Boeing 787 To Possibly Break Even In 2015

phxa340 · Fri Oct 25, 2013 2:57 pm

Highlights:

- Boeing takes an additional 5 Billion Dollar charge on deferred production
- Breakeven to occur in 2015 Boeing says if production stays steady once successfully risen to 10 frames/month
- 2015 means break even occurs after 500-600 deliveries

http://www.fool.com/investing/genera...ner-be-profitable-at-last-for.aspx

Ncfc99 · Fri Oct 25, 2013 3:21 pm

The accounting block ends after 1300 aircraft with a zero or low single digit profit, and Boeing are predicting a sales run of 1700 aircraft. These figures are eye wateringly poor, they must be gutted, I am and I have no horse in this race.

phxa340 · Fri Oct 25, 2013 3:42 pm

Quoting ncfc99 (Reply 1):

The accounting block ends after 1300 aircraft with a zero or low single digit profit, and Boeing are predicting a sales run of 1700 aircraft

No doubt they did some clever accounting, just like every company does, however, I think this is significant as most were predicting breakeven to be more around 1000 frames. In addition, they way I understand it, is that Boeing will stop losing money on every 787 frame that leaves PAE and CHS in 2015.

mham001 · Fri Oct 25, 2013 3:43 pm

Quoting ncfc99 (Reply 1):
The accounting block ends after 1300 aircraft

What exactly does that mean in this context?

Finn350 · Fri Oct 25, 2013 3:55 pm

Quoting phxa340 (Thread starter):
2015 means break even occurs after 500-600 deliveries

Under accounting block principle Boeing is using it means that break-even occurs only on a per-plane basis. In other words, all the planes until per-plane break-even are generating loss, and after hitting per-plane break-even, Boeing has to build additional planes (total of 1300) to achieve break-even on the whole 787 program basis.

mham001 · Fri Oct 25, 2013 4:34 pm

Quoting Finn350 (Reply 4):
Boeing has to build additional planes (total of 1300) to achieve break-even on the whole 787 program basis.

As I understand in another thread, accounting block simply means that is the number of planes they can reasonably predict will sell at this time. It has nothing to do with breakeven, profit or anything else. At least thats what is said in the other thread.

Where do you get your definition?

mjoelnir · Fri Oct 25, 2013 4:36 pm

The break even point means that Boeing stops to lose money on every aircraft sold.
That means plain production costs + the part of the development cost booked on this frame.
The 1.300 block means that the development costs are distributed over the first 1,300 frames sold.
This allows Boeing to move the development costs on to future sales.

When we compare that with Airbus and the A 380 (A 400M), than Airbus has already written off the development costs.
That is one of the reasons for the poor financial performance of Airbus in the last years.

moo · Fri Oct 25, 2013 4:58 pm

Does the 500-600 figure include covering the single-time exceptional charges Boeing has applied over the past few years, or does it exclude them due to accounting magic? Or in other words, is this anything other than accounting rather than actually indicative of the state of the program?

flyingcello · Fri Oct 25, 2013 5:05 pm

Quoting mjoelnir (Reply 6):
The 1.300 block means that the development costs are distributed over the first 1,300 frames sold.

I think this is the right definition...the accounting block is basically whatever Boeing choose it to be. They will have run all the equations to understand how they best use their capital. Do they burn capital early in paying off inflated development charges, or do they keep that capital safe in the bank, and take the hit bit by bit on each airframe sold? Boeing have decided that the "sweet spot" (from a capital / treasury perspective) is 1300. Remember that this is all about cost of finance...if Boeing can employ capital better elsewhere, then they push the block out further.

Either way, the message is clear...787 profitability is going to be much lower than it should have been. The programme will still make money (lots of it), but much later down the line. 1700 sales may also be pessimistic...the 787 may well sell more than that over a 20-30 year lifetime. And of course, after sales service provides a big income stream (maybe someone can share with us just how much).

Finally, Boeing will be wise enough to recognise the additional revenue that comes from the investment already made in 787. For example, 777X will be cheaper to develop thanks to the lessons learned on 787; the same will be true for NSA whenever it appears.

