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cmf
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RE: Boeing 787 To Possibly Break Even In 2015

Sat Oct 26, 2013 3:20 pm

Quoting mjoelnir (Reply 49):
Not when you keep increasing the size of the block. It is still done to move profit from the future to the present.

No, you stop moving profit to the future when you start paying down the preferred production cost instead of increasing it. At that time you're overstating costs and if anything it would be described as loss. Once the deferred production cost is paid off completely you start making "full profit." That is the jump in profit.
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mjoelnir
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RE: Boeing 787 To Possibly Break Even In 2015

Sat Oct 26, 2013 4:40 pm

Quoting cmf (Reply 50):
No, you stop moving profit to the future when you start paying down the preferred production cost instead of increasing it. At that time you're overstating costs and if anything it would be described as loss. Once the deferred production cost is paid off completely you start making "full profit." That is the jump in profit.

If you would not defer part of the production cost you would have to book the cost in the present, that would cut profits in the present.
That is what deferring costs is about. It is moving part of the costs you have today to the future and book it against future profits.
It is a well known, accepted accounting practice. You find it both in GAAP and also in IFRS.

It has nothing to do with understating or overstating of costs. These are real costs and deferring effects only the timing of booking them.

There is no way that using the instrument of deferring cost will increase future profits.
 
justloveplanes
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RE: Boeing 787 To Possibly Break Even In 2015

Sat Oct 26, 2013 5:15 pm

Quoting lightsaber (Reply 20):

[quote=mjoelnir,reply=49]Not when you keep increasing the size of the block. It is still done to move profit from the future to the present.

Again, the 737 block is a good example. It was a few thousand not so long ago, and is 7000 now. It would make no sense today to keep it at 2 or 3000. The profit per frame would be two or three times what it actually is. It works both ways, hence the need to keep it tied to sales or nothing on a per plane basis makes sense.

The 787 is rather unique as the backlog is so big compared to the install base. But the accounting method is valid IMHO as the huge investment in new technology has created this financially significant backlog that is a company asset and that should be recognized in the company financials. The backlog is there, it needs to be captured at least somewhere to accurately reflect the state of the program (airlines are not cancelling orders in droves).

The trick Boeing can play is take a general company loss on production R&D (assign it to the company as a whole) and related costs or assign those costs to another program (say 748). The program actual costs are thus diluted and the 787 appears profitable earlier than had all costs been recognized directly for the program. But the accounting block is more limited to play with and evenutally, it will be very accurate. The actual backlog could be used today I suppose, not sure if that's how Boeing has done it in the past. 1300 sounds like a real good guess, though conservative, as of today.
 
abba
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RE: Boeing 787 To Possibly Break Even In 2015

Sat Oct 26, 2013 8:04 pm

Quoting mjoelnir (Reply 6):
That means plain production costs + the part of the development cost booked on this frame

As I understand it, the accounting block only relates to the prodution costs and not the R&D.
 
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Stitch
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RE: Boeing 787 To Possibly Break Even In 2015

Sat Oct 26, 2013 10:45 pm

Quoting goosebayguy (Reply 40):
To think the 747 breakeven was 400 frames.
Quoting cmf (Reply 45):
Do you have a source for this? I have seen it repeated many times but I have never seen a source.

According to a 2002 BusinessWeek article on Program Accounting 400 airframes appears to have been Boeing Commercial's standard initial accounting block for new aircraft programs. When the 777 program started to severely overrun the initial budget, in order to keep the program from moving into a forward-loss position, the initial accounting block was raised from 400 to 500 and then again from 500 to 600. The initial accounting block for the 737NG was also raised - from 400 to 800 - due to the 1997 production snafu and shutdown.
 
cmf
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RE: Boeing 787 To Possibly Break Even In 2015

Sun Oct 27, 2013 3:07 am

Quoting mjoelnir (Reply 51):
There is no way that using the instrument of deferring cost will increase future profits.

It is about how you display them. By not having to payback the deferred productions costs there will be an equal jump, simple as that.

