a convoluted manner to try and explain how a business works, or how a product is structured in finance, then there is someone trying to hide something.

Straight off the bat, money spent on developing a product is money spent no matter how you want to account for it. The charges that they are taking too, we are often told are just accounting entries, and I know from experience that this is not what any business does because there is nothing out there like an accounting entry that does not have material cost.

It would also not matter whether or not Boeing was delivering planes. They would have had to take a loss to finance the shoddy work that they have undertaken this decade. That is the cost of doing business.

Finally, Boeing is not going to have an issue raising money because there is a lot of cheap credit floating around. That is a function of the central banks everywhere chasing some sort of inflation despite the fact that technology tends to be deflationary. Sooner or later, that inflation that has thus far gone to the stock market, because this is where returns are, will hit main street and the moment that happens, interest rates have to go up. This leads to a crashing stock market, people saving money (because this is what people do in tough times), this is followed by less spending on discretionary items.

It took a crisis in 2008 for people to know what banks were hiding hideous portfolios and some like Lehman that had been shuttling some of those ghastly investments back and forth got caught out. Boeing will not change unless a crisis hits so hard that it exposes just how bad their accounting practices are. The MAX simply showed how poor their production is and how horrible the culture has become. Financial struggle will expose just how poor their accounting standards are.

If not for regulatory capture the MAX, Dreamliner costs would have been higher and quality far better, but as we know, the FAA was a toothless dog, and all bark and no bite. Accounting standards more in line with what other companies should have been addressed, but as we know, the SEC which had an opportunity to kill this book keeping mess in 2016 is similarly not worth much.
Crisis is what leads these companies to clean up their act.

When Boeing announces a charge it means that they actually don't account it as "deferred production costs", so the new $6.5B 777X charge is not booked as a new asset, it's a direct loss on the books as part of the $8.3 total write down they announced.

And of course cost have to be paid no matter if they deliver or not. That's the whole issue they have here, regardless of how their accounting works. But when they don't deliver no cash is coming in. You pay bills with cash, not with assets that are just there on the books but are not worth anything, like the deferred costs. If more money comes from sales it means that there's more money available to pay more bills, like paying the bills of a new program, pay back loans, or pay it out to the owners (which they obviously did too much these last couple of years). The 787 program can become cash-flow positive before the deferred costs are back to zero on the books.

Using program accounting and deferred costs (those are 2 different things) were never implemented to hide anything, it became a problem because Boeing had to spend way too much money on the 787 program. Creating too much uncertainty if these costs will actually be 'compensated' on the books by future operational profits and not by future large write downs / charges.

Like I said before in this thread, | believe that Boeing needs to clean up it act before they can look at starting a new program. They could also do a big clean up with the deferred costs as in decide to announce a couple of large charges where they write down a significant part of the asset 'deferred production costs'. They might already had done this already if the profits on the other programs would not have been slashed because of all the issues that they currently face.


Yes there might be further charges as they clean up deferred costs. But these don't actually cost them anything. The $6.5B charge on the 777X did not require them to go borrow another $6.5B to take that charge. They simply wrote that asset down by $6.5B and took it as a charge against current earnings - however it does not impact cash flow.

Look on Page 10 - the 777X is a Non-Cash charge. https://s2.q4cdn.com/661678649/files/do ... elease.pdf
 
morrisond
Posts: 3414
Joined: Thu Jan 07, 2010 12:22 am

Re: Boeing aims to evenly spilt narrowbody aircraft market share

Sat May 01, 2021 12:22 pm

Gremlinzzzz wrote:
Momo1435 wrote:
Gremlinzzzz wrote:
Boeing counts their deferred production costs as assets and not as expenditure or liability.

I have always opined that if you need to go through a convoluted manner to try and explain how a business works, or how a product is structured in finance, then there is someone trying to hide something.

Straight off the bat, money spent on developing a product is money spent no matter how you want to account for it. The charges that they are taking too, we are often told are just accounting entries, and I know from experience that this is not what any business does because there is nothing out there like an accounting entry that does not have material cost.

It would also not matter whether or not Boeing was delivering planes. They would have had to take a loss to finance the shoddy work that they have undertaken this decade. That is the cost of doing business.

Finally, Boeing is not going to have an issue raising money because there is a lot of cheap credit floating around. That is a function of the central banks everywhere chasing some sort of inflation despite the fact that technology tends to be deflationary. Sooner or later, that inflation that has thus far gone to the stock market, because this is where returns are, will hit main street and the moment that happens, interest rates have to go up. This leads to a crashing stock market, people saving money (because this is what people do in tough times), this is followed by less spending on discretionary items.

It took a crisis in 2008 for people to know what banks were hiding hideous portfolios and some like Lehman that had been shuttling some of those ghastly investments back and forth got caught out. Boeing will not change unless a crisis hits so hard that it exposes just how bad their accounting practices are. The MAX simply showed how poor their production is and how horrible the culture has become. Financial struggle will expose just how poor their accounting standards are.

If not for regulatory capture the MAX, Dreamliner costs would have been higher and quality far better, but as we know, the FAA was a toothless dog, and all bark and no bite. Accounting standards more in line with what other companies should have been addressed, but as we know, the SEC which had an opportunity to kill this book keeping mess in 2016 is similarly not worth much.
Crisis is what leads these companies to clean up their act.

When Boeing announces a charge it means that they actually don't account it as "deferred production costs", so the new $6.5B 777X charge is not booked as a new asset, it's a direct loss on the books as part of the $8.3 total write down they announced.

And of course cost have to be paid no matter if they deliver or not. That's the whole issue they have here, regardless of how their accounting works. But when they don't deliver no cash is coming in. You pay bills with cash, not with assets that are just there on the books but are not worth anything, like the deferred costs. If more money comes from sales it means that there's more money available to pay more bills, like paying the bills of a new program, pay back loans, or pay it out to the owners (which they obviously did too much these last couple of years). The 787 program can become cash-flow positive before the deferred costs are back to zero on the books.

Using program accounting and deferred costs (those are 2 different things) were never implemented to hide anything, it became a problem because Boeing had to spend way too much money on the 787 program. Creating too much uncertainty if these costs will actually be 'compensated' on the books by future operational profits and not by future large write downs / charges.

Like I said before in this thread, | believe that Boeing needs to clean up it act before they can look at starting a new program. They could also do a big clean up with the deferred costs as in decide to announce a couple of large charges where they write down a significant part of the asset 'deferred production costs'. They might already had done this already if the profits on the other programs would not have been slashed because of all the issues that they currently face.
I stated that people that obsess over cash flow rarely ever value a business for what it is worth. It is part of the picture, it is in one of my posts from the previous page.

I also stated that Boeing posts profits not earned. Normal businesses pay down cost before they report profits and they provision for bets gone bad.

I similarly stated that thesje fellas are in the business of cooking books. Assets for years have included deferred costs and they are still there today.

This is the walking dead. Enron was making money until it wasn't. Lehman had good books until they needed money and there was no one to lend them.
Boeing according to some is healthy and debt manageable. I do not see it, not with the mess they have. Max issues are not going away and the accumulated debt is eye watering. You have 787 issues that affect majority if not the whole fleet and issues on the NG.

This is the walking dead. More charges will come.


So when you build a factory or buy a piece of equipment you expense it all against earnings that quarter or depreciate it over time?
 
morrisond
Posts: 3414
Joined: Thu Jan 07, 2010 12:22 am

Re: Boeing aims to evenly spilt narrowbody aircraft market share

Sat May 01, 2021 12:26 pm

mjoelnir wrote:
debt is something, especially money, that is owed to someone else,


Exactly - the 787 Development Costs are already paid for they don't owe it to anyone else.
 
morrisond
Posts: 3414
Joined: Thu Jan 07, 2010 12:22 am

Re: Boeing aims to evenly spilt narrowbody aircraft market share

Sat May 01, 2021 12:27 pm

Noshow wrote:
The accounting works just different on both sides of the Atlantic. Not sure I prefer the US way.


Personally I don't like the Boeing way either as it is hard to wrap your head around it. But it is possible.
 
morrisond
Posts: 3414
Joined: Thu Jan 07, 2010 12:22 am

Re: Boeing aims to evenly spilt narrowbody aircraft market share

Sat May 01, 2021 12:34 pm

Gremlinzzzz wrote:
Momo1435 wrote:
Gremlinzzzz wrote:
Boeing counts their deferred production costs as assets and not as expenditure or liability.

I have always opined that if you need to go through a convoluted manner to try and explain how a business works, or how a product is structured in finance, then there is someone trying to hide something.

Straight off the bat, money spent on developing a product is money spent no matter how you want to account for it. The charges that they are taking too, we are often told are just accounting entries, and I know from experience that this is not what any business does because there is nothing out there like an accounting entry that does not have material cost.