One final footnote...Boeing was corporately very brave to go for both a revolutionary design AND production system in one go. While there have been massive problems, they have now demonstrated that both the design and production system fundamentally work. The performance numbers for the 787 are proving themselves to be on the mark, and the aircraft is being built in a revolutionary way. History will remember the problems the programme faced, but I think it will also mark the 787 down as a landmark aircraft, and one that ultimately delivered on the promises.

mjoelnir · Fri Oct 25, 2013 5:15 pm

Quoting moo (Reply 7):
Does the 500-600 figure include covering the single-time exceptional charges Boeing has applied over the past few years, or does it exclude them due to accounting magic? Or in other words, is this anything other than accounting rather than actually indicative of the state of the program?

As I understand it are all the costs, not attributed to the production cost of a single frame, including this single-time exceptional charges, are lumped together and distributed on the block of 1,300 first frames and written off with each sold frame.

I have been always astonished at the possibilities that USA accounting practices offered you to move present day costs to the future and future expected profits to the present.
I have been amazed how this principles have moved in the last years into European accounting practices.

[Edited 2013-10-25 10:31:44]

MD-90 · Fri Oct 25, 2013 5:24 pm

Quoting flyingcello (Reply 8):
One final footnote...Boeing was corporately very brave to go for both a revolutionary design AND production system in one go.

In hindsight, brave is not the word I would use to describe what they attempted to do.

Ncfc99 · Fri Oct 25, 2013 5:32 pm

Quoting mham001 (Reply 5):

Your defenition of an accounting block is correct as i know it, but in the article the CFO of Boeing states at the end of the block, profit will be zero or a low single digit, meaning break even will be around the 1300 mark. I'm no expert so if i'm wrong i'm happy to be corrected.

par13del · Fri Oct 25, 2013 5:35 pm

Quoting flyingcello (Reply 8):
Finally, Boeing will be wise enough to recognise the additional revenue that comes from the investment already made in 787.

If the accountants and the laws allow then to write off cost or book profits from other projects to this one then that is a fine principle, but in the harsh world of finances, such wise moves are simply non-financial in terms of numbers on the books.
Experience learned may be applied to other projects allowing them to be more successfull, but good luck trying to get those project managers to say X amount is due to the 787 and not their current insight.

Prost · Fri Oct 25, 2013 5:40 pm

Quoting mjoelnir (Reply 9):
I have been always astonished at the possibilities that USA accounting practices offered you to move present day costs to the future and future expected profits to the present.
I have been amazed how this principles have moved in the last years into European accounting practices.

An interesting read:

http://www.economist.com/node/21559350

Globalization at work. Globalisation for my UK brethren

flyingcello · Fri Oct 25, 2013 5:58 pm

Quoting par13del (Reply 12):
Experience learned may be applied to other projects allowing them to be more successfull, but good luck trying to get those project managers to say X amount is due to the 787 and not their current insight.

Agreed...but corporately they should understand that benefit can be leveraged, if not officially shown on the books.

Quoting MD-90 (Reply 10):
Quoting flyingcello (Reply 8):One final footnote...Boeing was corporately very brave to go for both a revolutionary design AND production system in one go.
In hindsight, brave is not the word I would use to describe what they attempted to do.

Disagree...I think it was very brave. In a world that is dominated by accountants (and all the financial practices we've been discussing here), Boeing had an engineering-led vision and pursued it. And they've made it work (although in a very painful way). Some of the project management can be described in terms other than brave, but signing on to the concept and making it happen was something that could only happen through courageous leadership and decision making.
Innovative companies survive and ultimately thrive...

JoeCanuck · Fri Oct 25, 2013 6:21 pm

I doubt anybody can figure out what the exact development costs of the 787 are...only what are officially attributed to the program. More convoluted bookwork I can't imagine. No doubt there are R&D costs spread throughout several programs, muddying the waters even further.

Ultimately the only numbers that really matter are profit or loss by the company as a whole.

Finn350 · Fri Oct 25, 2013 6:22 pm

Quoting mham001 (Reply 5):
As I understand in another thread, accounting block simply means that is the number of planes they can reasonably predict will sell at this time. It has nothing to do with breakeven, profit or anything else. At least thats what is said in the other thread.

Yes, the number of planes you reasonably expect to sell is the definition of the accounting block. However, at the same time accounting block is the number of planes you can distribute your production costs. If the accounting block is not large enough to allow a profitable program, you are forced to book a reach-forward loss of the whole program.