Quoting abba (Reply 53):
As I understand it, the accounting block only relates to the prodution costs and not the R&D.

Correct.

Quoting Stitch (Reply 54):
According to a 2002 BusinessWeek article on Program Accounting 400 airframes appears to have been Boeing Commercial's standard initial accounting block for new aircraft programs.

The accounting block isn't the number of frames it takes to break even. It is the number of frames they can with great certainty state will be delivered.

Quoting Stitch (Reply 54):
The initial accounting block for the 737NG was also raised - from 400 to 800 - due to the 1997 production snafu and shutdown.

You will not get the auditor's signature if you raise the accounting quantity to cover a shortcoming. The snafu was covered by the 700 MUSD charge.
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NAV20
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RE: Boeing 787 To Possibly Break Even In 2015

Sun Oct 27, 2013 3:49 am

I think it's pretty clear that the reference to (possible) 'breakeven' refers only to sale price versus production cost; the point at which Boeing finally sells a 787 for more than it is expected to cost to build?

In terms of program costs, that's surely almost irrelevant? Life will probably go on 'as usual,' with the newer models making a loss on overall development costs etc., plus discounted early sales; and the single-aisles and older models making the profits to keep the company solvent?

As to 'development costs,' my guess is that (as in most businesses) those are largely treated as an overall company expense, not 'pinned' to the specific aircraft designs that they are spent on? After all, the only thing that really matters is that the company goes on making a profit, year by year?

Can't make my mind up about the immediate future, though, as far as the 787 is concerned. Boeing is closing in on no less than 1,000 orders, against less than a hundred deliveries so far, all presumably at heavily-discounted prices. It looks as if many years will elapse before they even achieve 'breakeven' on deliveries, leave alone the development costs (which are, of course, still being incurred). Which, on the face of it, makes it one of the fastest-selling aeroplanes ever; but may also mean that 'true break-even,' on the whole programme including development costs, will never be achieved?

[Edited 2013-10-26 20:57:48]
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Stitch
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RE: Boeing 787 To Possibly Break Even In 2015

Sun Oct 27, 2013 5:19 am

Quoting cmf (Reply 55):
The accounting block isn't the number of frames it takes to break even. It is the number of frames they can with great certainty state will be delivered.

Yes, I am aware of that.  

But as people confuse the accounting block with the break-even delivery number, it stands to reason that as the 747's initial accounting block was also 400, people are incorrectly assuming that was also the program break even number and that is the source of the belief that the 747 broke even after 400 deliveries.

[Edited 2013-10-26 22:26:25]
 
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Finn350
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RE: Boeing 787 To Possibly Break Even In 2015

Sun Oct 27, 2013 7:20 am

According to the Boeing Q3 SEC filings:

Quote:
At September 30, 2013 and December 31, 2012, commercial aircraft programs inventory included the following amounts related to the 787 program: $26,453 and $21,289 of work in process (including deferred production costs of $20,189 and $15,929), $2,143 and $1,908 of supplier advances, and $2,862 and $2,339 of unamortized tooling and other non-recurring costs. At September 30, 2013, $14,657 of 787 deferred production costs, unamortized tooling and other non-recurring costs are expected to be recovered from units included in the program accounting quantity that have firm orders and $8,394 is expected to be recovered from units included in the program accounting quantity that represent expected future orders.

As I understand it, $14.7 billion mentioned above relates to 890 undelivered units under firm orders, and $8.4 billion relates to 321 units (= accounting block size - cumulative firm orders) included in the program accounting quantity that represent expected future orders. By using these numbers we get $14.7 billion / 890 units = $16 million per undelivered units for firm orders and $8.4 billion / 321 units = $26 million per unit for expected future orders.

Based on a Forbes article ( http://www.forbes.com/sites/afonteve...16m-but-productivity-is-improving/ ), estimates indicate Boeing’s 787s will sell for an average $116 million per unit and cash costs for a 787 was nearly $200 million. For breakeven on per plane basis, the production cost should decrease to around $116 million.