It would also not matter whether or not Boeing was delivering planes. They would have had to take a loss to finance the shoddy work that they have undertaken this decade. That is the cost of doing business.

Finally, Boeing is not going to have an issue raising money because there is a lot of cheap credit floating around. That is a function of the central banks everywhere chasing some sort of inflation despite the fact that technology tends to be deflationary. Sooner or later, that inflation that has thus far gone to the stock market, because this is where returns are, will hit main street and the moment that happens, interest rates have to go up. This leads to a crashing stock market, people saving money (because this is what people do in tough times), this is followed by less spending on discretionary items.

It took a crisis in 2008 for people to know what banks were hiding hideous portfolios and some like Lehman that had been shuttling some of those ghastly investments back and forth got caught out. Boeing will not change unless a crisis hits so hard that it exposes just how bad their accounting practices are. The MAX simply showed how poor their production is and how horrible the culture has become. Financial struggle will expose just how poor their accounting standards are.

If not for regulatory capture the MAX, Dreamliner costs would have been higher and quality far better, but as we know, the FAA was a toothless dog, and all bark and no bite. Accounting standards more in line with what other companies should have been addressed, but as we know, the SEC which had an opportunity to kill this book keeping mess in 2016 is similarly not worth much.
Crisis is what leads these companies to clean up their act.

When Boeing announces a charge it means that they actually don't account it as "deferred production costs", so the new $6.5B 777X charge is not booked as a new asset, it's a direct loss on the books as part of the $8.3 total write down they announced.

And of course cost have to be paid no matter if they deliver or not. That's the whole issue they have here, regardless of how their accounting works. But when they don't deliver no cash is coming in. You pay bills with cash, not with assets that are just there on the books but are not worth anything, like the deferred costs. If more money comes from sales it means that there's more money available to pay more bills, like paying the bills of a new program, pay back loans, or pay it out to the owners (which they obviously did too much these last couple of years). The 787 program can become cash-flow positive before the deferred costs are back to zero on the books.

Using program accounting and deferred costs (those are 2 different things) were never implemented to hide anything, it became a problem because Boeing had to spend way too much money on the 787 program. Creating too much uncertainty if these costs will actually be 'compensated' on the books by future operational profits and not by future large write downs / charges.

Like I said before in this thread, | believe that Boeing needs to clean up it act before they can look at starting a new program. They could also do a big clean up with the deferred costs as in decide to announce a couple of large charges where they write down a significant part of the asset 'deferred production costs'. They might already had done this already if the profits on the other programs would not have been slashed because of all the issues that they currently face.
I stated that people that obsess over cash flow rarely ever value a business for what it is worth. It is part of the picture, it is in one of my posts from the previous page.

I also stated that Boeing posts profits not earned. Normal businesses pay down cost before they report profits and they provision for bets gone bad.

I similarly stated that thesje fellas are in the business of cooking books. Assets for years have included deferred costs and they are still there today.

This is the walking dead. Enron was making money until it wasn't. Lehman had good books until they needed money and there was no one to lend them.
Boeing according to some is healthy and debt manageable. I do not see it, not with the mess they have. Max issues are not going away and the accumulated debt is eye watering. You have 787 issues that affect majority if not the whole fleet and issues on the NG.

This is the walking dead. More charges will come.


Well if you assume they never take there $22B in cash back to where it was before to $8B, don't get paid anything for the 400 MAX's, 100 787's, 18 777W/777X in inventory (at least $20B), and don't make any net margin on new production of about 700 frames in the next 18 months like the CFO says they are and should be on average about 15% and don't do a new equity issue that could be as high as $30B - sure yes - there debt won't budge and they are the walking dead.

Sure more charges might come so they can show higher earnings in the future - but they are non-cash charges. They really don't matter. Better to get them out of the way now.

Greg Smith from the 2021 Q1 Conference call:

"We worked hard in the past to maintain disciplined cash management while seeking opportunities to strengthen our balance sheet, and we will continue these efforts. Once cash flow generation returns to more normal levels, reducing our debt level will be our top priority. We believe we currently have sufficient liquidity and are not planning to increase our debt levels. However, we will continue to actively manage our balance sheet. Our investment-grade credit rating is important to us, and we will continue to consider all aspects of our capital structure to strengthen our balance sheet."

Translating his comment " All aspects of our capital structure" mean they are contemplating an equity issue. He has also said this previously. The market knows it is possibly coming and the stock went up 15-30%.

Personally I don't think they really need to do more than $10-15B - and really only if they launch a new program to give the market confidence that debt will paid down.
Last edited by morrisond on Sat May 01, 2021 12:42 pm, edited 1 time in total.
 
WIederling
Posts: 10020
Joined: Sun Sep 13, 2015 2:15 pm

Re: Boeing aims to evenly spilt narrowbody aircraft market share

Sat May 01, 2021 12:38 pm

astuteman wrote:
morrisond wrote:
What do you consider Airbus has been up to then? Then are buying back shares as well and invested less in new product. Whereas Boeing's LTD remained flat from 2011 to 2018 at about $10B, Airbus almost tripled its debt from $2.8B to $7.5B.


I'm well impressed that you spin higher debt for Boeing as a positive thing for Boeing :)


Under [email protected] "deferrred cost basket" is an asset, isn't it?
Murphy is an optimist
 
mjoelnir
Posts: 9647
Joined: Sun Feb 03, 2013 11:06 pm

Re: Boeing aims to evenly spilt narrowbody aircraft market share

Sat May 01, 2021 12:40 pm

morrisond wrote:
mjoelnir wrote:
morrisond wrote:

They are already paid. They are just using program accounting to smooth profits over time.


They use using program for cost accounting to inflate profits. As long as there are deferred cost on the books, the accumulated profits are shown higher than in reality.


I see where some of the confusion is coming. I am referring to Profits on an annual basis. On an annual basis in the early years - yes Program accounting does inflate profits but later on it understates profit.

Would you be happier if they just accounted for a program much like they would a piece of equipment that was depreciated over time? I probably would as well as it's a lot simpler - but if they did that Boeing would have been reporting much higher profits at peak 787 production than they did.

In opposition to piece of equipment that might have straight line or declining balance depreciation Boeing basically has depreciation that is low in the first couple of years then ramps up as time goes on.

It's a different way to do it and for Boeing not illegal.


Profits are overstated as long as there is a dollar of deferred cost left. Boeing has been starting new aircraft programs all the time. When deferred cost of one program is starting to decline, costs of a new program are being deferred. So the overstating of profits has been constant through many decades.
You pointing to single years is just a red herring.

Yes, what Boeing is doing is not illegal, not in the USA with their strange US GAP. But even in the USA no company is allowed to take up program for cost accounting today and it has been removed as a standard from the US GAP. It has been grandfathered like the 737, to not disturb Boeing' smoke and mirror system.
 
mjoelnir
Posts: 9647
Joined: Sun Feb 03, 2013 11:06 pm

Re: Boeing aims to evenly spilt narrowbody aircraft market share

Sat May 01, 2021 12:53 pm

morrisond wrote:
Gremlinzzzz wrote:
Momo1435 wrote:
When Boeing announces a charge it means that they actually don't account it as "deferred production costs", so the new $6.5B 777X charge is not booked as a new asset, it's a direct loss on the books as part of the $8.3 total write down they announced.

And of course cost have to be paid no matter if they deliver or not. That's the whole issue they have here, regardless of how their accounting works. But when they don't deliver no cash is coming in. You pay bills with cash, not with assets that are just there on the books but are not worth anything, like the deferred costs. If more money comes from sales it means that there's more money available to pay more bills, like paying the bills of a new program, pay back loans, or pay it out to the owners (which they obviously did too much these last couple of years). The 787 program can become cash-flow positive before the deferred costs are back to zero on the books.

Using program accounting and deferred costs (those are 2 different things) were never implemented to hide anything, it became a problem because Boeing had to spend way too much money on the 787 program. Creating too much uncertainty if these costs will actually be 'compensated' on the books by future operational profits and not by future large write downs / charges.

Like I said before in this thread, | believe that Boeing needs to clean up it act before they can look at starting a new program. They could also do a big clean up with the deferred costs as in decide to announce a couple of large charges where they write down a significant part of the asset 'deferred production costs'. They might already had done this already if the profits on the other programs would not have been slashed because of all the issues that they currently face.
I stated that people that obsess over cash flow rarely ever value a business for what it is worth. It is part of the picture, it is in one of my posts from the previous page.

I also stated that Boeing posts profits not earned. Normal businesses pay down cost before they report profits and they provision for bets gone bad.

I similarly stated that thesje fellas are in the business of cooking books. Assets for years have included deferred costs and they are still there today.

