bobdino
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"787 Profit For Boeing A Dream" - Seattle Times

Sun Oct 18, 2015 5:19 pm

Fairly inflammatory title, but that's the print title for this piece: http://www.seattletimes.com/business...ofit-analysts-grow-more-skeptical/

The lede:

Quote:
Boeing’s projection of an eventual profit for the Dreamliner depends on very aggressive assumptions, given $32 billion in sunk costs already, and more expected in Wednesday’s earnings report.

A quote from Ferpe:

Quote:
Less optimistic observers see no prospect of Boeing ever making an overall profit on this jet.

“No way,” said Bjorn Fehrm, an aviation and business analyst with Leeham.net who has run detailed models on 787 costs and revenue. “They need to recover far too much money per airplane. They will never do that.”

The piece has nothing to do with the 787s performance/comfort/route opening abilities; it's focused solely on deferred production cost, sales price, and the learning curve. It's a fascinating read, and the conclusions don't make great reading for Boeing's next half-decade.
 
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par13del
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RE: "787 Profit For Boeing A Dream" - Seattle Times

Sun Oct 18, 2015 5:42 pm

Quoting bobdino (Thread starter):
The piece has nothing to do with the 787s performance/comfort/route opening abilities; it's focused solely on deferred production cost, sales price, and the learning curve.

Somehow they need to find a way to include the impact of strikes on the 787 production line.
One of the initial capital investments on the 787 program was to move production out of the North West to mitigate cost and damage done by strikes at contract renewal.
Other than adjusting production cost by the lower wages in the south east, how do they factor in the benefit of continued production during contract negotiation?
Perhaps, Boeing should just take a write on those cost and make it easier for the financial analysis if the potential cost saving is ignored for the current projections?
 
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thekorean
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RE: "787 Profit For Boeing A Dream" - Seattle Times

Sun Oct 18, 2015 5:46 pm

Does all the research and cost sunk in to development of 787 have any impact on 777X series at all?

I reckon developing new technology at the cost now will pay off for Boeing in the long run.
 
masseybrown
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RE: "787 Profit For Boeing A Dream" - Seattle Times

Sun Oct 18, 2015 5:55 pm

So Boeing takes the loss on sunk costs and the plane becomes 'profitable' in the current year; it happens all the time on Wall Street. What amazes me is how few heads have rolled over this.
 
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RE: "787 Profit For Boeing A Dream" - Seattle Times

Sun Oct 18, 2015 6:50 pm

Quoting MasseyBrown (Reply 3):
So Boeing takes the loss on sunk costs and the plane becomes 'profitable' in the current year; it happens all the time on Wall Street. What amazes me is how few heads have rolled over this.

   Reminds me of another Chicago based aviation related firm I shall not name that outsourced everything and then was caught flat footed when it all predictably went pear shaped. In both cases, people failed upward.
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mjoelnir
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RE: "787 Profit For Boeing A Dream" - Seattle Times

Sun Oct 18, 2015 7:20 pm

Boeing has to start to get real, deferring less and stop showing "record profits".
 
StTim
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RE: "787 Profit For Boeing A Dream" - Seattle Times

Sun Oct 18, 2015 7:47 pm

Remember that declaring those big profits - whilst deferring huge costs allowed Boeing to pay all those successful executives large share bonusses. If they take the hit then it hits the senior management. Turkeys and christmas comes to mind.
 
WIederling
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RE: "787 Profit For Boeing A Dream" - Seattle Times

Sun Oct 18, 2015 9:08 pm

Quoting par13del (Reply 1):
Somehow they need to find a way to include the impact of strikes on the 787 production line.

As there was no damage to 787 production Boeing should be incapable to show related losses.

The second line was more needed to overcome the original planning mistake
of "just snapping together planes in a day or two" than to get away from a striking workforce.

Hazing their workers probably created much more damage.
Murphy is an optimist
 
32andBelow
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RE: "787 Profit For Boeing A Dream" - Seattle Times

Sun Oct 18, 2015 9:13 pm

Can't the ultimately make lots and lots of money on parts and support?
 