But how on earth are they achieving production cost in the range of $16 - $26 million, or am I misreading the numbers in some way?
 
cmf
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RE: Boeing 787 To Possibly Break Even In 2015

Sun Oct 27, 2013 9:47 am

Quoting Finn350 (Reply 58):
But how on earth are they achieving production cost in the range of $16 - $26 million, or am I misreading the numbers in some way?

The 26 MUSD is the average difference between the calculated average cost and the actual expected cost to produce those last 321 frames.

The 16 MUSD is a bad number because only some of the 890 frames are produced at actual cost lower than calculated average cost. Look at how deferred cost is still growing with each delivery.

Deferred production cost going down is how we will know they have reached production break even.
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Finn350
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RE: Boeing 787 To Possibly Break Even In 2015

Sun Oct 27, 2013 11:47 am

Quoting cmf (Reply 59):
The 26 MUSD is the average difference between the calculated average cost and the actual expected cost to produce those last 321 frames.

Thanks for the explanation, now I got it.

Compared to the average production cost of the whole 787 program accounting block:
- the first 89 delivered units were above the average production cost by around $260 million per unit on average ($14.7 + $8.4 billion / 89 units)
- the next 890 undelivered firm order units are going to be below the average production cost by around $16 million per unit on average ($14.7 billion / 890 units)
- the last 321 expected future orders are going to be below the average production cost by around $26 million per unit on average ($8.4 billion / 321 units)

There might be some small corrections related to work in process at the moment.

Agreed, the difference for the average production cost for next 890 units is a bit misleading, as some of the units will be produced above average and and some below average production costs.

If we assume that the program is break-even at 1300 units Boeing and if we assume average selling price of $116 million, we can calculate actual production costs based on the differences above. The first 89 units cost staggering $116 + $260 = $376 million per unit to produce based on these assumptions.
 
tortugamon
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RE: Boeing 787 To Possibly Break Even In 2015

Sun Oct 27, 2013 12:01 pm

I don't find it particularly helpful to look at costs of the first hundred frames when they plan on building a couple thousand. If an oem intended on making 89 they would have made the aircraft differently and priced it differently (aka it would not have been made). You don't build one unless you know you can build a thousand. When they price/cost things out, they take this into account.

tortugamon
 
abba
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RE: Boeing 787 To Possibly Break Even In 2015

Sun Oct 27, 2013 12:13 pm

To sum up:

Sometime in 2015 Boeing will be in a position where they break even in the 787 program on a per frame basis. From that date they will have sold 787 aircrafts at a higher price than it actually it costs them to manufacture. Rather than further contributing to the growth in the accounting block deficit - which determines how the production costs are booked in the overall accounting at Boeing - each delivery will from now on start to repay and thereby reduce the production deficit in the program.

When Boeing has delivered about 1300 frames production will break even overall. The surplus of the frames produced after 2015 will have leveled out and balanced all the deficit for the frames produced before that date.

Until that point R&D in the program has not been repaid. And it is only then (from frame 1301 and onwards) that these cost - and the cost of capital related to this - will begin to be paid back.

So break even in the broadest sense - where Boeing has made more money by developing and producing the 787 rather than putting their funds in the bank - will happen only sometime after - say - frame 2600?

Is this correctly understood?
 
NAV20
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RE: Boeing 787 To Possibly Break Even In 2015

Sun Oct 27, 2013 12:53 pm

Quoting abba (Reply 62):
Sometime in 2015 Boeing will be in a position where they break even in the 787 program on a per frame basis. From that date they will have sold 787 aircrafts at a higher price than it actually it costs them to manufacture.

Guess we're in total agreement, abba (see Post 56 above).

Thing is, though, the 787-9 is only now just flying in testing, and the 787-10 remains 'a gleam in the eye' so far. Those 'derivatives' - which will cost a lot less to develop - may very well 'change the picture' in terms of increased profits. On the other hand, the A359 (now flying in tests, with no apparent problems) may well provide serious competition to the B789/10.

Just a case of 'interesting times ahead,' in my view.......and lots of A.net posts..........  

