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Scotron12
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Boeing books loss on 787 groundings

Wed Jan 26, 2022 2:00 pm

https://www.msn.com/en-us/money/compani ... NewsSearch

No definitive resumption of deliveries on 787s. Could be after summer
 
morrisond
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Re: Boeing books loss on 787 groundings

Wed Jan 26, 2022 2:17 pm

Not a surprise on 787 Write-offs. The analysts were talking about the possibility of this. The market doesn't seem to care as the stock is up a few bucks in the pre-market.

They have returned to positive operating Cash flow of +$700 million in Q4, which bodes well for analysts predictions of an average of about $5B for 2022 and $10-16B for 2023 when 787 deliveries resume, for a combined $15-18B over the two years.
 
Opus99
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Re: Boeing books loss on 787 groundings

Wed Jan 26, 2022 2:20 pm

morrisond wrote:
Not a surprise on 787 Write-offs. The analysts were talking about the possibility of this. The market doesn't seem to care as the stock is up a few bucks in the pre-market.

They have returned to positive operating Cash flow of +$700 million in Q4, which bodes well for analysts predictions of an average of about $5B for 2022 and $10-16B for 2023 when 787 deliveries resume, for a combined $15-18B over the two years.

That positive cash-flow you’ve been talking about is what the analysts like the most. Cash is king isn’t it? It at least shows that the business is turning the tide little by little. I saw the 87 charge coming. If not for the 87 charge BCA would’ve made a profit
 
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Revelation
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Re: Boeing books loss on 787 groundings

Wed Jan 26, 2022 2:46 pm

Scotron12 wrote:
https://www.msn.com/en-us/money/companies/boeing-posts-massive-q4-loss-books-dollar35-billion-in-charges-linked-to-787-dreamliner-delays/ar-AATa5mR?ocid=BingNewsSearch

No definitive resumption of deliveries on 787s. Could be after summer

Hate to be a wet blanket, but if they can't tell us when deliveries can resume, the dimensions of the problem could continue to grow.
 
MileHFL400
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Re: Boeing books loss on 787 groundings

Wed Jan 26, 2022 2:51 pm

Scotron12 wrote:
https://www.msn.com/en-us/money/companies/boeing-posts-massive-q4-loss-books-dollar35-billion-in-charges-linked-to-787-dreamliner-delays/ar-AATa5mR?ocid=BingNewsSearch

No definitive resumption of deliveries on 787s. Could be after summer


I’m not sure where in the article that it says the 78’s deliveries would resume after the summer. I think AA is on record as saying they are expecting their next frame mid spring!
 
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Revelation
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Re: Boeing books loss on 787 groundings

Wed Jan 26, 2022 2:53 pm

NYT says:

Boeing said Wednesday that it and the agency were still discussing the work needed before deliveries can resume.

Ref: https://www.nytimes.com/2022/01/26/busi ... nings.html

This sounds very open-ended to me.
 
morrisond
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Re: Boeing books loss on 787 groundings

Wed Jan 26, 2022 3:02 pm

Revelation wrote:
NYT says:

Boeing said Wednesday that it and the agency were still discussing the work needed before deliveries can resume.

Ref: https://www.nytimes.com/2022/01/26/busi ... nings.html

This sounds very open-ended to me.


Yes - pretty open ended. One of the analysts is speculating resumption of deliveries after the summer.

On a positive note they are bumping the 777/777X line rate to 3 per month in 2022.
 
Opus99
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Re: Boeing books loss on 787 groundings

Wed Jan 26, 2022 3:04 pm

Revelation wrote:
NYT says:

Boeing said Wednesday that it and the agency were still discussing the work needed before deliveries can resume.

Ref: https://www.nytimes.com/2022/01/26/busi ... nings.html

This sounds very open-ended to me.

Very open ended. But let’s see what they say on the analysts call.

Also Jon Ostrower saying that this 3.5 bill charge means Boeing is going to rework all 100 planes.
 
Scotron12
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Re: Boeing books loss on 787 groundings

Wed Jan 26, 2022 3:07 pm

My bad. ST article says Boeing gave NO guidance on 787 delivery start. Was AA that mentioned April.

Calhoun said that they will wait FAA approval...that's it. No guessing..no estimates. Maybe scared they'll get wrapped on the knuckes if try to 2nd guess FAA!
 
Opus99
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Re: Boeing books loss on 787 groundings

Wed Jan 26, 2022 3:10 pm

Scotron12 wrote:
My bad. ST article says Boeing gave NO guidance on 787 delivery start. Was AA that mentioned April.

Calhoun said that they will wait FAA approval...that's it. No guessing..no estimates. Maybe scared they'll get wrapped on the knuckes if try to 2nd guess FAA!

That’s the thing a Reuters article explained it well. People are frustrated at Boeing for not giving guidance but they cannot even give guidance because the FAA has a lot more control over what Boeing does and if they give guidance and then it doesn’t happen which is always likely the case, it just gets annoying.

But for now Q2 of this year is what we have from airlines
 
Exeiowa
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Re: Boeing books loss on 787 groundings

Wed Jan 26, 2022 3:10 pm

Did they write if off the accounting block or somewhere else?
 
Opus99
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Re: Boeing books loss on 787 groundings

Wed Jan 26, 2022 3:11 pm

Exeiowa wrote:
Did they write if off the accounting block or somewhere else?

They didn’t write off the accounting block. It was an accounting charge
 
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Revelation
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Re: Boeing books loss on 787 groundings

Wed Jan 26, 2022 3:22 pm

Opus99 wrote:
Scotron12 wrote:
My bad. ST article says Boeing gave NO guidance on 787 delivery start. Was AA that mentioned April.

Calhoun said that they will wait FAA approval...that's it. No guessing..no estimates. Maybe scared they'll get wrapped on the knuckes if try to 2nd guess FAA!

That’s the thing a Reuters article explained it well. People are frustrated at Boeing for not giving guidance but they cannot even give guidance because the FAA has a lot more control over what Boeing does and if they give guidance and then it doesn’t happen which is always likely the case, it just gets annoying.