This is the walking dead. Enron was making money until it wasn't. Lehman had good books until they needed money and there was no one to lend them.
Boeing according to some is healthy and debt manageable. I do not see it, not with the mess they have. Max issues are not going away and the accumulated debt is eye watering. You have 787 issues that affect majority if not the whole fleet and issues on the NG.

This is the walking dead. More charges will come.


Well if you assume they never take there $22B in cash back to where it was before to $8B, don't get paid anything for the 400 MAX's, 100 787's, 18 777W/777X in inventory (at least $20B), and don't make any net margin on new production of about 700 frames in the next 18 months like the CFO says they are and should be on average about 15% and don't do a new equity issue that could be as high as $30B - sure yes - there debt won't budge and they are the walking dead.

Sure more charges might come so they can show higher earnings in the future - but they are non-cash charges. They really don't matter. Better to get them out of the way now.


Yes their are about 400 MAX, 100 787 and 18 777 in the inventory and spare parts and so on. But additional to the real inventory, there are also 22.1 billion USD imagined inventory, the deferred cost and some other items. That are numbers any other company would have booked as a loss rather than on inventory. The point of program for cost accounting is to hide current losses.
If you do not believe me go to the Q-10 for Q1 2021, page 11, inventories and start reading. I know it is hidden inside a lot of numbers, but even Boeing has to wright it down somewhere.
If Boeing would be about getting the declaration of losses out of the way, they would state this 22.1 billion as a loss, instead of hiding it through program for cost accounting.
 
morrisond
Posts: 3414
Joined: Thu Jan 07, 2010 12:22 am

Re: Boeing aims to evenly spilt narrowbody aircraft market share

Sat May 01, 2021 1:02 pm

mjoelnir wrote:
morrisond wrote:
mjoelnir wrote:

They use using program for cost accounting to inflate profits. As long as there are deferred cost on the books, the accumulated profits are shown higher than in reality.


I see where some of the confusion is coming. I am referring to Profits on an annual basis. On an annual basis in the early years - yes Program accounting does inflate profits but later on it understates profit.

Would you be happier if they just accounted for a program much like they would a piece of equipment that was depreciated over time? I probably would as well as it's a lot simpler - but if they did that Boeing would have been reporting much higher profits at peak 787 production than they did.

In opposition to piece of equipment that might have straight line or declining balance depreciation Boeing basically has depreciation that is low in the first couple of years then ramps up as time goes on.

It's a different way to do it and for Boeing not illegal.


Profits are overstated as long as there is a dollar of deferred cost left. Boeing has been starting new aircraft programs all the time. When deferred cost of one program is starting to decline, costs of a new program are being deferred. So the overstating of profits has been constant through many decades.
You pointing to single years is just a red herring.

Yes, what Boeing is doing is not illegal, not in the USA with their strange US GAP. But even in the USA no company is allowed to take up program for cost accounting today and it has been removed as a standard from the US GAP. It has been grandfathered like the 737, to not disturb Boeing' smoke and mirror system.


Sorry I didn't explain that correctly. If the 787 costs have been expensed as incurred - profits would have been lower in those early years - however in later years (say from 2016-2018) Boeings reported earnings would have been higher.

For example In 2018 alone when they built something like 145 787 - I have seen estimates that they paid back $37 million per frame or about $5.3B. More than enough to offset the entire 777X deferred production cost increase (which would have not been that much as they had built or had in final assembly maybe 2-3) that year and whatever was left over on the MAX.
 
Gremlinzzzz
Posts: 297
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Re: Boeing aims to evenly spilt narrowbody aircraft market share

Sat May 01, 2021 1:09 pm

morrisond wrote:
You all still don't get it.

You have to think of Deferred Costs as Pre-Paid costs and that is why they are an asset.

The same as if they bought a piece of equipment and they depreciate it over time. The value of the asset would decline.

You will notice though that there was no corresponding debt increase to pay for that asset. The offsetting entry on the balance sheet would have shown up in higher retained earnings as expenses climbed and lower retained earnings as the balance was paid off.

The money to pay for that asset either came from debt or the profitability of the company that was not paid out to shareholders. We know it didn't come from debt.

Just like any asset (but in this case they are calling the Development costs of the 787 the piece of equipment) when you earn money on it some of the earnings go to depreciation and some fall on the bottom line. However the portion that goes to depreciation is a non-cash expense. Cash flow is equal is to depreciation plus whatever falls to the bottom line.

For the 787 so far they depreciated the asset by about $15B and it also has added significantly to the bottom line. How much? Who knows for sure as they don't disclose it however some analysts estimate 777 Margin at about 30% and 787 over 20%.

787 has delivered about 1,000 frames. That is probably somewhere around $120-130 Billion in revenue plus parts and service contracts that have added more and are hugely profitable. It is not inconceivable that they have already fully paid their initial $30B investment. In any case it's a lot more than just the decrease in the deferred production cost.

Development costs have never, are not, and will never be assets.

Boeing develops aircraft with the expectation that they will make money abobe development cost, cost to manufacture aircraft, and cost needed to get assembly efficient.

So, you have development cost, and expensive early units that generally are sold at loss. In the case of the 787, Boeing booked losses associated to early units as research and development. Creative accounting, but hang around, we will come back to this.

We are back to deferred costs that are north of $16 billion. You say they are an asset, while everyone who can think for themselves sees them as a liability. Those who see it as a liability are not mad. They are not mad because each time Boeing cannot see a path to recover these, they quickly take a charge, and this toxic asset very quickly morphs into what it is i.e. a liability. We know this because they have eaten charges on the 747-8 which is almost ending production, and they have taken a charge on the 777X even before they deliver a plane.

So how do you pay down these costs? Easy. You make a jet, you sell a jet over and above cost to manufacture. From the profits, you pay money to yourself. If we were doing simple math and used $15 billion over 500 frames, you would need $30million per frame to pay down this figure.

If this is what should happen, your deferred cost would decline $30 million with each jet delivered and you balance sheet would reflect this as cash in hand.
This is what should happen. If it does not, forward loss.

Now back to the expensive early units that ought to have been booked as program cost, but alas, the myopic creative accountants Boeing are, were more interested in manipulating stock price. That is an expense that cannot be recovered, thus it is a loss in funds. Boeing might have recovered this had it gone to program cost. For this very reason I told you that where they book it does not really matter because the end result is the same.

So, business is simple. If you cannot explain something as simple as this, then there is an issue. This is also no different with how we view assets. Assets are things that can be liquidated to generate cash and in the case of the 787, it is the program and the IP that can be liquidated, not the cost. This is what would happen if they went bankrupt.
 
morrisond
Posts: 3414
Joined: Thu Jan 07, 2010 12:22 am

Re: Boeing aims to evenly spilt narrowbody aircraft market share

Sat May 01, 2021 1:10 pm

mjoelnir wrote:
morrisond wrote:
Gremlinzzzz wrote:
I stated that people that obsess over cash flow rarely ever value a business for what it is worth. It is part of the picture, it is in one of my posts from the previous page.

I also stated that Boeing posts profits not earned. Normal businesses pay down cost before they report profits and they provision for bets gone bad.

I similarly stated that thesje fellas are in the business of cooking books. Assets for years have included deferred costs and they are still there today.

This is the walking dead. Enron was making money until it wasn't. Lehman had good books until they needed money and there was no one to lend them.
Boeing according to some is healthy and debt manageable. I do not see it, not with the mess they have. Max issues are not going away and the accumulated debt is eye watering. You have 787 issues that affect majority if not the whole fleet and issues on the NG.

This is the walking dead. More charges will come.


Well if you assume they never take there $22B in cash back to where it was before to $8B, don't get paid anything for the 400 MAX's, 100 787's, 18 777W/777X in inventory (at least $20B), and don't make any net margin on new production of about 700 frames in the next 18 months like the CFO says they are and should be on average about 15% and don't do a new equity issue that could be as high as $30B - sure yes - there debt won't budge and they are the walking dead.

Sure more charges might come so they can show higher earnings in the future - but they are non-cash charges. They really don't matter. Better to get them out of the way now.


Yes their are about 400 MAX, 100 787 and 18 777 in the inventory and spare parts and so on. But additional to the real inventory, there are also 22.1 billion USD imagined inventory, the deferred cost and some other items. That are numbers any other company would have booked as a loss rather than on inventory. The point of program for cost accounting is to hide current losses.
If you do not believe me go to the Q-10 for Q1 2021, page 11, inventories and start reading. I know it is hidden inside a lot of numbers, but even Boeing has to wright it down somewhere.
If Boeing would be about getting the declaration of losses out of the way, they would state this 22.1 billion as a loss, instead of hiding it through program for cost accounting.