[Edited 2013-10-27 05:57:05]
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Ncfc99
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RE: Boeing 787 To Possibly Break Even In 2015

Sun Oct 27, 2013 5:58 pm

Quoting abba (Reply 62):
Sometime in 2015 Boeing will be in a position where they break even in the 787 program on a per frame basis. From that date they will have sold 787 aircrafts at a higher price than it actually it costs them to manufacture. Rather than further contributing to the growth in the accounting block deficit - which determines how the production costs are booked in the overall accounting at Boeing - each delivery will from now on start to repay and thereby reduce the production deficit in the program. When Boeing has delivered about 1300 frames production will break even overall. The surplus of the frames produced after 2015 will have leveled out and balanced all the deficit for the frames produced before that date. Until that point R&D in the program has not been repaid. And it is only then (from frame 1301 and onwards) that these cost - and the cost of capital related to this - will begin to be paid back.



That seems like a nice sumary abba, and seems to be what the more informed people uptread are saying. I knew the 787 program was in bad condition, I didn't have the foggiest it was this bad.

At the risk of being flamed for bringing the A380 into a 787 thread, does this situation translate in a similar manor to the A380. I have long assumed the original 250 frame breakeven for the A380 meant R&D, tooling, labour AND production costs upto frame 250 was covered with revenue from those 250 frames. Is this the case? Or does it mean it production break even? and now with all the troubles the A380 has suffered and the breakeven is stated as circa 500+ frames, is this to cover production costs? Is that figure the A380 'accounting block' and then it needs to repay the R&D after that? I know Airbus & Boeing do things differently, I'm trying to ask a question in the hope I can be educated by the same informed people up thread.
 
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Stitch
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RE: Boeing 787 To Possibly Break Even In 2015

Sun Oct 27, 2013 6:40 pm

Quoting abba (Reply 62):
When Boeing has delivered about 1300 frames production will break even overall. The surplus of the frames produced after 2015 will have leveled out and balanced all the deficit for the frames produced before that date.

  

The Accounting Block is not the break-even number. Assuming the 787 has another few good years, in 2015 the Accounting Block will likely be north of 1500 frames even if each 787 delivery in 2015 is making more money on delivery than it cost to produce. Also, as customers convert 787-8s to 787-9s and 787-10s, Boeing brings in more revenue per delivery. There are also price escalation clauses in effect so as Boeing brings down the cost of producing a later delivery frame, they generate more revenue from that delivery.

And production break-even applies only to the frame in question. It does not mean that all production to date has now broken even. So if Boeing's projections end up being true, a 787 delivered in 2015 will generate at least as much revenue as it cost to build it, however those deliveries are not going to cover all the billions more Boeing spent to build the earliest tranches of 787-8s compared to what they received in revenue on delivery.
 
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Finn350
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RE: Boeing 787 To Possibly Break Even In 2015

Sun Oct 27, 2013 6:48 pm

Quoting ncfc99 (Reply 64):
At the risk of being flamed for bringing the A380 into a 787 thread, does this situation translate in a similar manor to the A380. I have long assumed the original 250 frame breakeven for the A380 meant R&D, tooling, labour AND production costs upto frame 250 was covered with revenue from those 250 frames. Is this the case? Or does it mean it production break even?

I found an old thread on this topic:
A380 Break Even In 2015? (by trex8 Feb 27 2013 in Civil Aviation)

Although some speculate in the thread that A380 would reach program break-even in 2015, I believe that the break-even refers to the production cost break-even on a per-frame basis. As far as I understand, A380 program is in very similar situation compared to the B787 program in the sense that both programs will start to generate positive cash flow in around 2015. A380 is selling in low numbers and is probably never able to recover R&D investment made (although number of planes to be sold is not as high as for B787, as the A380 production cost overruns on early frames are not as huge as in B787's case. There is no reach-forward loss to book for A380, as Airbus does not use deferred production cost method.
 