But for now Q2 of this year is what we have from airlines

I get it, the Boeing/FAA relationship has been problematic, but one would hope we're at the point where one or both could explain exactly what the bleep is going on, we're like a year into this foobar already. Boeing has customers and shareholders and FAA has taxpayers who are the ones who ultimately deserve to be told what the bleep is happening.

Opus99 wrote:
Exeiowa wrote:
Did they write if off the accounting block or somewhere else?

They didn’t write off the accounting block. It was an accounting charge

Makes sense. The accounting block is supposed to be to spread development R&D charges across the program's production run, not to dump the cost of fixing post-development production screw ups.
 
FluidFlow
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Re: Boeing books loss on 787 groundings

Wed Jan 26, 2022 3:31 pm

Opus99 wrote:
Exeiowa wrote:
Did they write if off the accounting block or somewhere else?

They didn’t write off the accounting block. It was an accounting charge


As far as I understood it, they had to slash the value of every stored 787 by roughly 35m$ in their inventory. So their inventory lost a total value of roughly 3.5bn$. This was done to book the loss now instead of the future.

Simply, when the aircraft was built it got a certain value attributed to it (say X). If it then was sold for Y Boeing makes a profit if Y>X. The value X is most probably derived from the value given through the program accounting, so the average production cost.

Now due to the delivery stop, Boeing is incurring costs for storage, inspection, fixes, as well as possible compensation that has to be paid due to delivery delays. So on one hand Y is becoming smaller, on the other hand we have additional costs Z due to the delay. This costs Z have to be added to X because they add value through cost to the stored aircraft. The spend money has to be booked somewhere.

Now Boeing is in the situation that X+Z>Y. That means on paper Boeing would lose money on every delivered aircraft. I say on paper because cash flow can still be positive but in the books Boeing would make a minus because the asset sold would have more book value than Boeing gets through sales price.

To avoid future book losses, Boeing reduced (or adjusted) the value of every stored 787 so that X+Z<Y and Boeing can book profits when they deliver an aircraft.
 
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Momo1435
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Re: Boeing books loss on 787 groundings

Wed Jan 26, 2022 3:34 pm

They did indeed reduce the Deferred Production Cost by 3.5 Billion, so that's where they booked this charge.

https://www.boeing.com/investors/accoun ... tions.page

It has gone down from 22 Billion at the start of 2019 to 11.6 Billion after Q4 2021. So they already booked 10 Billion + losses over the last 3 years, but with this charge it's 1/3 of that in one go.
 
morrisond
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Re: Boeing books loss on 787 groundings

Wed Jan 26, 2022 3:38 pm

FluidFlow wrote:
Opus99 wrote:
Exeiowa wrote:
Did they write if off the accounting block or somewhere else?

They didn’t write off the accounting block. It was an accounting charge


As far as I understood it, they had to slash the value of every stored 787 by roughly 35m$ in their inventory. So their inventory lost a total value of roughly 3.5bn$. This was done to book the loss now instead of the future.

Simply, when the aircraft was built it got a certain value attributed to it (say X). If it then was sold for Y Boeing makes a profit if Y>X. The value X is most probably derived from the value given through the program accounting, so the average production cost.

Now due to the delivery stop, Boeing is incurring costs for storage, inspection, fixes, as well as possible compensation that has to be paid due to delivery delays. So on one hand Y is becoming smaller, on the other hand we have additional costs Z due to the delay. This costs Z have to be added to X because they add value through cost to the stored aircraft. The spend money has to be booked somewhere.

Now Boeing is in the situation that X+Z>Y. That means on paper Boeing would lose money on every delivered aircraft. I say on paper because cash flow can still be positive but in the books Boeing would make a minus because the asset sold would have more book value than Boeing gets through sales price.

To avoid future book losses, Boeing reduced (or adjusted) the value of every stored 787 so that X+Z<Y and Boeing can book profits when they deliver an aircraft.


Yes - it's all about the future. This will allow them to book positive cash flow and earnings going forward which is basically all the stock market cares about (rightly or wrongly).
 
FluidFlow
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Re: Boeing books loss on 787 groundings

Wed Jan 26, 2022 4:24 pm

morrisond wrote:
FluidFlow wrote:
Opus99 wrote:
They didn’t write off the accounting block. It was an accounting charge


As far as I understood it, they had to slash the value of every stored 787 by roughly 35m$ in their inventory. So their inventory lost a total value of roughly 3.5bn$. This was done to book the loss now instead of the future.

Simply, when the aircraft was built it got a certain value attributed to it (say X). If it then was sold for Y Boeing makes a profit if Y>X. The value X is most probably derived from the value given through the program accounting, so the average production cost.

Now due to the delivery stop, Boeing is incurring costs for storage, inspection, fixes, as well as possible compensation that has to be paid due to delivery delays. So on one hand Y is becoming smaller, on the other hand we have additional costs Z due to the delay. This costs Z have to be added to X because they add value through cost to the stored aircraft. The spend money has to be booked somewhere.

Now Boeing is in the situation that X+Z>Y. That means on paper Boeing would lose money on every delivered aircraft. I say on paper because cash flow can still be positive but in the books Boeing would make a minus because the asset sold would have more book value than Boeing gets through sales price.

To avoid future book losses, Boeing reduced (or adjusted) the value of every stored 787 so that X+Z<Y and Boeing can book profits when they deliver an aircraft.


Yes - it's all about the future. This will allow them to book positive cash flow and earnings going forward which is basically all the stock market cares about (rightly or wrongly).


And using the pandemic years to book the losses is very smart, no one excpects anything anyway.

Way more interesting will the dept load be especially when interest rises but that is a problem of the future, far away from now but it could bite back if cash flow is used to make share holders happy instead of paying back the dept.
 
morrisond
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Re: Boeing books loss on 787 groundings

Wed Jan 26, 2022 5:15 pm

FluidFlow wrote:
morrisond wrote:
FluidFlow wrote:

As far as I understood it, they had to slash the value of every stored 787 by roughly 35m$ in their inventory. So their inventory lost a total value of roughly 3.5bn$. This was done to book the loss now instead of the future.

Simply, when the aircraft was built it got a certain value attributed to it (say X). If it then was sold for Y Boeing makes a profit if Y>X. The value X is most probably derived from the value given through the program accounting, so the average production cost.