I don't disagree with you on this statement. But it is not a loss - it would have been an expense as incurred those years. Program accounting (on the 787) is not hiding current losses - its effect was that earnings in the early years of the 787 production ramp up (to 2015 I believe when the cash cost of production was finally lower than the average sales price) were reported as higher than they actually were.

If they choose to write off the remaining $15B development costs on the 787 this year - it will show up on the Cash Flow statement as a non-cash entry just like the 777X reach forward loss, Net Earnings on the income statement will be $15B lower, however real cash flow will not change and debt will not go up. They will not have to borrow to take that charge.

It is an accounting entry.
 
MohawkWeekend
Posts: 564
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Re: Boeing aims to evenly spilt narrowbody aircraft market share

Sat May 01, 2021 1:12 pm

Not an accountant but if these shenanigans were occurring, wouldn't someone like Harry Markopolos be on CNBC shouting from the rooftops if this were really so bad?
    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
     
    morrisond
    Posts: 3414
    Joined: Thu Jan 07, 2010 12:22 am

    Re: Boeing aims to evenly spilt narrowbody aircraft market share

    Sat May 01, 2021 1:19 pm

    Gremlinzzzz wrote:
    morrisond wrote:
    You all still don't get it.

    You have to think of Deferred Costs as Pre-Paid costs and that is why they are an asset.

    The same as if they bought a piece of equipment and they depreciate it over time. The value of the asset would decline.

    You will notice though that there was no corresponding debt increase to pay for that asset. The offsetting entry on the balance sheet would have shown up in higher retained earnings as expenses climbed and lower retained earnings as the balance was paid off.

    The money to pay for that asset either came from debt or the profitability of the company that was not paid out to shareholders. We know it didn't come from debt.

    Just like any asset (but in this case they are calling the Development costs of the 787 the piece of equipment) when you earn money on it some of the earnings go to depreciation and some fall on the bottom line. However the portion that goes to depreciation is a non-cash expense. Cash flow is equal is to depreciation plus whatever falls to the bottom line.

    For the 787 so far they depreciated the asset by about $15B and it also has added significantly to the bottom line. How much? Who knows for sure as they don't disclose it however some analysts estimate 777 Margin at about 30% and 787 over 20%.

    787 has delivered about 1,000 frames. That is probably somewhere around $120-130 Billion in revenue plus parts and service contracts that have added more and are hugely profitable. It is not inconceivable that they have already fully paid their initial $30B investment. In any case it's a lot more than just the decrease in the deferred production cost.

    Development costs have never, are not, and will never be assets.

    Boeing develops aircraft with the expectation that they will make money abobe development cost, cost to manufacture aircraft, and cost needed to get assembly efficient.

    So, you have development cost, and expensive early units that generally are sold at loss. In the case of the 787, Boeing booked losses associated to early units as research and development. Creative accounting, but hang around, we will come back to this.

    We are back to deferred costs that are north of $16 billion. You say they are an asset, while everyone who can think for themselves sees them as a liability. Those who see it as a liability are not mad. They are not mad because each time Boeing cannot see a path to recover these, they quickly take a charge, and this toxic asset very quickly morphs into what it is i.e. a liability. We know this because they have eaten charges on the 747-8 which is almost ending production, and they have taken a charge on the 777X even before they deliver a plane.

    So how do you pay down these costs? Easy. You make a jet, you sell a jet over and above cost to manufacture. From the profits, you pay money to yourself. If we were doing simple math and used $15 billion over 500 frames, you would need $30million per frame to pay down this figure.

    If this is what should happen, your deferred cost would decline $30 million with each jet delivered and you balance sheet would reflect this as cash in hand.
    This is what should happen. If it does not, forward loss.

    Now back to the expensive early units that ought to have been booked as program cost, but alas, the myopic creative accountants Boeing are, were more interested in manipulating stock price. That is an expense that cannot be recovered, thus it is a loss in funds. Boeing might have recovered this had it gone to program cost. For this very reason I told you that where they book it does not really matter because the end result is the same.

    So, business is simple. If you cannot explain something as simple as this, then there is an issue. This is also no different with how we view assets. Assets are things that can be liquidated to generate cash and in the case of the 787, it is the program and the IP that can be liquidated, not the cost. This is what would happen if they went bankrupt.


    Well in program accounting that Boeing legally uses Development costs are an asset.

    When you owe a liability to yourself it is not a liability. If they choose to write it off it is a non-cash transaction just like the 777X reach forward loss. Go read the 2021 Q1 report.

    Well at least your last sentence is right. The 787 program and IP is an asset - reflected in the $30B development cost.

    The frames that Boeing wrote off to R&D were the frames that were never sold to customers and were expensed to R&D which effectively reduced reported earnings in those years. They also classified some of the 787 R&D as research that would benefit the whole company in other programs and that is why it appeared as R&D - but it did get reported and it did reduce earnings in those years.
     
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    seahawk
    Posts: 10254
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    Re: Boeing aims to evenly spilt narrowbody aircraft market share

    Sat May 01, 2021 1:39 pm

    morrisond wrote:
    Gremlinzzzz wrote:
    morrisond wrote:
    You all still don't get it.

    You have to think of Deferred Costs as Pre-Paid costs and that is why they are an asset.

    The same as if they bought a piece of equipment and they depreciate it over time. The value of the asset would decline.

    You will notice though that there was no corresponding debt increase to pay for that asset. The offsetting entry on the balance sheet would have shown up in higher retained earnings as expenses climbed and lower retained earnings as the balance was paid off.

    The money to pay for that asset either came from debt or the profitability of the company that was not paid out to shareholders. We know it didn't come from debt.

    Just like any asset (but in this case they are calling the Development costs of the 787 the piece of equipment) when you earn money on it some of the earnings go to depreciation and some fall on the bottom line. However the portion that goes to depreciation is a non-cash expense. Cash flow is equal is to depreciation plus whatever falls to the bottom line.

    For the 787 so far they depreciated the asset by about $15B and it also has added significantly to the bottom line. How much? Who knows for sure as they don't disclose it however some analysts estimate 777 Margin at about 30% and 787 over 20%.

    787 has delivered about 1,000 frames. That is probably somewhere around $120-130 Billion in revenue plus parts and service contracts that have added more and are hugely profitable. It is not inconceivable that they have already fully paid their initial $30B investment. In any case it's a lot more than just the decrease in the deferred production cost.

    Development costs have never, are not, and will never be assets.

    Boeing develops aircraft with the expectation that they will make money abobe development cost, cost to manufacture aircraft, and cost needed to get assembly efficient.

    So, you have development cost, and expensive early units that generally are sold at loss. In the case of the 787, Boeing booked losses associated to early units as research and development. Creative accounting, but hang around, we will come back to this.

    We are back to deferred costs that are north of $16 billion. You say they are an asset, while everyone who can think for themselves sees them as a liability. Those who see it as a liability are not mad. They are not mad because each time Boeing cannot see a path to recover these, they quickly take a charge, and this toxic asset very quickly morphs into what it is i.e. a liability. We know this because they have eaten charges on the 747-8 which is almost ending production, and they have taken a charge on the 777X even before they deliver a plane.

    So how do you pay down these costs? Easy. You make a jet, you sell a jet over and above cost to manufacture. From the profits, you pay money to yourself. If we were doing simple math and used $15 billion over 500 frames, you would need $30million per frame to pay down this figure.

    If this is what should happen, your deferred cost would decline $30 million with each jet delivered and you balance sheet would reflect this as cash in hand.
    This is what should happen. If it does not, forward loss.

    Now back to the expensive early units that ought to have been booked as program cost, but alas, the myopic creative accountants Boeing are, were more interested in manipulating stock price. That is an expense that cannot be recovered, thus it is a loss in funds. Boeing might have recovered this had it gone to program cost. For this very reason I told you that where they book it does not really matter because the end result is the same.

    So, business is simple. If you cannot explain something as simple as this, then there is an issue. This is also no different with how we view assets. Assets are things that can be liquidated to generate cash and in the case of the 787, it is the program and the IP that can be liquidated, not the cost. This is what would happen if they went bankrupt.


    Well in program accounting that Boeing legally uses Development costs are an asset.

    When you owe a liability to yourself it is not a liability. If they choose to write it off it is a non-cash transaction just like the 777X reach forward loss. Go read the 2021 Q1 report.

    Well at least your last sentence is right. The 787 program and IP is an asset - reflected in the $30B development cost.

    The frames that Boeing wrote off to R&D were the frames that were never sold to customers and were expensed to R&D which effectively reduced reported earnings in those years. They also classified some of the 787 R&D as research that would benefit the whole company in other programs and that is why it appeared as R&D - but it did get reported and it did reduce earnings in those years.