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Finn350
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RE: Boeing 787 To Possibly Break Even In 2015

Sun Oct 27, 2013 6:54 pm

Quoting Stitch (Reply 65):
The Accounting Block is not the break-even number

Not generally, but in this case Boeing has stated in Q3 financials that "the 747 and 787 programs have gross margins that are breakeven or near breakeven at September 30, 2013", which effectively means that frames needed for break-even for the whole 787 program is about the same as the accounting block size.

Source: http://phx.corporate-ir.net/phoenix.zhtml?c=85482&p=irol-sec 10-K page 15/61
 
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Stitch
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RE: Boeing 787 To Possibly Break Even In 2015

Sun Oct 27, 2013 6:56 pm

Quoting Finn350 (Reply 66):
Although some speculate in the thread that A380 would reach program break-even in 2015, I believe that the break-even refers to the production cost break-even on a per-frame basis.

Airbus have clearly stated that 2015 was/is their goal to break even on a per-frame basis. So, like the 787 hopes to be in 2015, every A380 delivery in 2015 would at least generate as much revenue as it cost to produce and make ready for delivery.

On a program-level cost basis, neither the A380 nor the 787 will be anywhere near break-even in 2015.
 
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Stitch
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RE: Boeing 787 To Possibly Break Even In 2015

Sun Oct 27, 2013 6:59 pm

Quoting Finn350 (Reply 67):
Not generally, but in this case Boeing has stated in Q3 financials that "the 747 and 787 programs have gross margins that are breakeven or near breakeven at September 30, 2013", which effectively means that frames needed for break-even for the whole 787 program is about the same as the accounting block size.

Yes, but the Accounting Block will continue to grow as additional 787s are sold.

Since Boeing set the accounting block at 1100 in October 2011, they have secured an additional 227 orders. So by now setting the Accounting Block at 1300, they should be reflecting these additional orders.

[Edited 2013-10-27 12:07:46]
 
astuteman
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RE: Boeing 787 To Possibly Break Even In 2015

Sun Oct 27, 2013 7:18 pm

Quoting morrisond (Reply 43):
This will be an exceptionally profitable program for them

Not sure I'd characterise it as "exceptionally" profitable - low single digit profitability on the first 1300 frames vs a current operating margin of 11%. However, your salient point is that the programme will be bringing money into Boeing in future years when they are developing new models

Quoting Nav20 (Reply 56):
In terms of program costs, that's surely almost irrelevant? Life will probably go on 'as usual,' with the newer models making a loss on overall development costs etc., plus discounted early sales; and the single-aisles and older models making the profits to keep the company solvent?

Seems to be the way with all the manufacturers and should be no surprise

Quoting Stitch (Reply 69):
Since Boeing set the accounting block at 1100 in October 2011, they have secured an additional 227 orders. So by now setting the Accounting Block at 1300, they are reflecting these additional orders

True. And like you I'm sure the accounting block will grow into the 2000's over the years.
Low single digit profitability from the 1300 accounting block does suggest that break-even is now north of 1100 frames, though.

rgds
 
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Ncfc99
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RE: Boeing 787 To Possibly Break Even In 2015

Sun Oct 27, 2013 7:18 pm

Quoting Stitch (Reply 65):
Quoting abba (Reply 62):When Boeing has delivered about 1300 frames production will break even overall. The surplus of the frames produced after 2015 will have leveled out and balanced all the deficit for the frames produced before that date.


The Accounting Block is not the break-even number

I don't want to speak for abba, but I don't think he is saying the accounting block is the breakeven number. What he is saying is, in the article linked in the thread starter, it states that -

These are planes that, as a group, will be sold at profit margins close to or at zero, in the "very low single digits," according to CFO Greg Smith

If these first 1300 frames are sold at very low or single digit profit margins, does that not indicate that the breakeven is around the 1300 frame mark? To my uneducated way of thinking, they are stateing that the first 1300 frames will cost $Xm to produce, and will return $Xm in revenue + 0-5% profit, with profit being 0-5% of the production costs to that point. If those frames cost $13b to produce and when sold generated $13.13b in revenue, the profit would be 1% and the program would have brokeneven(on production). The $0.13b of profit can then go towards paying off the R&D costs to develop the 787(and I understand that this is a hyperthetical statement as that money is spent etc).