Now due to the delivery stop, Boeing is incurring costs for storage, inspection, fixes, as well as possible compensation that has to be paid due to delivery delays. So on one hand Y is becoming smaller, on the other hand we have additional costs Z due to the delay. This costs Z have to be added to X because they add value through cost to the stored aircraft. The spend money has to be booked somewhere.

Now Boeing is in the situation that X+Z>Y. That means on paper Boeing would lose money on every delivered aircraft. I say on paper because cash flow can still be positive but in the books Boeing would make a minus because the asset sold would have more book value than Boeing gets through sales price.

To avoid future book losses, Boeing reduced (or adjusted) the value of every stored 787 so that X+Z<Y and Boeing can book profits when they deliver an aircraft.


Yes - it's all about the future. This will allow them to book positive cash flow and earnings going forward which is basically all the stock market cares about (rightly or wrongly).


And using the pandemic years to book the losses is very smart, no one excpects anything anyway.

Way more interesting will the dept load be especially when interest rises but that is a problem of the future, far away from now but it could bite back if cash flow is used to make share holders happy instead of paying back the dept.


A lot of the debt is a result of the undelivered 300+ MAX, 110+ 787 and 25+ 777x, it will come down substantially as those get delivered. It came down by $4B this past year.

A lot of people are worried about higher interest rates - however if the go even 1% higher for any amount of time that will implode the economy due to all the debt outstanding. That could take 3-4% off of GDP.

I'll be surprised if the Fed can raise rates .75% before they have to reverse course. The markets right now may basically be saying don't raise at all - we can't stand anything higher.

In any case even if Boeing's interest costs were to double or triple they will have more than enough cash flow to cover it for many years.
 
smartplane
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Re: Boeing books loss on 787 groundings

Wed Jan 26, 2022 6:17 pm

morrisond wrote:
FluidFlow wrote:
Opus99 wrote:
They didn’t write off the accounting block. It was an accounting charge


As far as I understood it, they had to slash the value of every stored 787 by roughly 35m$ in their inventory. So their inventory lost a total value of roughly 3.5bn$. This was done to book the loss now instead of the future.

Simply, when the aircraft was built it got a certain value attributed to it (say X). If it then was sold for Y Boeing makes a profit if Y>X. The value X is most probably derived from the value given through the program accounting, so the average production cost.

Now due to the delivery stop, Boeing is incurring costs for storage, inspection, fixes, as well as possible compensation that has to be paid due to delivery delays. So on one hand Y is becoming smaller, on the other hand we have additional costs Z due to the delay. This costs Z have to be added to X because they add value through cost to the stored aircraft. The spend money has to be booked somewhere.

Now Boeing is in the situation that X+Z>Y. That means on paper Boeing would lose money on every delivered aircraft. I say on paper because cash flow can still be positive but in the books Boeing would make a minus because the asset sold would have more book value than Boeing gets through sales price.

To avoid future book losses, Boeing reduced (or adjusted) the value of every stored 787 so that X+Z<Y and Boeing can book profits when they deliver an aircraft.


Yes - it's all about the future. This will allow them to book positive cash flow and earnings going forward which is basically all the stock market cares about (rightly or wrongly).

As a significant percentage of compensation is in the form of credits, utilised post-delivery, actual deliveries for the next couple of years will paint a great picture.
 
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zeke
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Re: Boeing books loss on 787 groundings

Wed Jan 26, 2022 6:18 pm

The actual statement in the results is

“ The company continues to perform rework on 787 airplanes in inventory and is engaged in detailed discussions with the FAA regarding required actions to resume deliveries. In the fourth quarter, the company determined that these activities will take longer than previously expected, resulting in further delays in customer delivery dates and associated customer considerations. Accordingly, Commercial Airplanes recorded a $3.5 billion pre-tax non-cash charge on the 787 program. The program is producing at a very low rate and will continue to do so until deliveries resume, with an expected gradual return to five per month over time. The company now anticipates 787 abnormal costs will increase to approximately $2 billion, with most being incurred by the end of 2023, including $285 million recorded in the quarter.”

From https://boeing.mediaroom.com/2022-01-26 ... er-Results

There is also listed in the cash flows

“ 787 and 777X reach-forward losses 3,460” million
 
Exeiowa
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Re: Boeing books loss on 787 groundings

Wed Jan 26, 2022 6:41 pm

Momo1435 wrote:
They did indeed reduce the Deferred Production Cost by 3.5 Billion, so that's where they booked this charge.

https://www.boeing.com/investors/accoun ... tions.page

It has gone down from 22 Billion at the start of 2019 to 11.6 Billion after Q4 2021. So they already booked 10 Billion + losses over the last 3 years, but with this charge it's 1/3 of that in one go.


So my guess was correct, two birds one single stone, especially helpful when there do not look like many rocks on the ground
 
Opus99
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Re: Boeing books loss on 787 groundings

Wed Jan 26, 2022 7:35 pm

Calhoun says AAs estimate of mid April 787 delivery resumption is “reasonable”.

Boeing says expects free cash flow to improve dramatically from Q2 as well from increase in deliveries

I mean it’s like trying to say April but not trying to say April
 
Vicenza
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Re: Boeing books loss on 787 groundings

Wed Jan 26, 2022 7:42 pm

[quote="Revelation"
I get it, the Boeing/FAA relationship has been problematic, but one would hope we're at the point where one or both could explain exactly what the bleep is going on, we're like a year into this foobar already. Boeing has customers and shareholders and FAA has taxpayers who are the ones who ultimately deserve to be told what the bleep is happening.[/quote]

I may be wrong, so please correct me if so, but in my opinion the FAA are not obligated to explain to taxpayers why any particular aircraft is delayed into service.
 
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Revelation
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Re: Boeing books loss on 787 groundings

Wed Jan 26, 2022 7:49 pm

Vicenza wrote:
Revelation wrote:
I get it, the Boeing/FAA relationship has been problematic, but one would hope we're at the point where one or both could explain exactly what the bleep is going on, we're like a year into this foobar already. Boeing has customers and shareholders and FAA has taxpayers who are the ones who ultimately deserve to be told what the bleep is happening.