[Edited 2013-10-25 11:43:38]

justloveplanes · Fri Oct 25, 2013 6:34 pm

Quoting Finn350 (Reply 4):
Under accounting block principle Boeing is using it means that break-even occurs only on a per-plane basis. In other words, all the planes until per-plane break-even are generating loss, and after hitting per-plane break-even, Boeing has to build additional planes (total of 1300) to achieve break-even on the whole 787 program basis.

Per the other thread, the accounting block is simpler. Boeing predicts they will sell about 1300 aircraft so profit or loss and expenses per plane use that number. This number has been obfusticated in other discussions, but it is that simple. It has no relation to breakeven, how many planes need to be sold to acheive a certain benchmark etc. The best way to understand this is the 737 accounting block is being continually revised upward to reflect total program sales. It now stands at 7000, and the 737 program was profitable many thousands of aircraft before.

Quoting flyingcello (Reply 8):
I think this is the right definition...the accounting block is basically whatever Boeing choose it to be.

incorrect, it must be tied to a reasonable expectation of sales. See above comment

Quoting ncfc99 (Reply 1):
Boeing are predicting a sales run of 1700 aircraft.

Quoting flyingcello (Reply 8):
Either way, the message is clear...787 profitability is going to be much lower than it should have been. The programme will still make money (lots of it), but much later down the line.

Concur. The Total deferred production cost is a key indicator. I am not sure I understand what all is in there, but if it is a complete accounting of cost to produce the plane, that number divided by 600 should give a rough idea of R&D plus cost of good sold (materials and production labor) per plane. if that cost is $100 million per plane, the deferred production cost is $60Billion. The number that keeps floating around is $35 Billion so about $60 million per plane for Boeing to produce, including R&D (but not including who knows what other costs plus profit).

So if Boeing starts selling a lot of high margin 7810's at say $100 million + a plane in later versions, they are going to make a good money on this program.

chiad · Fri Oct 25, 2013 6:44 pm

Here are some Bloomberg TV reports on the matter:

http://www.bloomberg.com/video/can-b...mliner-WdDTYPIuTxmOsP7rvV_IDQ.html

racercoup · Fri Oct 25, 2013 7:31 pm

Quoting flyingcello (Reply 8):
Either way, the message is clear...787 profitability is going to be much lower than it should have been. The programme will still make money (lots of it), but much later down the line. 1700 sales may also be pessimistic...the 787 may well sell more than that over a 20-30 year lifetime. And of course, after sales service provides a big income stream (maybe someone can share with us just how much).

How did you get this take? Did you read the article?

"Boeing believes that faster production clip will allow 787 sales to start breaking even in 2015, turning the corner and beginning to earn a profit and pay off deferred production in 2016. That's a much sooner turning point than I expected, and implies that incremental Dreamliner sales will turn profitable after only about 500-600 deliveries. Since Boeing estimated the global demand for Dreamliners at more than 1,700 planes over the next 20 years, that leaves the program a lot of room to bring in bumper profits"

lightsaber · Fri Oct 25, 2013 7:40 pm

Quoting Finn350 (Reply 4):
In other words, all the planes until per-plane break-even are generating loss, and after hitting per-plane break-even, Boeing has to build additional planes (total of 1300) to achieve break-even on the whole 787 program basis.

That is my understanding. Well phrased.

Quoting mham001 (Reply 5):
It has nothing to do with breakeven, profit or anything else.

It has everything to do with how much is allocated to each frame of the already accrued fixed costs. An accounting block twice as large means have as many millions are allocated to each airframe's cost.

As already noted:

Quoting justloveplanes (Reply 17):
The Total deferred production cost is a key indicator. I am not sure I understand what all is in there, but if it is a complete accounting of cost to produce the plane, that number divided by 600 should give a rough idea of R&D plus cost of good sold (materials and production labor) per plane. if that cost is $100 million per plane, the deferred production cost is $60Billion. The number that keeps floating around is $35 Billion so about $60 million per plane for Boeing to produce, including R&D (but not including who knows what other costs plus profit).

But it is to be spread over 1300 for the accounting block of airframes, not 600 airframes. There will still be debt on the books in 2015. However, Boeing hintedthe accounting block is now expected to *shrink* as 787-10 are sold at a higher profit per airframe.

Lightsaber

astuteman · Fri Oct 25, 2013 7:49 pm

Quoting ncfc99 (Reply 1):
These figures are eye wateringly poor, they must be gutted, I am and I have no horse in this race.