If my basic way of thinking is way off, could you please explain were I'm going wrong. I'm here to learn and offer my thanks in advance.

[Edited 2013-10-27 12:21:08]
 
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Stitch
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RE: Boeing 787 To Possibly Break Even In 2015

Sun Oct 27, 2013 7:26 pm

Quoting ncfc99 (Reply 71):
If these first 1300 frames are sold at very low or single digit profit margins, does that not indicate that the breakeven is around the 1300 frame mark?

Honestly, it's pointless to try and determine when a Boeing Commercial Airplane program breaks even because Boeing sufficiently obfuscates the data so that one can't determine what it is.

For example, Boeing doesn't break out R&D expenditures by program. They also do not break out revenues or margin by program. For the 787, at best we know some of the capital expenditures (the new FAL at CHS and the partners they have bought out) as well as the write-downs they have taken on the program. Everything else are, at best, semi-educated guesses by financial analysts, and considering how often they are wrong in their analyses, I'd be hesitant to lend even the guesses much credence.

[Edited 2013-10-27 12:27:25]
 
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Ncfc99
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RE: Boeing 787 To Possibly Break Even In 2015

Sun Oct 27, 2013 7:31 pm

Quoting Stitch (Reply 68):
Quoting Finn350 (Reply 66):Although some speculate in the thread that A380 would reach program break-even in 2015, I believe that the break-even refers to the production cost break-even on a per-frame basis.
Airbus have clearly stated that 2015 was/is their goal to break even on a per-frame basis. So, like the 787 hopes to be in 2015, every A380 delivery in 2015 would at least generate as much revenue as it cost to produce and make ready for delivery.

On a program-level cost basis, neither the A380 nor the 787 will be anywhere near break-even in 2015.

I understand that the 2015 break-even for the A380 was on a per airframe basis, what I now realise I may have thought as complete program break-even (all R&D, tooling, production costs etc) may just have been production break even to that point.

The original break-even for the A380 was around 250 frames, with the snafu that occurred that has risen to around 500+ frames. What I'm asking is is the 500 frame break-even figure a total production break-even or total program break-even? These figures from Boeing regarding the 787 and the excellent informative replies above from many posters, make me realise I may have been naive         
 
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Ncfc99
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RE: Boeing 787 To Possibly Break Even In 2015

Sun Oct 27, 2013 7:34 pm

Quoting Stitch (Reply 72):

Thanks for the reply Stitch.

Why do they have to make it so bloody frustrating?   

Why can't they do thier accounts to make our discussions on A.net easier? 
 
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Finn350
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RE: Boeing 787 To Possibly Break Even In 2015

Sun Oct 27, 2013 7:49 pm

Quoting ncfc99 (Reply 71):
If my basic way of thinking is way off, could you please explain were I'm going wrong. I'm here to learn and offer my thanks in advance.

Your reasoning is correct. The question is what Boeing means when they say in the official SEC filings "breakeven or near breakeven" and CFO states "close to or at zero... in the very low single digits".

According to the SEC filings, the last 321 frames in the accounting block generate at least $26 million positive cash flow each (assuming that the program is profitable). If the average sales price is $116 million, the whole block generates 1300 x $116 million = $150 billion revenue. For each percent of profitability they have to sell around $150 billion x 1% / $26 million = 60 frames. If we assume 1 % profitability, then the program level break-even would be around 1240 frames and the last 60 frames of the accounting block would generate $1,5 billion profit. (These are just rough numbers, as the average sales price for the last 321 frames is probably higher due to different 787-8/9/10 mix than in the first 1000 frames etc.).

Of course, if any of the risks related to the planned production rate increases, or introducing the 787-9 and 787-10 derivatives as scheduled materialize, the whole program could be at a loss at this accounting block size. And as Stitch stated, Boeing is going to increase the accounting block size further. And yes, R&D and earlier write-offs etc. are not included in these calculations.
 
mjoelnir
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RE: Boeing 787 To Possibly Break Even In 2015

Sun Oct 27, 2013 9:10 pm

Quoting ncfc99 (Reply 64):
At the risk of being flamed for bringing the A380 into a 787 thread, does this situation translate in a similar manor to the A380.