I may be wrong, so please correct me if so, but in my opinion the FAA are not obligated to explain to taxpayers why any particular aircraft is delayed into service.

Please consider any of my statements not corroborated by a link to be my opinion.
 
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zeke
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Re: Boeing books loss on 787 groundings

Wed Jan 26, 2022 7:51 pm

Vicenza wrote:
I may be wrong, so please correct me if so, but in my opinion the FAA are not obligated to explain to taxpayers why any particular aircraft is delayed into service.


This regulatory process if between the manufacturer and the regulator, the manufacturer decides what information is released to the public.
 
Opus99
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Re: Boeing books loss on 787 groundings

Wed Jan 26, 2022 7:52 pm

All this stems from Boeing putting pressure on the FAA. They feel like putting out guidance adds to that narrative
 
Jetport
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Re: Boeing books loss on 787 groundings

Wed Jan 26, 2022 8:12 pm

morrisond wrote:
FluidFlow wrote:
Opus99 wrote:
They didn’t write off the accounting block. It was an accounting charge


As far as I understood it, they had to slash the value of every stored 787 by roughly 35m$ in their inventory. So their inventory lost a total value of roughly 3.5bn$. This was done to book the loss now instead of the future.

Simply, when the aircraft was built it got a certain value attributed to it (say X). If it then was sold for Y Boeing makes a profit if Y>X. The value X is most probably derived from the value given through the program accounting, so the average production cost.

Now due to the delivery stop, Boeing is incurring costs for storage, inspection, fixes, as well as possible compensation that has to be paid due to delivery delays. So on one hand Y is becoming smaller, on the other hand we have additional costs Z due to the delay. This costs Z have to be added to X because they add value through cost to the stored aircraft. The spend money has to be booked somewhere.

Now Boeing is in the situation that X+Z>Y. That means on paper Boeing would lose money on every delivered aircraft. I say on paper because cash flow can still be positive but in the books Boeing would make a minus because the asset sold would have more book value than Boeing gets through sales price.

To avoid future book losses, Boeing reduced (or adjusted) the value of every stored 787 so that X+Z<Y and Boeing can book profits when they deliver an aircraft.


Yes - it's all about the future. This will allow them to book positive cash flow and earnings going forward which is basically all the stock market cares about (rightly or wrongly).


This will NOT have any impact on cash flow at all. It will impact future earnings. Moving items around on the balance sheet does not impact cash flow.
 
kalvado
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Re: Boeing books loss on 787 groundings

Wed Jan 26, 2022 8:30 pm

zeke wrote:
Vicenza wrote:
I may be wrong, so please correct me if so, but in my opinion the FAA are not obligated to explain to taxpayers why any particular aircraft is delayed into service.


This regulatory process if between the manufacturer and the regulator, the manufacturer decides what information is released to the public.

Unfortunately. And that results in industry rotting from inside.
 
Flying-Tiger
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Re: Boeing books loss on 787 groundings

Wed Jan 26, 2022 9:03 pm

Momo1435 wrote:
They did indeed reduce the Deferred Production Cost by 3.5 Billion, so that's where they booked this charge.

https://www.boeing.com/investors/accoun ... tions.page

It has gone down from 22 Billion at the start of 2019 to 11.6 Billion after Q4 2021. So they already booked 10 Billion + losses over the last 3 years, but with this charge it's 1/3 of that in one go.


Curious how this works. Anyone able to explain? No planes delivered AND 5.5 bn additional charges to be booked and the deferred production costs go down? Shouldn't it actually incease these?
 
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Polot
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Re: Boeing books loss on 787 groundings

Wed Jan 26, 2022 9:27 pm

Flying-Tiger wrote:
Momo1435 wrote:
They did indeed reduce the Deferred Production Cost by 3.5 Billion, so that's where they booked this charge.

https://www.boeing.com/investors/accoun ... tions.page

It has gone down from 22 Billion at the start of 2019 to 11.6 Billion after Q4 2021. So they already booked 10 Billion + losses over the last 3 years, but with this charge it's 1/3 of that in one go.


Curious how this works. Anyone able to explain? No planes delivered AND 5.5 bn additional charges to be booked and the deferred production costs go down? Shouldn't it actually incease these?

Deferred production costs is just money already spent that needs to be accounted for. Boeing can write all of it off tomorrow as a special charge and have $0 deferred production costs if they wanted to and were ready to report an astronomical paper loss.

It has nothing to do with cash flow (or lack there of from lack of deliveries), because I mentioned it is money already spent. It is not money that Boeing owes someone.
 
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Momo1435
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Re: Boeing books loss on 787 groundings

Wed Jan 26, 2022 9:38 pm

Flying-Tiger wrote:
Momo1435 wrote:
They did indeed reduce the Deferred Production Cost by 3.5 Billion, so that's where they booked this charge.

https://www.boeing.com/investors/accoun ... tions.page

It has gone down from 22 Billion at the start of 2019 to 11.6 Billion after Q4 2021. So they already booked 10 Billion + losses over the last 3 years, but with this charge it's 1/3 of that in one go.


Curious how this works. Anyone able to explain? No planes delivered AND 5.5 bn additional charges to be booked and the deferred production costs go down? Shouldn't it actually incease these?

The deferred production cost are used to spread the early high production costs over a longer period of time to not create a big loss for the company at the start of a program. They are seen a future profit, therefor Boeing has these deferred production cost as an asset on the books.

They should be reduced again when the project starts to make money. Since they have already been booked as a profit early on in the program it means is an accounting loss. But that loss is then compensated by making an even bigger profit. This way they can make an accounting profit from the start to the end of the program life.

That's was the idea in a perfect world, reality hit hard here on the 787 program and is continuing to do so.

With this charge Boeing is saying that this part of the deferred production cost will never be compensated by future profits, therefor they had to book it at a write off since it's on the books as an asset.
 
Flying-Tiger
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Re: Boeing books loss on 787 groundings

Wed Jan 26, 2022 9:44 pm

Polot wrote:
Flying-Tiger wrote:
Momo1435 wrote:
They did indeed reduce the Deferred Production Cost by 3.5 Billion, so that's where they booked this charge.

https://www.boeing.com/investors/accoun ... tions.page

It has gone down from 22 Billion at the start of 2019 to 11.6 Billion after Q4 2021. So they already booked 10 Billion + losses over the last 3 years, but with this charge it's 1/3 of that in one go.