It is a shame that such an ambitious programme's financial thrust has been blunted by the execution. It was still worth doing.

Quoting flyingcello (Reply 8):
The programme will still make money (lots of it), but much later down the line.

Of course, as we would be reminded were this an A380 thread, the cost of capital impact devastates the NPV of any profits made that far down the line. However..

Quoting JoeCanuck (Reply 15):
Ultimately the only numbers that really matter are profit or loss by the company as a whole

It's absolutely true, Joe. Companies as successful as Boeing (and Airbus) are allowed to drop the ball once in a while provided the overall picture remains positive. Sadly those with an agenda will jump on the individual "drop" in a way that I feel is disrespectful to these great companies.

Quoting racercoup (Reply 19):
Since Boeing estimated the global demand for Dreamliners at more than 1,700 planes over the next 20 years, that leaves the program a lot of room to bring in bumper profits"

Two points I guess. Firstly, if programme break-even occurs around frame 1300 (and I've no idea if that number considers the time-related cost of capital), the incremental programme profit on the next 400 frames is scant comfort for the tens of billions invested.

BUT....

as I would argue equally for the A380, post 2015, I've no doubt Boeing itself will have strong profits and strong cash flow in 2015, and every 787 delivery will be adding incrementally to both, whilst contributing to paying its bit of the programme cost off.

A complicated way of saying "The money is spent. After 2015 every 787 delivered makes Boeing financially stronger than they were before the delivery"

rgds

tortugamon · Fri Oct 25, 2013 8:04 pm

Quoting ncfc99 (Reply 1):
Boeing are predicting a sales run of 1700 aircraft.

My calculations lead me to believe that Boeing will produce roughly 1,100 787s before the end of the decade (Dec 2020) and I don't really see rumors of its replacement even being considered by either OEM yet. 1,700 appears conservative but its so far in the future and that carries uncertainty so conservative is probably prudent.

tortugamon

WingedMigrator · Fri Oct 25, 2013 8:05 pm

Quoting astuteman (Reply 21):
A complicated way of saying "The money is spent. After 2015 every 787 delivered makes Boeing financially stronger than they were before the delivery"

Well said. That should put to rest any calls for production to be discontinued

neutronstar73 · Fri Oct 25, 2013 8:18 pm

Quoting astuteman (Reply 21):

Of course, as we would be reminded were this an A380 thread, the cost of capital impact devastates the NPV of any profits made that far down the line. However..

But it isn't an A380 thread, so why bring that into the conversation? All that will do is throw gas on that topic.

Quoting WingedMigrator (Reply 23):
Well said. That should put to rest any calls for production to be discontinued

Just a genuine question: who called for production to be discontinued? Some a.net "experts"?

Ncfc99 · Fri Oct 25, 2013 8:19 pm

Quoting tortugamon (Reply 22):
Quoting ncfc99 (Reply 1):
Boeing are predicting a sales run of 1700 aircraft.

My calculations lead me to believe that Boeing will produce roughly 1,100 787s before the end of the decade (Dec 2020) and I don't really see rumors of its replacement even being considered by either OEM yet. 1,700 appears conservative but its so far in the future and that carries uncertainty so conservative is probably prudent.

I agree that 1700 seems a low number considering how many are already sold but I was using the numbers stated in the article. 1700 should get them to about 2025 ish, about time for a MLU.

cmf · Fri Oct 25, 2013 8:28 pm

Quoting Finn350 (Reply 4):
Under accounting block principle Boeing is using it means that break-even occurs only on a per-plane basis. In other words, all the planes until per-plane break-even are generating loss, and after hitting per-plane break-even, Boeing has to build additional planes (total of 1300) to achieve break-even on the whole 787 program basis

Not exactly. We know Boeing expects to breakeven at or before the 1,300 because if they didn't they would need to take a charge. We do not know at what point before the 1,300 that breakeven takes place.

Quoting flyingcello (Reply 8):
the accounting block is basically whatever Boeing choose it to be

No. Boeing must be able to justify the accounting block to the auditors. There is art involved in setting it so a bit of wiggle room but they can't do whatever they want.

Quoting mjoelnir (Reply 9):
As I understand it are all the costs, not attributed to the production cost of a single frame, including this single-time exceptional charges,

It does not include write offs and almost no R&D.