    100% correct. What Boeing does makes sense and is perfectly legal.
     
    morrisond
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    Re: Boeing aims to evenly spilt narrowbody aircraft market share

    Sat May 01, 2021 1:41 pm

    MohawkWeekend wrote:
    Not an accountant but if these shenanigans were occurring, wouldn't someone like Harry Markopolos be on CNBC shouting from the rooftops if this were really so bad?


    It's not that bad - and it has been discussed Ad Noseum on CNBC over the years. Some just still can't figure it how it works and if they choose to write off those costs they are a non-cash expense.

    All they have to do is look at 2021 Q1 reports and see how they recorded the non-cash write off of the 777X Deferred Production cost.
     
    Gremlinzzzz
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    Re: Boeing aims to evenly spilt narrowbody aircraft market share

    Sat May 01, 2021 1:43 pm

    morrisond wrote:
    Well in program accounting that Boeing legally uses Development costs are an asset.

    When you owe a liability to yourself it is not a liability. If they choose to write it off it is a non-cash transaction just like the 777X reach forward loss. Go read the 2021 Q1 report.

    Well at least your last sentence is right. The 787 program and IP is an asset - reflected in the $30B development cost.

    The frames that Boeing wrote off to R&D were the frames that were never sold to customers and were expensed to R&D which effectively reduced reported earnings in those years. They also classified some of the 787 R&D as research that would benefit the whole company in other programs and that is why it appeared as R&D - but it did get reported and it did reduce earnings in those years.

    If you started a business today with cash and no debt, you would get inventory. The inventory is an asset because it can be liquidated, the money spent getting it is a liability that needs to be paid down. If you cannot pay down that liability i.e. money owed to yourself, you make a loss. The way you would account for this is either provisioning money from profits in latter transactions to pay down the loss. Or you debit this loss in the liability column which is also known as a write off. Whichever way you look at it, the initial money used to set up, money used to establish the business is a liability and you either pay it or sink in red.


    As I told you, business is not that complicated, and whatever reasoning you use, you will always come down to what I presented. Business 101.

    morrisond wrote:
    Well at least your last sentence is right. The 787 program and IP is an asset - reflected in the $30B development cost.
    Try and keep up, the program is an asset, not the program cost. This is where we are. What it cost to develop the asset is immaterial to it being an asset and the cost being a liability.

    morrisond wrote:
    The frames that Boeing wrote off to R&D were the frames that were never sold to customers and were expensed to R&D which effectively reduced reported earnings in those years. They also classified some of the 787 R&D as research that would benefit the whole company in other programs and that is why it appeared as R&D - but it did get reported and it did reduce earnings in those years.
    You keep going in circles. The cost of developing a jet is research and development. As I told you, it does not matter where they post this cost, the result is the same in that it is money that cannot be recovered.

    Boeing leaning on 787 tech is no different to the way Airbus still leans on technology that was implemented on the A380, or leverages lessons and technology learn from building the first fly by wire aircraft in the A320.

    This is nothing new, it happens everywhere in any scientific field.
     
    SteelChair
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    Re: Boeing aims to evenly spilt narrowbody aircraft market share

    Sat May 01, 2021 1:56 pm

    The Boeing that boldly launched the 747, and then later the 757/767, the Boeing that forcefully pioneered ETOPS with the 763ER, and then launched and delivered the fantastic 777, is gone.

    By way of comparison with the fantastic achievements of the recent past listed above, hoping to achieve parity with Airbus on narrowbody production is a pathetic ambition. All the moreso since it is probably not achievable.

    They were in fact losing market share in orders prior to Covid. Their narrow body product is inferior. The only thing I see changing the situation is transformative leadership. Think Musk/Iacocca/Bethune type of leadership. A massive change of course is needed yesterday imho
     
    Gremlinzzzz
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    Re: Boeing aims to evenly spilt narrowbody aircraft market share

    Sat May 01, 2021 2:01 pm

    MohawkWeekend wrote:
    Not an accountant but if these shenanigans were occurring, wouldn't someone like Harry Markopolos be on CNBC shouting from the rooftops if this were really so bad?
    How would he? The SEC have allowed this to happen in aviation related businesses. When they had an opportunity to make it right in 2016, they ended up doing nothing.

    They are another almost useless organization that does not accomplish what it is set out to do. This is also not the only thing that they have got wrong.
     
    mjoelnir
    Posts: 9647
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    Re: Boeing aims to evenly spilt narrowbody aircraft market share

    Sat May 01, 2021 2:06 pm

    morrisond wrote:
    MohawkWeekend wrote:
    Not an accountant but if these shenanigans were occurring, wouldn't someone like Harry Markopolos be on CNBC shouting from the rooftops if this were really so bad?


    It's not that bad - and it has been discussed Ad Noseum on CNBC over the years. Some just still can't figure it how it works and if they choose to write off those costs they are a non-cash expense.

    All they have to do is look at 2021 Q1 reports and see how they recorded the non-cash write off of the 777X Deferred Production cost.


    Still throwing out red herrings. Non cash expenses, non cash write offs, did you invent those term? A write of is always non cash when it is done, the cash has been spent, the write of recognizes it, it lowers declared profits. The deferred production cost have used up cash, they are just booked to inventories instead of cost or loss and are used to show an asset that does not exist. There is a reason cash flow accounting is done separately from financial positions and profit loss calculation. All three matter. Program for cost accounting scrambles both the statement of financial positions and the statement of operation providing loss or profit.

    If we would follow your arguments, the cash flow statement would be the only part of annual accounts that matters and you would never bother about if a company is making a profit or a loss. Works as long a company is allowed to increase debt without having to increase assets.

    You completely ignore what a write of represents. It lowers profit and assets by the same amount. As lowering profits decreases cash flow and lowering assets increases cash flow in the cash flow calculation, it is cash flow neutral.
    But assets are the base for future cashflow, you sell an asset you receive cash, more assets more future cash. Writing of assets recognizes that the future cash flow will not happen. That is it's influence on cash flow.
    Deferred cost booked to inventories, is an empty promise of future cash flow.
    Last edited by mjoelnir on Sat May 01, 2021 2:23 pm, edited 2 times in total.
     
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    crimsonchin
    Posts: 576
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    Re: Boeing aims to evenly spilt narrowbody aircraft market share

    Sat May 01, 2021 2:11 pm

    I wish them the best of luck. The fact that they are "only" aiming for an even split shows they know how much behind they are.
     
    sxf24
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    Re: Boeing aims to evenly spilt narrowbody aircraft market share

    Sat May 01, 2021 2:24 pm

    par13del wrote:
    So how many 737NG's can Boeing attempt to "swap out" with MAX's to avoid long term financial penalties related to the pickle fork issue?
    If we are looking at long term financial hardship and they have a couple hundred MAX frames whose take up may be shaky, is it a viable financial strategy to pursue? Especially if the potential pickle fork NG's are scrapped?


    I’m not sure why the pickle fork issue is being raised. That applied to a small sub-set of airplanes and was quickly addressed. It is not impacting 737NG values.

    mjoelnir wrote:
    morrisond wrote:
    mjoelnir wrote:

    They use using program for cost accounting to inflate profits. As long as there are deferred cost on the books, the accumulated profits are shown higher than in reality.


    I see where some of the confusion is coming. I am referring to Profits on an annual basis. On an annual basis in the early years - yes Program accounting does inflate profits but later on it understates profit.

    Would you be happier if they just accounted for a program much like they would a piece of equipment that was depreciated over time? I probably would as well as it's a lot simpler - but if they did that Boeing would have been reporting much higher profits at peak 787 production than they did.

    In opposition to piece of equipment that might have straight line or declining balance depreciation Boeing basically has depreciation that is low in the first couple of years then ramps up as time goes on.

    It's a different way to do it and for Boeing not illegal.


    Profits are overstated as long as there is a dollar of deferred cost left. Boeing has been starting new aircraft programs all the time. When deferred cost of one program is starting to decline, costs of a new program are being deferred. So the overstating of profits has been constant through many decades.
    You pointing to single years is just a red herring.

    Yes, what Boeing is doing is not illegal, not in the USA with their strange US GAP. But even in the USA no company is allowed to take up program for cost accounting today and it has been removed as a standard from the US GAP. It has been grandfathered like the 737, to not disturb Boeing' smoke and mirror system.


    No, with program accounting profits are overstated early in production and understated later in production. You know this because Boeing talks about cash margins generated by the programs, which is ~30% for the 787 now and was well in excess of this for the 737NG and 777 programs.

    Program accounting is still allowed to be used in certain circumstances. From Reuters: Under guidance proposed in 1981 by the American Institute of Certified Public Accountants, program accounting may be used only under a very narrow set of circumstances involving a recurring product that requires substantial investment and has high barriers to market entry.