Curious how this works. Anyone able to explain? No planes delivered AND 5.5 bn additional charges to be booked and the deferred production costs go down? Shouldn't it actually incease these?

Deferred production costs is just money already spent that needs to be accounted for. Boeing can write all of it off tomorrow as a special charge and have $0 deferred production costs if they wanted to and were ready to report an astronomical paper loss.

It has nothing to do with cash flow (or lack there of from lack of deliveries), because I mentioned it is money already spent. It is not money that Boeing owes someone.


I'm not about cash flow here. I understand that Boeing assumes that they'll need to pay about 3.5 bn to compensate clients for the 787 delays AND needs to spend another 2 bn until end of 2023 to rectify the 787 problems. What I haven't understood so far is if these costs have already been booked in Q4/21 or not.

Further, and that astonishes me: I was always under the understanding that the deferred production costs are booked when the plane is delivered and earnings are booked. If these are reduced in Q4 it actually means costs have been booked but earnings not. Inflates future profits.

Note: I'm more focussed on P/L views, not Cash Flow. Money in the bank is very important, but long term negative P/L meabs that long term there's no more cash...
 
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Pythagoras
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Re: Boeing books loss on 787 groundings

Wed Jan 26, 2022 10:31 pm

Momo1435 wrote:
They did indeed reduce the Deferred Production Cost by 3.5 Billion, so that's where they booked this charge.

https://www.boeing.com/investors/accoun ... tions.page

It has gone down from 22 Billion at the start of 2019 to 11.6 Billion after Q4 2021. So they already booked 10 Billion + losses over the last 3 years, but with this charge it's 1/3 of that in one go.


The method that Boeing uses to amortize development cost through program accounting does not handle these types of disruptions well--COVID-19, 737MAX MCAS, 787 Quality. The assumption in program accounting is that it is getting cheaper to build every unit over time due to the learning curve, and consequently one needs to continue down the learning curve to generate the revenue above direct costs to pay off the investment. When there is halt to production, the basic assumptions of being on the learning curve don't work anymore. This is the reason why Boeing it taking a charge to overall earnings.

How this helps Boeing out is that going forward they can be more aggressive with pricing on the 787 models because there is significantly lower development cost to pay off. Boeing did a similar trick when they wrote-off 787 airplanes #1 through #5 at their accounting book value when they decided that they weren't going to find buyers for these airplanes.
 
Vicenza
Posts: 695
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Re: Boeing books loss on 787 groundings

Wed Jan 26, 2022 10:40 pm

zeke wrote:
Vicenza wrote:
I may be wrong, so please correct me if so, but in my opinion the FAA are not obligated to explain to taxpayers why any particular aircraft is delayed into service.


This regulatory process if between the manufacturer and the regulator, the manufacturer decides what information is released to the public.


Thanks Zeke, and what I thought.
 
mjoelnir
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Re: Boeing books loss on 787 groundings

Wed Jan 26, 2022 11:27 pm

Pythagoras wrote:

The method that Boeing uses to amortize development cost through program accounting.... .


Not development cost are deferred in program for cost accounting, early production costs are.
 
StTim
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Re: Boeing books loss on 787 groundings

Wed Jan 26, 2022 11:38 pm

mjoelnir wrote:
Pythagoras wrote:

The method that Boeing uses to amortize development cost through program accounting.... .


Not development cost are deferred in program for cost accounting, early production costs are.


Correct - Research and development cost are expense items in the period they are incurred.
 
B777LRF
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Re: Boeing books loss on 787 groundings

Thu Jan 27, 2022 10:30 am

It’s all financial engineering mumbo-jumbo, which currently seems to be the only field in which Boeing excels. And for some strange reason, that keeps the utterly incompetent vultures of Wall Street happy.

For someone who doesn’t have a degree in financial engineering, it’s obvious that the amount Boeing has spent on the 787 program will never be matched by the revenue it generates. But that’s apparently not a problem for Wall Street, as long as there’s positive cash flow, the numbers look great on paper and Boeing will resume paying dividends and buying stocks back. Right up until the point when the bubble bursts.
 
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Polot
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Re: Boeing books loss on 787 groundings

Thu Jan 27, 2022 1:44 pm

B777LRF wrote:
For someone who doesn’t have a degree in financial engineering, it’s obvious that the amount Boeing has spent on the 787 program will never be matched by the revenue it generates. But that’s apparently not a problem for Wall Street, as long as there’s positive cash flow, the numbers look great on paper and Boeing will resume paying dividends and buying stocks back. Right up until the point when the bubble bursts.

Because Wall Street doesn’t have a time machine that can go back and make Boeing unspend all the money they threw at the 787 program. So you have two options:

A) Cancel the 787 program and get no revenue from it. Boeing does not get a giant refund at program cancellation.

Or

B) Continue with the 787 and hope that you are consistently getting more money from deliveries then the amount you are annually spending on the program (as Boeing had been for several years), so you are at least recupurating some of the money invested.

You don’t need a degree in financial engineering to determine which one is preferred.
Last edited by Polot on Thu Jan 27, 2022 1:47 pm, edited 1 time in total.
 
mjoelnir
Posts: 9833
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Re: Boeing books loss on 787 groundings

Thu Jan 27, 2022 1:47 pm

A bit strange this fixation on cash flow at the exclusion on anything else in financial reports. Cash flow is not a measurement how well a company is doing. When a company makes a loss and increases cash flow that means increased liabilities or decreased assets. Loans, prepayments by customers, increased loans, increased liabilities towards suppliers and so on.
 
Opus99
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Re: Boeing books loss on 787 groundings

Thu Jan 27, 2022 1:53 pm

mjoelnir wrote:
A bit strange this fixation on cash flow at the exclusion on anything else in financial reports. Cash flow is not a measurement how well a company is doing. When a company makes a loss and increases cash flow that means increased liabilities or decreased assets. Loans, prepayments by customers, increased loans, increased liabilities towards suppliers and so on.

