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How Close The 777 Was To Never Existing

Thu May 16, 2002 7:25 am

A very interesting article about how Boeing tried to keep some of its production & financial problems under wraps to avoid issues with the McDonnell-Douglas merger. I doubt this would be allowed in today's post-Enron climate.
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RE: How Close The 777 Was To Never Existing

Thu May 16, 2002 7:29 am

Didn't you already post this?
Your bone's got a little machine
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RE: How Close The 777 Was To Never Existing

Thu May 16, 2002 8:03 am

just like boeing also had plans for a double decker like airbus is doing now.

ual 777 contrail
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RE: How Close The 777 Was To Never Existing

Thu May 16, 2002 8:22 am

The media is suffering a case of "Enron fever". The media has accused almost every major U.S. company of "Enron style" accounting practices. G.E. got the treatment a few weeks ago.
"There is no victory at bargain basement prices."
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RE: How Close The 777 Was To Never Existing

Thu May 16, 2002 9:16 am

This week's Business Week just showed up at the house and I read the article.

Your title is rather incorrect, as a matter of fact, it is far from the truth. This article was about how Boeing was suffering severe production problems in the 1996-1997 timeframe. This led to huge costs that were initially hid from the public and investors in order to soften the reaction on Wall Street and to allow the MCD merger to occur. There were problems in all divisions of the commerical aircraft group. The 737 & 757 lines are notably mentioned in the article. Boeing was stuggling to handle the boom in aircraft orders as demand picked up when the economy turned around. Basically the article was questioning whether these type of things relating to hiding financial information such as this could occur in the current business climate.

There was also mention about how the true development costs of the 777 were masked by drawing from other projects such as the 767 group. It also gave insight into the complex analysis of airplane market forecasts and how Boeing predicts they will be able to regain all of their costs down the road. It also made clear how with a project of the type like the 777, nearly all the costs occur in the first few years (development, prototype, tooling, etc) while all income occurs years down the road (production and selling of the product). The 777 was never in jeopardy during this timeframe. Keep in mind, the 777 was already well in production and revenue service during the timeframe this article was talking about.

This incident at Boeing is far, far different than the Enron situation. These accounting practices are very normal, and there was no off-balance accounting practices in this case. No dummy corporations and accounts were created. No political figures were involved either. Plus, no bankruptcy either. Sure the courts were involved, but that happens alot in big business.
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RE: How Close The 777 Was To Never Existing

Thu May 16, 2002 9:45 am

I'm afraid Business Week's reporters have mixed up a lot of the facts. In 1996/7, the B777 was already in service. The B777 development was one of the smoothest programs Boeing had ever had. It doesn't make any sense that the B777 program had any major cost overrun. The only delay the B777 program suffered before 1997 was a two-month delay of the GE90 powered B777, but that was GE's fault. So, any cost associated with this delay should have been borne by GE. The first B777, a PW powered one, was certified right on the date set five years earlier. The Trent 800 powered B777 was certified one or two months ahead of schedule. Both were pretty impressive achievements. But in 1996/7, Boeing experienced a lot problems with their B737NG program, mostly related to aggresive production ramp up. The program had serious cost overrun, but it was reported by the media. At that time, Boeing estimated the B737NG program would breakeven at 800 units instead of the original target of 400 units. What can be inferred from that news is the B737NG program went over the budget by 100%. I believe the reference of 100% increase in R&D costs should really be the B737NG not the B777.

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