    Gremlinzzzz wrote:
    morrisond wrote:
    You all still don't get it.

    You have to think of Deferred Costs as Pre-Paid costs and that is why they are an asset.

    The same as if they bought a piece of equipment and they depreciate it over time. The value of the asset would decline.

    You will notice though that there was no corresponding debt increase to pay for that asset. The offsetting entry on the balance sheet would have shown up in higher retained earnings as expenses climbed and lower retained earnings as the balance was paid off.

    The money to pay for that asset either came from debt or the profitability of the company that was not paid out to shareholders. We know it didn't come from debt.

    Just like any asset (but in this case they are calling the Development costs of the 787 the piece of equipment) when you earn money on it some of the earnings go to depreciation and some fall on the bottom line. However the portion that goes to depreciation is a non-cash expense. Cash flow is equal is to depreciation plus whatever falls to the bottom line.

    For the 787 so far they depreciated the asset by about $15B and it also has added significantly to the bottom line. How much? Who knows for sure as they don't disclose it however some analysts estimate 777 Margin at about 30% and 787 over 20%.

    787 has delivered about 1,000 frames. That is probably somewhere around $120-130 Billion in revenue plus parts and service contracts that have added more and are hugely profitable. It is not inconceivable that they have already fully paid their initial $30B investment. In any case it's a lot more than just the decrease in the deferred production cost.

    Development costs have never, are not, and will never be assets.

    Boeing develops aircraft with the expectation that they will make money abobe development cost, cost to manufacture aircraft, and cost needed to get assembly efficient.

    So, you have development cost, and expensive early units that generally are sold at loss. In the case of the 787, Boeing booked losses associated to early units as research and development. Creative accounting, but hang around, we will come back to this.

    We are back to deferred costs that are north of $16 billion. You say they are an asset, while everyone who can think for themselves sees them as a liability. Those who see it as a liability are not mad. They are not mad because each time Boeing cannot see a path to recover these, they quickly take a charge, and this toxic asset very quickly morphs into what it is i.e. a liability. We know this because they have eaten charges on the 747-8 which is almost ending production, and they have taken a charge on the 777X even before they deliver a plane.

    So how do you pay down these costs? Easy. You make a jet, you sell a jet over and above cost to manufacture. From the profits, you pay money to yourself. If we were doing simple math and used $15 billion over 500 frames, you would need $30million per frame to pay down this figure.

    If this is what should happen, your deferred cost would decline $30 million with each jet delivered and you balance sheet would reflect this as cash in hand.
    This is what should happen. If it does not, forward loss.

    Now back to the expensive early units that ought to have been booked as program cost, but alas, the myopic creative accountants Boeing are, were more interested in manipulating stock price. That is an expense that cannot be recovered, thus it is a loss in funds. Boeing might have recovered this had it gone to program cost. For this very reason I told you that where they book it does not really matter because the end result is the same.

    So, business is simple. If you cannot explain something as simple as this, then there is an issue. This is also no different with how we view assets. Assets are things that can be liquidated to generate cash and in the case of the 787, it is the program and the IP that can be liquidated, not the cost. This is what would happen if they went bankrupt.


    Development costs are an asset because they’re an investment in future earnings generation. Stop arguing about accounting: you don’t know what you’re talking about.
     
    morrisond
    Posts: 3414
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    Re: Boeing aims to evenly spilt narrowbody aircraft market share

    Sat May 01, 2021 2:25 pm

    Gremlinzzzz wrote:
    morrisond wrote:
    Well in program accounting that Boeing legally uses Development costs are an asset.

    When you owe a liability to yourself it is not a liability. If they choose to write it off it is a non-cash transaction just like the 777X reach forward loss. Go read the 2021 Q1 report.

    Well at least your last sentence is right. The 787 program and IP is an asset - reflected in the $30B development cost.

    The frames that Boeing wrote off to R&D were the frames that were never sold to customers and were expensed to R&D which effectively reduced reported earnings in those years. They also classified some of the 787 R&D as research that would benefit the whole company in other programs and that is why it appeared as R&D - but it did get reported and it did reduce earnings in those years.

    If you started a business today with cash and no debt, you would get inventory. The inventory is an asset because it can be liquidated, the money spent getting it is a liability that needs to be paid down. If you cannot pay down that liability i.e. money owed to yourself, you make a loss. The way you would account for this is either provisioning money from profits in latter transactions to pay down the loss. Or you debit this loss in the liability column which is also known as a write off. Whichever way you look at it, the initial money used to set up, money used to establish the business is a liability and you either pay it or sink in red.


    As I told you, business is not that complicated, and whatever reasoning you use, you will always come down to what I presented. Business 101.

    morrisond wrote:
    Well at least your last sentence is right. The 787 program and IP is an asset - reflected in the $30B development cost.
    Try and keep up, the program is an asset, not the program cost. This is where we are. What it cost to develop the asset is immaterial to it being an asset and the cost being a liability.

    morrisond wrote:
    The frames that Boeing wrote off to R&D were the frames that were never sold to customers and were expensed to R&D which effectively reduced reported earnings in those years. They also classified some of the 787 R&D as research that would benefit the whole company in other programs and that is why it appeared as R&D - but it did get reported and it did reduce earnings in those years.
    You keep going in circles. The cost of developing a jet is research and development. As I told you, it does not matter where they post this cost, the result is the same in that it is money that cannot be recovered.

    Boeing leaning on 787 tech is no different to the way Airbus still leans on technology that was implemented on the A380, or leverages lessons and technology learn from building the first fly by wire aircraft in the A320.

    This is nothing new, it happens everywhere in any scientific field.


    The problem with using your Business 101 level of knowledge is that it generally would not cover Program cost accounting and that is why you still haven't shown why Boeing is a lost cause and is a Zombie company.

    Boeing has been paying back the $30B (to itself) - but again it's a non-cash entry just like if they write the remaining balance off.

    All you keep banging on about are non-cash entries on balance sheets that have nothing to do with Boeing Continuing as a going concern.

    You can keep ignoring it - but if tomorrow they write off all the remaining Deferred Production cost which is included in Inventories - Cash flow will still be the same in the future, Reported earnings will be higher (in the quarters following the write off), Debt will be the same and retained earnings will be less. No cash will actually have to leave the company.

    It won't matter.
     
    Gremlinzzzz
    Posts: 297
    Joined: Fri Jan 24, 2020 4:28 am

    Re: Boeing aims to evenly spilt narrowbody aircraft market share

    Sat May 01, 2021 2:30 pm

    sxf24 wrote:
    Development costs are an asset because they’re an investment in future earnings generation. Stop arguing about accounting: you don’t know what you’re talking about.

    The cost is not the asset. What the cost generates is the asset, and in this case it is the program and it is the program that generates money, and if they mess up, it is the program that needs money. Boeing can sell the program or IP generated on the program. They cannot sell costs.

    This is the same way Ford sold Jaguar and Land Rover to Tata and Volvo to Geely, and not cost.

    Business 101. And I can argue accounting, I am schooled in science but I worked for an investment bank in operations, finance and credit control. Damn tight I know what I am talking about.
    Last edited by Gremlinzzzz on Sat May 01, 2021 2:49 pm, edited 1 time in total.
     
    morrisond
    Posts: 3414
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    Re: Boeing aims to evenly spilt narrowbody aircraft market share

    Sat May 01, 2021 2:36 pm

    mjoelnir wrote:
    morrisond wrote:
    MohawkWeekend wrote:
    Not an accountant but if these shenanigans were occurring, wouldn't someone like Harry Markopolos be on CNBC shouting from the rooftops if this were really so bad?


    It's not that bad - and it has been discussed Ad Noseum on CNBC over the years. Some just still can't figure it how it works and if they choose to write off those costs they are a non-cash expense.

    All they have to do is look at 2021 Q1 reports and see how they recorded the non-cash write off of the 777X Deferred Production cost.


    Still throwing out red herrings. Non cash expenses, non cash write offs, did you invent those term? A write of is always non cash when it is done, the cash has been spent, the write of recognizes it, it lowers declared profits. The deferred production cost have used up cash, they are just booked to inventories instead of cost or loss and are used to show an asset that does not exist. There is a reason cash flow accounting is done separately from financial positions and profit loss calculation. All three matter. Program for cost accounting scrambles both the statement of financial positions and the statement of operation providing loss or profit.

    If we would follow your arguments, the cash flow statement would be the only part of annual accounts that matters and you would never bother about if a company is making a profit or a loss. Works as long a company is allowed to increase debt without having to increase assets.