In those assets do you include inventory? Because yes that has decreased because deliveries have been made. It makes sense though that cash flow has improved. But why is there a fixation on cash flow? Because cash is what sustains your business and positive usually means more is coming in than is going out.

Secondly Boeings results improved dramatically compared to 2020 which is a good sign that things are improving. If not for the 787 charge they would’ve been very much in line with expectations but a lot of people did not expect the 87 charge
 
mjoelnir
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Re: Boeing books loss on 787 groundings

Thu Jan 27, 2022 1:55 pm

Flying-Tiger wrote:
Polot wrote:
Flying-Tiger wrote:

Curious how this works. Anyone able to explain? No planes delivered AND 5.5 bn additional charges to be booked and the deferred production costs go down? Shouldn't it actually incease these?

Deferred production costs is just money already spent that needs to be accounted for. Boeing can write all of it off tomorrow as a special charge and have $0 deferred production costs if they wanted to and were ready to report an astronomical paper loss.

It has nothing to do with cash flow (or lack there of from lack of deliveries), because I mentioned it is money already spent. It is not money that Boeing owes someone.


I'm not about cash flow here. I understand that Boeing assumes that they'll need to pay about 3.5 bn to compensate clients for the 787 delays AND needs to spend another 2 bn until end of 2023 to rectify the 787 problems. What I haven't understood so far is if these costs have already been booked in Q4/21 or not.

Further, and that astonishes me: I was always under the understanding that the deferred production costs are booked when the plane is delivered and earnings are booked. If these are reduced in Q4 it actually means costs have been booked but earnings not. Inflates future profits.

Note: I'm more focussed on P/L views, not Cash Flow. Money in the bank is very important, but long term negative P/L meabs that long term there's no more cash...


In program for cost accounting you have to show that you can recoup the deferred cost through sales inside a reasonable accounting block. If you can not expect to recoup the deferred cost, you have to write deferred cost to loss.
This is now the second time, that deferred cost are lowered while Boeing is accepting a loss. Also the tanker program, that keeps the 767 line running, had to write a loss again.

Revenue is not the only way to produce cash. As long as somebody is prepared to lend you money, you do not run out of cash.
 
B777LRF
Posts: 3040
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Re: Boeing books loss on 787 groundings

Thu Jan 27, 2022 2:00 pm

Polot wrote:
B777LRF wrote:
For someone who doesn’t have a degree in financial engineering, it’s obvious that the amount Boeing has spent on the 787 program will never be matched by the revenue it generates. But that’s apparently not a problem for Wall Street, as long as there’s positive cash flow, the numbers look great on paper and Boeing will resume paying dividends and buying stocks back. Right up until the point when the bubble bursts.

Because Wall Street doesn’t have a time machine that can go back and make Boeing unspend all the money they threw at the 787 program. So you have two options:

A) Cancel the 787 program and get no revenue from it. Boeing does not get a giant refund at program cancellation.

Or

B) Continue with the 787 and hope that you are consistently getting more money from deliveries then the amount you are annually spending on the program (as Boeing had been for several years), so you are at least recupurating some of the money invested.

You don’t need a degree in financial engineering to determine which one is preferred.


I don’t dispute that at all. What I’m saying is that the clowns on Wall Street are happy to pump the share price for a company on the promise of free cash flow which can be used to pay dividends and stock buybacks, and seemingly don’t give a frick if the company as such is profitable. That’s financial engineering and is so far removed from normal reality it makes by brain hurt.
 
morrisond
Posts: 3798
Joined: Thu Jan 07, 2010 12:22 am

Re: Boeing books loss on 787 groundings

Thu Jan 27, 2022 2:22 pm

B777LRF wrote:
It’s all financial engineering mumbo-jumbo, which currently seems to be the only field in which Boeing excels. And for some strange reason, that keeps the utterly incompetent vultures of Wall Street happy.

For someone who doesn’t have a degree in financial engineering, it’s obvious that the amount Boeing has spent on the 787 program will never be matched by the revenue it generates. But that’s apparently not a problem for Wall Street, as long as there’s positive cash flow, the numbers look great on paper and Boeing will resume paying dividends and buying stocks back. Right up until the point when the bubble bursts.


In my opinion that may not be true at all. First I assume that the 787 will eventually get to at least 2,500 in sales and then you have services and parts where they earned a lot of money as well.

I may not have this right - someone please correct me if I'm wrong.

All 787 development costs were paid for as incurred and are not part of the deferred production cost.

Let's look at production costs.

For example on an early build, I'm making these numbers up.

Actual Cost of Production = $130Million
Sales Price = $100 million

Assumed average long term cost of production - per frame for the block = $80 million

With normal accounting that would be booked as a loss of $30million and negative cash flow of $30million.

With program cost accounting it would still show as negative cash flow of $30 million but a profit of $20 million and the deferred production balance goes up by $50 million, even though in reality it only cost them $30 more million to build it than they received for it.


Example of later build:

Actual cost of production = $50 million (exaggerating to make a point)

Sales price = $100 Million

This would be booked as Positive cash flow of $50million, earnings of $20million, and the Deferred Production cost account comes down by $30million (Assumed Production cost of $80 million minus actual production cost of $50 million) for that frame.

You really have to look at the cash flow on the program. The deferred production cost really screw things up and is not a true reflection of what the excess actual cash costs of building the early frames were over the realized sales price.

On a cash basis the 787 turned positive around the end of 2015 after 350 or so units had been delivered, but the deferred production cost balance still climbed as cost of production was still in excess of assumed average long term production cost, even though every frame being delivered by then was putting actual money in the bank.

When the 787 Deferred production cost peaked at the end of 2016 or so at $32ishB, that overstated the excess actual cash cost of building those frames.

How much? No one actually knows as its impossible to get program by program information. If Boeing was booking say $20 million per frame in profit and they built about 500 to the end of 2016 that would would put the actual cash deficit at about $22 Billion ($32b- 500 sales x$20million per frame booked profit) at that point. What I do know is before the production shutdown the next 500 frames were pumping out a lot of cash, much more than is apparent on the income statement. It would have been what the Deferred production cost was coming per year plus the reported profit.