Airbus is not using the deferred production cost instrument. But Airbus is capitalizing development cost. Not all of it but part of it.
When you look at their financial report (whole year 2012) you find that the end of 2012 the total capitalized development costs are stated as 1,365 million EUR:

"EADS has capitalised development costs in the amount of
€ 1,365 million as of 31 December 2012 (€ 965(1) million as of
31 December 2011) as internally generated intangible assets mainly
for the Airbus A380 and A350 XWB programme. The amortisation
for the A380 programme development costs is performed on a
unit of production basis. Capitalisation for development costs of
the A350 XWB programme started in the second quarter 2012.
Since 1 April 2012, a total amount of € 366 million was capitalised."

The about 1,000 mill EUR booked here on the A 380 and booked out with future sales are not the whole rest of the program cost, as Airbus has already written off a big part of those costs.

You have of course to go EADS for the financial statement.




[Edited 2013-10-27 14:11:11]

[Edited 2013-10-27 14:17:04]

[Edited 2013-10-27 15:03:24]
 
cmf
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RE: Boeing 787 To Possibly Break Even In 2015

Sun Oct 27, 2013 9:50 pm

Quoting Finn350 (Reply 60):
Thanks for the explanation, now I got it.

  
Did not check your numbers but the principle is right.

Quoting tortugamon (Reply 61):
I don't find it particularly helpful to look at costs of the first hundred frames when they plan on building a couple thousand.

Hence program accounting  
Quoting abba (Reply 62):
Rather than further contributing to the growth in the accounting block deficit

Better to call it deferred production cost than accounting block deficit.

Quoting abba (Reply 62):
When Boeing has delivered about 1,300 frames production will break even overall.

This is where it unfortunately gets complicated again. From an accounting perspective it is true that the full amount is only paid off when the full accounting block has been delivered. But let's remember that the same was true when the accounting block was 1,100. Reality is that at an to us unknown point Boeing will have made enough money to pay off all outstanding production costs. The rest is just about how to present profits.

Quoting abba (Reply 62):
Until that point R&D in the program has not been repaid.

From accounting and cash flow perspective R&D is paid as it is performed thus there is nothing to repay. It is only the production part that is accrued. But yes, the R&D spend is not accounted for in that break even.

From a business perspective R&D breakeven isn't really interesting. The decision was made with the best intention. There was money to pay the R&D. Apply knowledge gained for next project.

Quoting abba (Reply 62):
So break even in the broadest sense - where Boeing has made more money by developing and producing the 787 rather than putting their funds in the bank - will happen only sometime after - say - frame 2600?

We will never know. There are just too many uncertain parameters to make such a calculation. I would even go so far as to say there is no reason to compare it with having put the money in the bank. The alternative should be if it was better to liquidate the company and give the money to the owners as a company just holding money at the bank doesn't have a reason to exist.

Quoting ncfc99 (Reply 64):
I'm trying to ask a question in the hope I can be educated by the same informed people up thread.

I'm sorry but I have not studied the details about how Airbus account for things to provide an answer. I don't even know if they apply an deviations from standard IFRS.

Quoting Stitch (Reply 65):
however those deliveries are not going to cover all the billions more Boeing spent to build the earliest tranches of 787-8s compared to what they received in revenue on delivery.

Maybe I'm not understanding abba's right but I think he said the deliveries after 2015 and until the end of the accounting block will remove the outstanding deferred production cost. If so then he is right. If, as I think you interpret it, he means it is all paid back by 2015 then you're correct as that is when they start paying back (per current schedule)

Quoting Finn350 (Reply 67):
Boeing has stated in Q3 financials that "the 747 and 787 programs have gross margins that are breakeven or near breakeven at September 30, 2013", which effectively means that frames needed for break-even for the whole 787 program is about the same as the accounting block size.