Quoting mjoelnir (Reply 9):
I have been always astonished at the possibilities that USA accounting practices offered you to move present day costs to the future and future expected profits to the present.

It goes against many fundamental principles of accounting but it enables the most fundamental principle there is, provide an accurate presentation of the companies position at this time.

Quoting Finn350 (Reply 16):
the number of planes you reasonably expect to sell is the definition of the accounting block.

No, it is the number of planes you with high confidence can expect to deliver, not sell.

Quoting Finn350 (Reply 16):
If the accounting block is not large enough to allow a profitable program, you are forced to book a reach-forward loss of the whole program.

Correct.

Quoting astuteman (Reply 21):
It is a shame that such an ambitious programme's financial thrust has been blunted by the execution. It was still worth doing.

Quoting astuteman (Reply 21):
It's absolutely true, Joe. Companies as successful as Boeing (and Airbus) are allowed to drop the ball once in a while provided the overall picture remains positive.

If you never fail you leave too much on the table

Quoting astuteman (Reply 21):
Two points I guess. Firstly, if programme break-even occurs around frame 1300

All we know is that production breakeven happens no later than at frame 1,300. Because they would need to take a charge on anything not covered by that point. We have no idea how much before 1,300. It can easily remain before the old 1,100 block and it can easily be much lower than that.

Quoting astuteman (Reply 21):
I've no idea if that number considers the time-related cost of capital

1,300 is (almost) only related to production costs and delays. It does not consider R&D (with miniscule exemptions) or other costs such as time.

astuteman · Fri Oct 25, 2013 8:35 pm

Quoting NeutronStar73 (Reply 24):
But it isn't an A380 thread, so why bring that into the conversation? All that will do is throw gas on that topic.

Because it introduced the "however". As it should in equally in reference to the unmentionable aircraft (not that it will)....

If you don't like it don't read it (or respond to it I'd suggest - all that does is throw gas on the topic....

)

Rgds

mham001 · Fri Oct 25, 2013 8:46 pm

Quoting cmf (Reply 26):
1,300 is (almost) only related to production costs and delays. It does not consider R&D (with miniscule exemptions) or other costs such as time.

Thanks for all that. Can you explain how this relates to the ever growing 737 accounting block?

Finn350 · Fri Oct 25, 2013 8:48 pm

Quoting cmf (Reply 26):
All we know is that production breakeven happens no later than at frame 1,300. Because they would need to take a charge on anything not covered by that point. We have no idea how much before 1,300. It can easily remain before the old 1,100 block and it can easily be much lower than that.

You seem to be expert on this. However, does not Boeing statement "The 747 and 787 programs have gross margins that are breakeven or near breakeven at September 30, 2013." imply that break-even point for 787 program should be quite near the accounting block size, in other words 1,300 units? Or does the statement refer only to the per-plane break-even points?

Ncfc99 · Fri Oct 25, 2013 8:52 pm

Quoting NeutronStar73 (Reply 24):
Quoting astuteman (Reply 21):

Of course, as we would be reminded were this an A380 thread, the cost of capital impact devastates the NPV of any profits made that far down the line. However..

But it isn't an A380 thread, so why bring that into the conversation? All that will do is throw gas on that topic.

Because it is a relevant observation of a financial issue that will have an impact on any program, A or B, but is not always equally applied.

It doesn't take long to find a post in an Airbus thread bringing Boeing into the discusion that would just throw gas on the topic, an example below-

(contrary to some posters who believe an Airbus MOU is as good as a contract signed, while a Boeing one is not worth the paper printed on).

Posted by your good self.

tortugamon · Fri Oct 25, 2013 8:54 pm

Quoting ncfc99 (Reply 25):
I was using the numbers stated in the article.

Sure but you added "These figures are eye wateringly poor" and I thought it was worth mentioning 1,300 may not be realistic. I would agree that if the accounting block is 1,300 and they sell 1,700 over 15 years that it would be very poor indeed but that does not appear to be the whole story.

tortugamon

blrsea · Fri Oct 25, 2013 9:03 pm

Quoting cmf (Reply 26):

1,300 is (almost) only related to production costs and delays. It does not consider R&D (with miniscule exemptions) or other costs such as time.

Is R&D charges accounted separately? Under what head does that show up? Is it not spread over multiple frames? I don't remember seeing the 787 R&D charges as a one time charge in their statements.

cmf · Fri Oct 25, 2013 9:22 pm

Quoting mham001 (Reply 28):
Thanks for all that. Can you explain how this relates to the ever growing 737 accounting block?