I suspect that at showdown the actual cash deficit was something under $7-10B with each frame producing $30ish Million of cash flow. That means it could only take another 250-300 or so deliveries to recover cash cost of production. There are about 500 in backlog, and with another 1,000 sales and ancillaries that should more than cover that remaining cash deficit and development costs, as the program could easily generate another $50B in cash between now and 2040.
 
mjoelnir
Posts: 9833
Joined: Sun Feb 03, 2013 11:06 pm

Re: Boeing books loss on 787 groundings

Thu Jan 27, 2022 2:36 pm

Opus99 wrote:
mjoelnir wrote:
A bit strange this fixation on cash flow at the exclusion on anything else in financial reports. Cash flow is not a measurement how well a company is doing. When a company makes a loss and increases cash flow that means increased liabilities or decreased assets. Loans, prepayments by customers, increased loans, increased liabilities towards suppliers and so on.

In those assets do you include inventory? Because yes that has decreased because deliveries have been made. It makes sense though that cash flow has improved. But why is there a fixation on cash flow? Because cash is what sustains your business and positive usually means more is coming in than is going out.

Secondly Boeings results improved dramatically compared to 2020 which is a good sign that things are improving. If not for the 787 charge they would’ve been very much in line with expectations but a lot of people did not expect the 87 charge


Any cash flow, while you make a loss, depends on increasing liabilities. That is simply the mathematics of accounting. Cash is not what sustains a business, revenues and profits are. When you do not make profits you depend on other entities to lend you cash to keep up the cash flowing.

I assume that here are misconceptions about what cash flow represents. Cash flow is the the cash flowing in or out of a business. Without cash a business goes under and therefore it is an important measure.
But the cash flow statement does not bother where the money comes from.
The ways you can increase cash: lowering inventories, getting more prepayments (your customer provides you with cash), increasing liabilities with your suppliers ( your suppliers provides you with cash), taking loans (your bank is providing you with cash) and so on. Or you can turn a profit that provides you with cash.
If you have enough cash on hand for the expected expenses, it makes no sense to increase your cash, you should rather lower liabilities.

Having a good cash flow while making losses will bleed a company to death.
 
morrisond
Posts: 3798
Joined: Thu Jan 07, 2010 12:22 am

Re: Boeing books loss on 787 groundings

Thu Jan 27, 2022 2:43 pm

mjoelnir wrote:
Opus99 wrote:
mjoelnir wrote:
A bit strange this fixation on cash flow at the exclusion on anything else in financial reports. Cash flow is not a measurement how well a company is doing. When a company makes a loss and increases cash flow that means increased liabilities or decreased assets. Loans, prepayments by customers, increased loans, increased liabilities towards suppliers and so on.

In those assets do you include inventory? Because yes that has decreased because deliveries have been made. It makes sense though that cash flow has improved. But why is there a fixation on cash flow? Because cash is what sustains your business and positive usually means more is coming in than is going out.

Secondly Boeings results improved dramatically compared to 2020 which is a good sign that things are improving. If not for the 787 charge they would’ve been very much in line with expectations but a lot of people did not expect the 87 charge


Any cash flow, while you make a loss, depends on increasing liabilities. That is simply the mathematics of accounting. Cash is not what sustains a business, revenues and profits are. When you do not make profits you depend on other entities to lend you cash to keep up the cash flowing.

I assume that here are misconceptions about what cash flow represents. Cash flow is the the cash flowing in or out of a business. Without cash a business goes under and therefore it is an important measure.
But the cash flow statement does not bother where the money comes from.
The ways you can increase cash: lowering inventories, getting more prepayments (your customer provides you with cash), increasing liabilities with your suppliers ( your suppliers provides you with cash), taking loans (your bank is providing you with cash) and so on. Or you can turn a profit that provides you with cash.
If you have enough cash on hand for the expected expenses, it makes no sense to increase your cash, you should rather lower liabilities.

Having a good cash flow while making losses will bleed a company to death.


Luckily then - In my opinion Boeing is about to turn actually profitable again as MAX ramps and 787 resumes deliveries.

However with Program cost accounting you will have to focus on cash flow as the reported profits of Boeing will actually be understated as 787 actual cost of production should get back under assumed long term cost relatively quickly.

I'm not sure if you noticed but the absolutely meaningless number (due to Boeing using excess cash to buy back stock in excess of what they sold it for a few decades ago) that of Shareholder Deficit actual got about less negative by about $3.3B last year.

https://investors.boeing.com/investors/ ... fault.aspx
Last edited by morrisond on Thu Jan 27, 2022 2:51 pm, edited 1 time in total.
 
Opus99
Posts: 3168
Joined: Thu May 30, 2019 10:51 pm

Re: Boeing books loss on 787 groundings

Thu Jan 27, 2022 2:50 pm

mjoelnir wrote:
Opus99 wrote:
mjoelnir wrote:
A bit strange this fixation on cash flow at the exclusion on anything else in financial reports. Cash flow is not a measurement how well a company is doing. When a company makes a loss and increases cash flow that means increased liabilities or decreased assets. Loans, prepayments by customers, increased loans, increased liabilities towards suppliers and so on.

In those assets do you include inventory? Because yes that has decreased because deliveries have been made. It makes sense though that cash flow has improved. But why is there a fixation on cash flow? Because cash is what sustains your business and positive usually means more is coming in than is going out.

Secondly Boeings results improved dramatically compared to 2020 which is a good sign that things are improving. If not for the 787 charge they would’ve been very much in line with expectations but a lot of people did not expect the 87 charge


Any cash flow, while you make a loss, depends on increasing liabilities. That is simply the mathematics of accounting. Cash is not what sustains a business, revenues and profits are. When you do not make profits you depend on other entities to lend you cash to keep up the cash flowing.

I assume that here are misconceptions about what cash flow represents. Cash flow is the the cash flowing in or out of a business. Without cash a business goes under and therefore it is an important measure.
But the cash flow statement does not bother where the money comes from.
The ways you can increase cash: lowering inventories, getting more prepayments (your customer provides you with cash), increasing liabilities with your suppliers ( your suppliers provides you with cash), taking loans (your bank is providing you with cash) and so on. Or you can turn a profit that provides you with cash.
If you have enough cash on hand for the expected expenses, it makes no sense to increase your cash, you should rather lower liabilities.