The 747 deferred production cost is going down so I think it is fair to say they have reached break even on a per frame basis, i.e. receiving more revenue than it costs to manufacture. But there is still 1,848 MUSD in deferred production and tooling so the (total) production breakeven has not been reached.

I've mentioned it before and I do not understand how they can make this statement about the 787 as they added 63MUSD to deferred production cost for each frame delivered last quarter.
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SEPilot
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RE: Boeing 787 To Possibly Break Even In 2015

Sun Oct 27, 2013 10:04 pm

Quoting XT6Wagon (Reply 37):

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.

They ended up spending more than the total net worth of the company developing the 747. I agree, that was not their original intention, and you are right about it being very much behind the SST in priority, but in the end they DID bet the company on it. So I respectfully dispute your conclusion. Just because it was not intentional (and, for the record, neither was it on the 707-it also went way over budget) does not change the fact.
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RE: Boeing 787 To Possibly Break Even In 2015

Sun Oct 27, 2013 10:25 pm

Quoting cmf (Reply 77):
I've mentioned it before and I do not understand how they can make this statement about the 787 as they added 63MUSD to deferred production cost for each frame delivered last quarter.

As I understand it, Boeing refers to the whole accounting block gross margin based on September 30, 2013 estimation of sales prices and production costs of the whole accounting block of 1300. It does not matter that during Q3 deferred production was increasing.
 
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Stitch
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RE: Boeing 787 To Possibly Break Even In 2015

Sun Oct 27, 2013 10:58 pm

Quoting cmf (Reply 77):
The 747 deferred production cost is going down so I think it is fair to say they have reached break even on a per frame basis, i.e. receiving more revenue than it costs to manufacture. But there is still 1,848 MUSD in deferred production and tooling so the (total) production breakeven has not been reached.

Do you perhaps know if Boeing has stated whether or not the 747-8 is still in a forward-loss position?
 
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RE: Boeing 787 To Possibly Break Even In 2015

Sun Oct 27, 2013 11:28 pm

Quoting Finn350 (Reply 79):
As I understand it, Boeing refers to the whole accounting block gross margin based on September 30, 2013 estimation of sales prices and production costs of the whole accounting block of 1300. It does not matter that during Q3 deferred production was increasing.

That could be it.

Quoting Stitch (Reply 80):
Do you perhaps know if Boeing has stated whether or not the 747-8 is still in a forward-loss position?

If they had been in forward loss they would need to take a charge so the lack of charge is the confirmation.
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RE: Boeing 787 To Possibly Break Even In 2015

Mon Oct 28, 2013 4:52 am

Quoting cmf (Reply 81):
If they had been in forward loss they would need to take a charge so the lack of charge is the confirmation.

Thanks. Back in February 2013 they were giving warnings the program could face an additional reach-forward loss, so they dodged that bullet, at least.
 
abba
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RE: Boeing 787 To Possibly Break Even In 2015

Mon Oct 28, 2013 10:04 pm

Quoting cmf (Reply 77):
We will never know. There are just too many uncertain parameters to make such a calculation. I would even go so far as to say there is no reason to compare it with having put the money in the bank. The alternative should be if it was better to liquidate the company and give the money to the owners as a company just holding money at the bank doesn't have a reason to exist.

You are absolutely right in this. No company should just keep funds in the bank. However, comparing the return on investment made by a company to what an ordinary time deposit would yield in the bank makes sense as a measure of how good an investment is. If a company does not get a ROI that compete well with the bank then there is a problem.
 
cmf
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RE: Boeing 787 To Possibly Break Even In 2015

Mon Oct 28, 2013 11:24 pm

Quoting Stitch (Reply 82):
Thanks. Back in February 2013 they were giving warnings the program could face an additional reach-forward loss, so they dodged that bullet, at least.

Considering that was at the darkest time of the battery grounding I can understand it was a fear. Glad they dodged that bullet.

Quoting abba (Reply 83):
If a company does not get a ROI that compete well with the bank then there is a problem.

Maybe. You can't expect every program to be a success. You must allow companies to try things or they will just die slowly as more innovative competitors overtake them. It is if they stack up you have a problem.
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