    You completely ignore what a write of represents. It lowers profit and assets by the same amount. As lowering profits decreases cash flow and lowering assets increases cash flow in the cash flow calculation, it is cash flow neutral.
    But assets are the base for future cashflow, you sell an asset you receive cash, more assets more future cash. Writing of assets recognizes that the future cash flow will not happen. That is it's influence on cash flow.
    Deferred cost booked to inventories, is an empty promise of future cash flow.


    I didn't invent those terms - they are right in Boeing's financial statements - go read them.

    Sure the 787 has not provided any cash flow for Boeing and never will. Right.
     
    Gremlinzzzz
    Posts: 297
    Joined: Fri Jan 24, 2020 4:28 am

    Re: Boeing aims to evenly spilt narrowbody aircraft market share

    Sat May 01, 2021 2:45 pm

    morrisond wrote:
    The problem with using your Business 101 level of knowledge is that it generally would not cover Program cost accounting and that is why you still haven't shown why Boeing is a lost cause and is a Zombie company.
    Business is the difference between money in and money out. The end game is to accumulate money and assets. This does not change regardless of how you account.

    Boeing, is a zombie company. $63 billion in debt, over $20 billion in cost masquerading as assets, programs in the red as far as the eye can see. The only things making money are programs that were developed before the merger.

    morrisond wrote:
    Boeing has been paying back the $30B (to itself) - but again it's a non-cash entry just like if they write the remaining balance off.

    All you keep banging on about are non-cash entries on balance sheets that have nothing to do with Boeing Continuing as a going concern.

    You can keep ignoring it - but if tomorrow they write off all the remaining Deferred Production cost which is included in Inventories - Cash flow will still be the same in the future, Reported earnings will be higher (in the quarters following the write off), Debt will be the same and retained earnings will be less. No cash will actually have to leave the company.

    It won't matter.
    There is nothing in business known as a non cash entry. Cost is money spent and moving it around different portfolios does not change this. Paying down program cost is using money gained to write down cost. There is real money behind these two entries.

    If tomorrow Boeing writes off its entire deferred cost or if they book it where it needs to be booked, which is liabilities because there is no tangible asset backing the cost unless it is paid, liabilities would go up $22 billion and assets would decrease by the same amount. It may not affect cash flow today, but it would push the company to junk status. Good luck trying to raise more debt needed for liquidity.

    As stated, you have this habit of missing the forest from the trees.
     
    User avatar
    Revelation
    Topic Author
    Posts: 26072
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    Re: Boeing aims to evenly spilt narrowbody aircraft market share

    Sat May 01, 2021 2:48 pm

    brindabella wrote:
    To those a-netters out there who are also appalled at this arcane dogfight: this is a long, long way from the first time all this smoke and dust has been raised.
    Infuriatingly.
    The combatants are mainly new when compared to previous iterations, however one or two are on the same-old, same-old.

    And yes, those previous iterations also consisted of the combatants shouting past each other using their own assumptions and making little or no effort to deal with the arguments

    Amazing, isn't it?

    Somehow a discussion of market share veered into the black hole of GAAP vs ASC accounting, what debt actually means, and for some, profound questions about the meaning of life itself.

    Here I was thinking accountants were not a passionate bunch...

    brindabella wrote:
    ... of the others. I posted a little bit some years ago after researching that:
    FWIW, the published P&L + Balance Sheets showed ACTUAL debt around $11Bn..
    Quite manageable for a Corporation of this size.
    And the much-debated 787 program debt at the time was around $30Bn.
    So, indeed the reality was and is: "This was money owed by Boeing to Boeing".

    :checkmark: :checkmark: :checkmark: :checkmark: :checkmark:

    And, as Boeing just showed with 777X, it's one they can write off whenever they feel they need to, without dire consequences.
    Wake up to find out that you are the eyes of the world
    The heart has its beaches, its homeland and thoughts of its own
    Wake now, discover that you are the song that the morning brings
    The heart has its seasons, its evenings and songs of its own
     
    sxf24
    Posts: 1123
    Joined: Wed Aug 15, 2007 12:22 pm

    Re: Boeing aims to evenly spilt narrowbody aircraft market share

    Sat May 01, 2021 2:51 pm

    Gremlinzzzz wrote:
    sxf24 wrote:
    Development costs are an asset because they’re an investment in future earnings generation. Stop arguing about accounting: you don’t know what you’re talking about.

    The cost is not the asset. What the cost generates is the asset, and in this case it is the program and it is the program that generates money, and if they mess up, it is the program that needs money. Boeing can sell the program or IP generated on the program. They cannot sell costs.

    Business 101. And I can argue accounting, I am schooled in science but I worked for an investment bank in operations, finance and credit control. Damn tight I know what I am talking about.


    I don’t know you and claims about your background and experience are irrelevant to this discussion.

    What is irrefutable is the fact that Boeing is following US GAAP. Under these accounting rules, many (but not all) costs related to the development and production of commercial airplanes are spread smoothly over a defined block of airplanes. Basic accounting requires these costs be booked as an asset. That is the reality and requirement of accounting rules.

    I think you’re trying to argue the deferred production costs are not a CURRENT ASSET, meaning they can’t be converted to cash in the next 12 months. Many other companies hold LONG TERM ASSETS that are neither tangible nor liquid, but provide value to the company. That doesn’t mean they’re a liability.
     
    morrisond
    Posts: 3414
    Joined: Thu Jan 07, 2010 12:22 am

    Re: Boeing aims to evenly spilt narrowbody aircraft market share

    Sat May 01, 2021 2:52 pm

    Gremlinzzzz wrote:
    sxf24 wrote:
    Development costs are an asset because they’re an investment in future earnings generation. Stop arguing about accounting: you don’t know what you’re talking about.

    The cost is not the asset. What the cost generates is the asset, and in this case it is the program and it is the program that generates money, and if they mess up, it is the program that needs money. Boeing can sell the program or IP generated on the program. They cannot sell costs.

    Business 101. And I can argue accounting, I am schooled in science but I worked for an investment bank in operations, finance and credit control. Damn tight I know what I am talking about.


    So Mr. Expert please explain how Boeing with $14B in excess cash, over $20B in Inventory to be delivered in the next 18 months, another 700 frames to be produced in that time frame with a margin of probably 15%, will probable issue equity of $10B+, has a backlog of $360 Billion and with a market cap of over $120 Billion is a Zombie company and is doomed.

    Oh - so you worked in the back office of an Investment Bank. Based on what you are writing it sounds like you only ever did Business 101 which would not cover things like Program accounting. The real world is a lot more murky than the science based one.

    I have a degree in Economics, my CFA, and have been involved directly in the financial markets for 30 years now, in actual Investment banking, a Capital Markets professional directly involved in the pricing and structuring of equity and debt issues for public companies and as a portfolio manager.

    I'll admit I hate the nitty gritty of financial statements as they are so convoluted these days it's almost impossible to compare one to another - but I can tell when a company is done and Boeing is far from done.

    Their big risk is that COVID drags on for another year or two if the Vaccines prove ineffective against some of the new or future variants and deliveries are nowhere near what is assumed - however a big equity raise now could easily get them through another year or two.
     
    Gremlinzzzz
    Posts: 297
    Joined: Fri Jan 24, 2020 4:28 am

    Re: Boeing aims to evenly spilt narrowbody aircraft market share

    Sat May 01, 2021 2:53 pm

    Revelation wrote:
    brindabella wrote:
    To those a-netters out there who are also appalled at this arcane dogfight: this is a long, long way from the first time all this smoke and dust has been raised.
    Infuriatingly.
    The combatants are mainly new when compared to previous iterations, however one or two are on the same-old, same-old.

    And yes, those previous iterations also consisted of the combatants shouting past each other using their own assumptions and making little or no effort to deal with the arguments

    Amazing, isn't it?

    Somehow a discussion of market share veered into the black hole of GAAP vs ASC accounting, what debt actually means, and for some, profound questions about the meaning of life itself.

    Here I was thinking accountants were not a passionate bunch...

    brindabella wrote:
    ... of the others. I posted a little bit some years ago after researching that:
    FWIW, the published P&L + Balance Sheets showed ACTUAL debt around $11Bn..
    Quite manageable for a Corporation of this size.
    And the much-debated 787 program debt at the time was around $30Bn.
    So, indeed the reality was and is: "This was money owed by Boeing to Boeing".

    :checkmark: :checkmark: :checkmark: :checkmark: :checkmark:

    And, as Boeing just showed with 777X, it's one they can write off whenever they feel they need to, without dire consequences.
    Then why are they borrowing money? And why are they stating that they need to borrow more money, and that they will not be paying dividends for some time?