The accounting block must grow because it is how you calculate the cost to use when making a deliver and being able to book the sale as revenue.

Essentially they take the accounting block quantity and subtract all frames already delivered. Then they guestimate production cost for those frames and average it to get the cost to use.

Since there is no outstanding deferred production cost they don't need to go through that process.

Quoting Finn350 (Reply 29):
However, does not Boeing statement "The 747 and 787 programs have gross margins that are breakeven or near breakeven at September 30, 2013."

I have no idea how they support that statement.
I fully understand that statement for the 747 since deferred production went from 1,374 to 1,237 MUSD between Q2 and Q3, i.e. the 4 frames delivered reduced deferred production cost with 34 MUSD each.

I do not understand how they make that statement for the 787 as each delivered framed added 63 MUSD to deferred production cost. It is down form the 103 MUSD per plane in Q3 but it is up from the 45 MUSD in Q4 last year. No doubt because of the battery problems.

Quoting blrsea (Reply 32):
Is R&D charges accounted separately? Under what head does that show up?

Yes. R&D

The US GAAP principle is that R&D may or may not result in a product so must be charged immediately. There are some exemptions but the amounts we talk about are relatively small so do not change anything.

Quoting blrsea (Reply 32):
I don't remember seeing the 787 R&D charges as a one time charge in their statements.

You won't. Boeing report total R&D per segment, i.e. 2013 Q3 R&D
Commercial Airplanes - 432 MUSD
Defense, Space & Security - 313 MUSD
Other - 10 MUSD

They do not report how Commercial Airplanes split their R&D per model. Would love to have that info but Boeing doesn't want to share and are not required to share so here we are.

neutronstar73 · Fri Oct 25, 2013 9:30 pm

Quoting astuteman (Reply 27):
Because it introduced the "however". As it should in equally in reference to the unmentionable aircraft (not that it will)....

If you don't like it don't read it (or respond to it I'd suggest - all that does is throw gas on the topic.... )

Now there's a helpful suggestion. The former suggestion, rather than the latter one, for the GIGO rule applies.

Quoting ncfc99 (Reply 30):
(contrary to some posters who believe an Airbus MOU is as good as a contract signed, while a Boeing one is not worth the paper printed on).

Good thing your brought that, because my post was a response to another poster in that thread. Nice try, though, at deflection.

Perhaps someone can enlighten the thread as to who called for 787 line to be "discontinued"? I wonder if that remark would hold up in light of this thread's topic. And why would anyone say it should be discontinued? With over 900 orders? That makes no sense. Boeing would have to be criminally negligent to do that, especially given the industry's reaction to the project.

Revelation · Sat Oct 26, 2013 12:39 am

Quoting flyingcello (Reply 8):
Either way, the message is clear...787 profitability is going to be much lower than it should have been.

No offense my friend but this is not news...

The penalty to pay for such poor execution has been clear all along, no?

Quoting flyingcello (Reply 8):
1700 sales may also be pessimistic...

I think so.

Quoting flyingcello (Reply 8):
One final footnote...Boeing was corporately very brave to go for both a revolutionary design AND production system in one go. While there have been massive problems, they have now demonstrated that both the design and production system fundamentally work.

IMHO they were foolish not brave.

Quoting flyingcello (Reply 14):
Disagree...I think it was very brave. In a world that is dominated by accountants (and all the financial practices we've been discussing here), Boeing had an engineering-led vision and pursued it.

As an engineer, I would say that I would have hated the way crucial responsibilty was delegated to vendors, and I cannot believe that the engineering community chose that path. It means you have to specify interfaces in much more detail much earlier and have much less ability to change them later in the program as mistakes are discovered. On the other hand, I can clearly see why the accounting/financial/executive communities would have been very much in favor of it.

The use of some relatively unexperienced and underfinanced vendors as well as the difficulties with shared responsibilities is one of the key failures of the 787 program. In the end it may be a case of turning lemons into lemonade by buying out Vought and their Alenia joint venture and getting the SC facility out it, but still, that was/is one big part of why 787 was wickedly over budget and over schedule.