Having a good cash flow while making losses will bleed a company to death.

Have they been making losses all their lives? Please let us relax. Let us also realise that debt also went down overall by about 4 billion.

They are in a bad spell which explains the losses, the max crisis and the 787 quality issues. The losses have gotten smaller and smaller year after year since the max crisis so they are getting somewhere.

But the thing about a.net after the losses are no longer there, they will get fixated on another problem.

If not for that charge Boeing would’ve made a loss of 950M compared to the double billion loss of last year. Financially they are moving in the right direction

QC wise they are moving in the right direction.

Many people have opinions on how to run a company like Boeing but very very few actually have what it takes to do it.

It’s easy to talk from outside

Look at Tesla. Have they not been swimming in losses for a much longer time and their industry is MUCH MUCH more competitive.

So please. I expect Boeing to turn a profit this year and I hope they can recover their engineering excellence alongside.

Boeing is spending a lot of resources to get themselves back on track but nobody wants to give them the time to do that.

I’d like to see people turn a 100,000 employee company around. If any of us could, we won’t be sitting down here arguing with each other
 
sxf24
Posts: 1783
Joined: Wed Aug 15, 2007 12:22 pm

Re: Boeing books loss on 787 groundings

Thu Jan 27, 2022 3:01 pm

mjoelnir wrote:
Revenue is not the only way to produce cash. As long as somebody is prepared to lend you money, you do not run out of cash.


There are 3 different types of cash flow: operating, investing and financing. You are correct that if you look at net cash flow (the sum of all 3), you can be cash positive while generating a loss (expenses exceeding revenue) because you are borrowing more money. However, the cash flow discussion about Boeing is focused on operating cash flow. Increasing or reducing borrowing does not impact operating cash flow. The simplest explanation of operating cash flow is that it is the cash generated or consumed from operations. "Charges" or write-down of assets such as inventory or deferred costs comes as an expense, which in this case led to a loss. However, cash was spent on the inventory or deferred costs in the past and the write-off does not impact cash flow.

You can have an opinion about financial viability, but it would be helpful to stick with financial explanations for which you possess a solid understanding.
 
majano
Posts: 463
Joined: Sun Oct 14, 2018 10:45 am

Re: Boeing books loss on 787 groundings

Thu Jan 27, 2022 4:33 pm

sxf24 wrote:
mjoelnir wrote:
Revenue is not the only way to produce cash. As long as somebody is prepared to lend you money, you do not run out of cash.


There are 3 different types of cash flow: operating, investing and financing. You are correct that if you look at net cash flow (the sum of all 3), you can be cash positive while generating a loss (expenses exceeding revenue) because you are borrowing more money. However, the cash flow discussion about Boeing is focused on operating cash flow. Increasing or reducing borrowing does not impact operating cash flow. The simplest explanation of operating cash flow is that it is the cash generated or consumed from operations. "Charges" or write-down of assets such as inventory or deferred costs comes as an expense, which in this case led to a loss. However, cash was spent on the inventory or deferred costs in the past and the write-off does not impact cash flow.

You can have an opinion about financial viability, but it would be helpful to stick with financial explanations for which you possess a solid understanding.

But it cost cash to build up the inventory in the first place. So the notion that write-off of assets is non-cash is completely misleading. I don't find anything in user Mjoelnir's post that is not based on 'financial explanations'. Whatever that may be.
 
morrisond
Posts: 3798
Joined: Thu Jan 07, 2010 12:22 am

Re: Boeing books loss on 787 groundings

Thu Jan 27, 2022 4:39 pm

majano wrote:
sxf24 wrote:
mjoelnir wrote:
Revenue is not the only way to produce cash. As long as somebody is prepared to lend you money, you do not run out of cash.


There are 3 different types of cash flow: operating, investing and financing. You are correct that if you look at net cash flow (the sum of all 3), you can be cash positive while generating a loss (expenses exceeding revenue) because you are borrowing more money. However, the cash flow discussion about Boeing is focused on operating cash flow. Increasing or reducing borrowing does not impact operating cash flow. The simplest explanation of operating cash flow is that it is the cash generated or consumed from operations. "Charges" or write-down of assets such as inventory or deferred costs comes as an expense, which in this case led to a loss. However, cash was spent on the inventory or deferred costs in the past and the write-off does not impact cash flow.

You can have an opinion about financial viability, but it would be helpful to stick with financial explanations for which you possess a solid understanding.

But it cost cash to build up the inventory in the first place. So the notion that write-off of assets is non-cash is completely misleading. I don't find anything in user Mjoelnir's post that is not based on 'financial explanations'. Whatever that may be.


I believe the distinction is there is no current cash cost or one going forward - Boeing does not have to write a check to anyone when they take this charge.
 
sxf24
Posts: 1783
Joined: Wed Aug 15, 2007 12:22 pm

Re: Boeing books loss on 787 groundings

Thu Jan 27, 2022 5:20 pm

morrisond wrote:
majano wrote:
sxf24 wrote:

There are 3 different types of cash flow: operating, investing and financing. You are correct that if you look at net cash flow (the sum of all 3), you can be cash positive while generating a loss (expenses exceeding revenue) because you are borrowing more money. However, the cash flow discussion about Boeing is focused on operating cash flow. Increasing or reducing borrowing does not impact operating cash flow. The simplest explanation of operating cash flow is that it is the cash generated or consumed from operations. "Charges" or write-down of assets such as inventory or deferred costs comes as an expense, which in this case led to a loss. However, cash was spent on the inventory or deferred costs in the past and the write-off does not impact cash flow.

You can have an opinion about financial viability, but it would be helpful to stick with financial explanations for which you possess a solid understanding.

But it cost cash to build up the inventory in the first place. So the notion that write-off of assets is non-cash is completely misleading. I don't find anything in user Mjoelnir's post that is not based on 'financial explanations'. Whatever that may be.


I believe the distinction is there is no current cash cost or one going forward - Boeing does not have to write a check to anyone when they take this charge.


Correct. The cash invested in the items being written off was previously spent.

Accounting and financial analysis are complex. To get a comprehensive picture, you can’t focus on one metric. Earnings, cash and the balance sheet need to looked at together.

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