    Turns out that if you make silly mistakes and weaken the balance sheet, there is a price to pay. Boeing's price is more debt, interest payments galore, and unrelated to this point, money to right poor culture.
     
    sxf24
    Posts: 1123
    Joined: Wed Aug 15, 2007 12:22 pm

    Re: Boeing aims to evenly spilt narrowbody aircraft market share

    Sat May 01, 2021 3:00 pm

    Gremlinzzzz wrote:
    morrisond wrote:
    The problem with using your Business 101 level of knowledge is that it generally would not cover Program cost accounting and that is why you still haven't shown why Boeing is a lost cause and is a Zombie company.
    Business is the difference between money in and money out. The end game is to accumulate money and assets. This does not change regardless of how you account.

    Boeing, is a zombie company. $63 billion in debt, over $20 billion in cost masquerading as assets, programs in the red as far as the eye can see. The only things making money are programs that were developed before the merger.

    morrisond wrote:
    Boeing has been paying back the $30B (to itself) - but again it's a non-cash entry just like if they write the remaining balance off.

    All you keep banging on about are non-cash entries on balance sheets that have nothing to do with Boeing Continuing as a going concern.

    You can keep ignoring it - but if tomorrow they write off all the remaining Deferred Production cost which is included in Inventories - Cash flow will still be the same in the future, Reported earnings will be higher (in the quarters following the write off), Debt will be the same and retained earnings will be less. No cash will actually have to leave the company.

    It won't matter.
    There is nothing in business known as a non cash entry. Cost is money spent and moving it around different portfolios does not change this. Paying down program cost is using money gained to write down cost. There is real money behind these two entries.

    If tomorrow Boeing writes off its entire deferred cost or if they book it where it needs to be booked, which is liabilities because there is no tangible asset backing the cost unless it is paid, liabilities would go up $22 billion and assets would decrease by the same amount. It may not affect cash flow today, but it would push the company to junk status. Good luck trying to raise more debt needed for liquidity.

    As stated, you have this habit of missing the forest from the trees.


    Business is the difference between money in and money out?!?
    The end game is to accumulate money and assets?!?
    Nothing in business known as a non-cash entry?!?

    Setting aside the complete nonsense you’re writing, I thought A.net determined the purpose of Airbus and Boeing was to invest in new programs, regardless of financial potential, because their purpose is innovation.

    I would agree that Boeing is in a difficult position today without the resources to invest billions in a new program. To call them a zombie company is a bit ignorant since they are a going concern. I would also agree that if Boeing were to be liquidated tomorrow, shareholders would not see a return, hence the negative equity. However, I’d point out that liquidation value does not determine if a company is a zombie or a going concern.

    One reason Boeing has negative equity because of the accounting rules related to health care and pension costs. They’re required to carry the value of the liability on the balance sheet adjusted for current interest rates. This inflates the costs in a way that is disconnected from what Boeing actually has to pay. If you’re going to make arbitrary adjustments to Boeing assets, please don’t ignore liabilities.
     
    sxf24
    Posts: 1123
    Joined: Wed Aug 15, 2007 12:22 pm

    Re: Boeing aims to evenly spilt narrowbody aircraft market share

    Sat May 01, 2021 3:02 pm

    Gremlinzzzz wrote:
    Revelation wrote:
    brindabella wrote:
    To those a-netters out there who are also appalled at this arcane dogfight: this is a long, long way from the first time all this smoke and dust has been raised.
    Infuriatingly.
    The combatants are mainly new when compared to previous iterations, however one or two are on the same-old, same-old.

    And yes, those previous iterations also consisted of the combatants shouting past each other using their own assumptions and making little or no effort to deal with the arguments

    Amazing, isn't it?

    Somehow a discussion of market share veered into the black hole of GAAP vs ASC accounting, what debt actually means, and for some, profound questions about the meaning of life itself.

    Here I was thinking accountants were not a passionate bunch...

    brindabella wrote:
    ... of the others. I posted a little bit some years ago after researching that:
    FWIW, the published P&L + Balance Sheets showed ACTUAL debt around $11Bn..
    Quite manageable for a Corporation of this size.
    And the much-debated 787 program debt at the time was around $30Bn.
    So, indeed the reality was and is: "This was money owed by Boeing to Boeing".

    :checkmark: :checkmark: :checkmark: :checkmark: :checkmark:

    And, as Boeing just showed with 777X, it's one they can write off whenever they feel they need to, without dire consequences.
    Then why are they borrowing money? And why are they stating that they need to borrow more money, and that they will not be paying dividends for some time?

    Turns out that if you make silly mistakes and weaken the balance sheet, there is a price to pay. Boeing's price is more debt, interest payments galore, and unrelated to this point, money to right poor culture.


    Boeing borrowed to offset negative cash flow that comes from not delivering airplanes. This is mostly due to their mistakes (MAX grounding, 787 rework), but also due to COVID. Even if there were no deferred production costs, Boeing would have needed to borrow to get through the current situation.
     
    Gremlinzzzz
    Posts: 297
    Joined: Fri Jan 24, 2020 4:28 am

    Re: Boeing aims to evenly spilt narrowbody aircraft market share

    Sat May 01, 2021 3:07 pm

    morrisond wrote:
    So Mr. Expert please explain how Boeing with $14B in excess cash, over $20B in Inventory to be delivered in the next 18 months, another 700 frames to be produced in that time frame with a margin of probably 15%, will probable issue equity of $10B+, has a backlog of $360 Billion and with a market cap of over $120 Billion is a Zombie company and is doomed.

    Oh - so you worked in the back office of an Investment Bank. Based on what you are writing it sounds like you only ever did Business 101 which would not cover things like Program accounting. The real world is a lot more murky than the science based one.

    I have a degree in Economics, my CFA, and have been involved directly in the financial markets for 30 years now, in actual Investment banking, a Capital Markets professional directly involved in the pricing and structuring of equity and debt issues for public companies and as a portfolio manager.

    I'll admit I hate the nitty gritty of financial statements as they are so convoluted these days it's almost impossible to compare one to another - but I can tell when a company is done and Boeing is far from done.

    Their big risk is that COVID drags on for another year or two if the Vaccines prove ineffective against some of the new or future variants and deliveries are nowhere near what is assumed - however a big equity raise now could easily get them through another year or two.
    eh! Laughable.

    Take your Boeing goggles off. Boeing has $14 billion in cash but $63 billion in debt. They have inventory that needs to be sold that will no doubt alleviate some of the cash problems they have, but they also need to borrow more cash to ensure that the supply chain is working as it should, and they need to fund repeat work that is coming up on the 787 and 737 families.

    The backlog? It counts for little right now and going forward, both Boeing and Airbus are going to see reductions in the order book. Weak airlines will collapse and strong airlines will have to emerge from the pandemic leaner, and this is something that we already see outside the United States. So what happens to planes owned by the collapsed airlines? Well, they make it up back to the market and this will push lease prices down, or second hand jet prices down. They will become attractive compared to buying new.

    So in the interim, Boeing and Airbus are going to see deferred orders and airlines hanging onto older frames for a bit longer. Not long ago Boeing's share price was $440 compared to $230 today, not long ago they had a huge order book on the 737MAX that was a cheap re-engine. The 777X was this airline that was going to do great things, yet here we are.
     
    Gremlinzzzz
    Posts: 297
    Joined: Fri Jan 24, 2020 4:28 am

    Re: Boeing aims to evenly spilt narrowbody aircraft market share

    Sat May 01, 2021 3:14 pm

    sxf24 wrote:
    Business is the difference between money in and money out?!?
    Yes.
    sxf24 wrote:
    The end game is to accumulate money and assets?!?
    Yes, and it has not changed.
    sxf24 wrote:
    Nothing in business known as a non-cash entry?!?
    Yes. Anyone that tells you this has no right running a business.

    sxf24 wrote:
    Setting aside the complete nonsense you’re writing, I thought A.net determined the purpose of Airbus and Boeing was to invest in new programs, regardless of financial potential, because their purpose is innovation.
    Their purpose is to make money. They only make money when they innovate by making the right bets.

    No one wants a Concorde, A380, 747-8 or 777X.

    sxf24 wrote:
    I would agree that Boeing is in a difficult position today without the resources to invest billions in a new program. To call them a zombie company is a bit ignorant since they are a going concern. I would also agree that if Boeing were to be liquidated tomorrow, shareholders would not see a return, hence the negative equity. However, I’d point out that liquidation value does not determine if a company is a zombie or a going concern.
    If Boeing is liquidated tomorrow, the first people to be paid would be its lenders and suppliers. Shareholders would be back of the line.

    sxf24 wrote:
    One reason Boeing has negative equity because of the accounting rules related to health care and pension costs. They’re required to carry the value of the liability on the balance sheet adjusted for current interest rates. This inflates the costs in a way that is disconnected from what Boeing actually has to pay. If you’re going to make arbitrary adjustments to Boeing assets, please don’t ignore liabilities.
    Everyone needs to account for pensions and pay into them.

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