SEPilot · Sat Oct 26, 2013 1:14 am

Boeing in its history has "bet the company" at least 3 times; first, with the B-17; second, with the 707, and third, with the 747. Each time development costs way exceeded expectations, but the management stuck with it and eventually all three programs were successful beyond any expectation. While they did not bet the company on the 787, I believe the memory of those earlier programs helped management stick with it when things were going badly, and I do believe that the end result will be another very successful program, both in terms of the plane's performance and financially.

XT6Wagon · Sat Oct 26, 2013 1:28 am

Quoting SEPilot (Reply 36):
and third, with the 747

WRONG. DEAD WRONG.

They didn't bet the company on the 747, they assigned it whatever loose staff and resources weren't used by the SST and 737. The *appearence* of betting the company on the 747 arrived when the SST project went south and Boeing spent way too much of its money trying to keep it alive without government money. The 737 project wasn't supposed to print money but meeting its projected slow sales with slow sales didn't help matters.

glideslope · Sat Oct 26, 2013 2:16 am

Quoting astuteman (Reply 21):
A complicated way of saying "The money is spent. After 2015 every 787 delivered makes Boeing financially stronger than they were before the delivery"

Just as A is part of the EU. B is part of the USA. I'm not worried at all.

http://www.defensenews.com/article/20131023/DEFREG/310230028/

astuteman · Sat Oct 26, 2013 7:09 am

Quoting glideslope (Reply 38):
Just as A is part of the EU. B is part of the USA

not sure why this is even remotely relevant - I'm open to being educated. However,

Quoting glideslope (Reply 38):
I'm not worried at all.

Rightly so. for me, the confidence is driven more by the free cashflow than the profit margin - spreading the 787's losses out over a decade don't hurt the current profits (but should also mean the current margin is sustainable

However, $2.3Bn free cashflow, and $15.9Bn net cash indicates a healthy business, irrespective of the 787's performance

http://www.boeing.com/companyoffices/financial/2013q3/2013q3.pdf

Rgds

goosebayguy · Sat Oct 26, 2013 8:26 am

To think the 747 breakeven was 400 frames.

EPA001 · Sat Oct 26, 2013 11:42 am

Quoting astuteman (Reply 21):
It is a shame that such an ambitious programme's financial thrust has been blunted by the execution. It was still worth doing.

It was and is indeed.

Quoting astuteman (Reply 21):
It's absolutely true, Joe. Companies as successful as Boeing (and Airbus) are allowed to drop the ball once in a while provided the overall picture remains positive. Sadly those with an agenda will jump on the individual "drop" in a way that I feel is disrespectful to these great companies.

Yeah, the agenda salesman are making huge profits by selling these agenda's to quite a few members here on A-net.

. And the season for presents is coming up again.

.

Quoting WingedMigrator (Reply 23):
That should put to rest any calls for production to be discontinued

I must have missed the calls to discontinue the program. Which would be a foolish thing to do. This program will also run for at least 20 years or more. The B787 production will be discontinued, but not before 2030-2035 or so. And maybe even much later.

Quoting Revelation (Reply 35):
As an engineer, I would say that I would have hated the way crucial responsibilty was delegated to vendors, and I cannot believe that the engineering community chose that path. It means you have to specify interfaces in much more detail much earlier and have much less ability to change them later in the program as mistakes are discovered. On the other hand, I can clearly see why the accounting/financial/executive communities would have been very much in favor of it.

The use of some relatively unexperienced and underfinanced vendors as well as the difficulties with shared responsibilities is one of the key failures of the 787 program. In the end it may be a case of turning lemons into lemonade by buying out Vought and their Alenia joint venture and getting the SC facility out it, but still, that was/is one big part of why 787 was wickedly over budget and over schedule.

Very well put. I totally agree.

par13del · Sat Oct 26, 2013 11:57 am

Quoting Revelation (Reply 35):
In the end it may be a case of turning lemons into lemonade by buying out Vought and their Alenia joint venture and getting the SC facility out it, but still, that was/is one big part of why 787 was wickedly over budget and over schedule.

X-Files conspiracy theory, how much would it have cost Boeing in time and resources to get the expertise and production facilities of Alenia and Vought in house?

morrisond · Sat Oct 26, 2013 12:04 pm

What this also means is that after 1300 frames (which should happen around 2021) each 787 produced will add another $19 million ($25 Billion in deferred production cost/1,300) to Boeing's bottom line than was being recognized in previous years, which is another $3.2 Billion per year (14 per month * 12 * $19 Million)over above the normal profit being made on the frames above the cash cost at that time. Perfect timing given 777X ramp up at that time.

This will be an exceptionally profitable program for them and as they learn more about composites construction there cost of production has the potential to be much less than more Conventionally built airliners.

14 Per month is a big number.

flyingcello · Sat Oct 26, 2013 12:05 pm

Quoting Revelation (Reply 35):
Quoting flyingcello (Reply 8):Either way, the message is clear...787 profitability is going to be much lower than it should have been.
No offense my friend but this is not news...

None taken...clearly it's not news, simply puts it in a formal context.

Quoting Revelation (Reply 35):
As an engineer, I would say that I would have hated the way crucial responsibilty was delegated to vendors, and I cannot believe that the engineering community chose that path. It means you have to specify interfaces in much more detail much earlier and have much less ability to change them later in the program as mistakes are discovered. On the other hand, I can clearly see why the accounting/financial/executive communities would have been very much in favor of it.

The use of some relatively unexperienced and underfinanced vendors as well as the difficulties with shared responsibilities is one of the key failures of the 787 program. In the end it may be a case of turning lemons into lemonade by buying out Vought and their Alenia joint venture and getting the SC facility out it, but still, that was/is one big part of why 787 was wickedly over budget and over schedule.

Think you have misunderstood my viewpoint here...I'm suggesting that only an engineering-led company could have made the decision to tackle such a project, one that was revolutionary both in design and manufacture. All the points you make about poor execution are valid, but I think they came about because of the tactical project decisions. The strategy was good, and is now proving itself. The tactical choices around sub-contractors certainly gave rise to the failure modes you describe.

I think the 777X and NSA will demonstrate that the manufacturing strategy was right and will be used further...refined to address those tactical failings.

cmf · Sat Oct 26, 2013 12:22 pm

Quoting goosebayguy (Reply 40):
To think the 747 breakeven was 400 frames.

Do you have a source for this? I have seen it repeated many times but I have never seen a source.

mjoelnir · Sat Oct 26, 2013 1:46 pm

Quoting morrisond (Reply 43):
What this also means is that after 1300 frames (which should happen around 2021) each 787 produced will add another $19 million ($25 Billion in deferred production cost/1,300) to Boeing's bottom line than was being recognized in previous years, which is another $3.2 Billion per year (14 per month * 12 * $19 Million)over above the normal profit being made on the frames above the cash cost at that time. Perfect timing given 777X ramp up at that time.

This will be an exceptionally profitable program for them and as they learn more about composites construction there cost of production has the potential to be much less than more Conventionally built airliners.

14 Per month is a big number.

deferred production cost is not something adding to your future profit, it is a way to keep you profit up now by moving cost to the future and lowering profits than.
It is okay when you are expanding, but can be a heavy burden in a down turn.

cmf · Sat Oct 26, 2013 2:14 pm

Quoting mjoelnir (Reply 46):
deferred production cost is not something adding to your future profit

Once the deferred production costs have been "paid back" profits do take a jump as there is no "payback loss."

MD-90 · Sat Oct 26, 2013 2:26 pm

Quoting flyingcello (Reply 14):
Disagree...I think it was very brave. In a world that is dominated by accountants (and all the financial practices we've been discussing here), Boeing had an engineering-led vision and pursued it.

Quoting Revelation (Reply 35):
As an engineer, I would say that I would have hated the way crucial responsibility was delegated to vendors, and I cannot believe that the engineering community chose that path. It means you have to specify interfaces in much more detail much earlier and have much less ability to change them later in the program as mistakes are discovered. On the other hand, I can clearly see why the accounting/financial/executive communities would have been very much in favor of it.

The use of some relatively unexperienced and underfinanced vendors as well as the difficulties with shared responsibilities is one of the key failures of the 787 program.

"Penny wise and pound foolish" is the phrase that comes to my mind. The 787 is a marvelous plane that will help keep Boeing's workforce and its suppliers busy--but it's not likely to be a very profitable program overall. Hopefully Boeing's management will learn from this and apply these lessons to the development of future aircraft.

mjoelnir · Sat Oct 26, 2013 2:33 pm

Quoting cmf (Reply 47):
Once the deferred production costs have been "paid back" profits do take a jump as there is no "payback loss."

Not when you keep increasing the size of the block. It is still done to move profit from the future to the present.

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