WIederling
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RE: "787 Profit For Boeing A Dream" - Seattle Times

Sun Oct 18, 2015 9:15 pm

cite:
After losing about $25 million on each jet it delivered in the second quarter, Boeing projects a watershed moment for the plane by year-end: It expects to finally roll out a Dreamliner that brought in more money than it cost to build.
:end cite.

Manufacturing cost does not change in large steps.

Maybe Boeing is now delivering planes sold at a significant markup over the initial 400 that were sold at an average of ~$89m. ( Numbers published by Jon Ostrower when he still was "Flightblogger" @ FlightGlobal ).
Murphy is an optimist
 
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sunrisevalley
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RE: "787 Profit For Boeing A Dream" - Seattle Times

Sun Oct 18, 2015 9:48 pm

Quoting StTim (Reply 6):
Remember that declaring those big profits - whilst deferring huge costs allowed Boeing to pay all those successful executives large share bonusses

Nothing compared to paying more than they should have as common stock dividends. Instead of paying 2.65/share if they had cut it by a buck they would have saved $697.50million or $21m for each frame delivered thus far. Not sure how far this would go to offset the shortfall but it would help
 
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Stitch
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RE: "787 Profit For Boeing A Dream" - Seattle Times

Sun Oct 18, 2015 9:52 pm

Even if the program never turns a profit, Boeing had to launch it to remain competitive as a commercial airline manufacturer. Let the 737 and 777 generate the profits.
 
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enzo011
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RE: "787 Profit For Boeing A Dream" - Seattle Times

Sun Oct 18, 2015 10:18 pm

Isn't it a real problem if Boeing comes out and confirms they will struggle to pay off costs on the program when they have already claimed profits for the future? Isn't this what happened to Tesco in the UK (predicting for profits in advance and when those years came up the predicted profits weren't realized and they were in a worse position than initially thought)?
 
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RE: "787 Profit For Boeing A Dream" - Seattle Times

Sun Oct 18, 2015 10:49 pm

The Emperor has no clothes after all!  
It's better to ask a stupid question during training, rather than make a REALLY stupid mistake later on!
 
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RE: "787 Profit For Boeing A Dream" - Seattle Times

Mon Oct 19, 2015 1:59 am

Quoting Ruscoe (Reply 16):
1200 787's

I believe the current accounting block for the 787 is 1,300 frames. It should also be noted that Boeing could yet increase that number.

Quoting Ruscoe (Reply 16):
but we now see Airbus moving in the Boeing direction.

No, they're moving to 'contract accounting' for the early contracts, not program accounting like Boeing.
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RE: "787 Profit For Boeing A Dream" - Seattle Times

Mon Oct 19, 2015 2:29 am

Quoting Part147 (Reply 15):
The Emperor has no clothes after all!  

Had Boeing "bet the farm" on the entire B787 program and screwed up and filed for BK your quote might have made sense....however that hasn't even remotely happened and Boeing has been profitable throughout.

Quoting scbriml (Reply 23):
It should also be noted that Boeing could yet increase that number.

Could, should, would means nothing. Until otherwise its 1,300. 1,097 orders and I expect more than 1,300 after all is said and done. While the program won't be as profitable as Boeing intended to be, it will eventually become profitable.

Like the A380 program, costs are already sunk in and if its more profitable (with decent margins/ROI) to keep the line open and manufacture planes than closing the line and using money elsewhere, its best to keep the line(s) open.
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boeingbus
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RE: "787 Profit For Boeing A Dream" - Seattle Times

Mon Oct 19, 2015 2:31 am

I find this to be all regurgitated news. nothing new. boring. slow news day Mr Gates? Look, everybody knows it wasnt a well managed beginnings and the program still has another 30 year run or more. Let time decide not idiot journalists who recreate news articles every few months because they are lazy.
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TheRedBaron
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RE: "787 Profit For Boeing A Dream" - Seattle Times

Mon Oct 19, 2015 4:26 am

Well Boeing has a Black hole called the 787, and to be competitive Airbus has his own black hole, called the A380..

So I guess even in failure they are very competitive!

TRB
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seahawk
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RE: "787 Profit For Boeing A Dream" - Seattle Times

Mon Oct 19, 2015 4:50 am

The money sunk into the 787 must be seen as money spent on enabling a technology jump with Boeing now enjoying leadership in CFRP designs.
 
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Revelation
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RE: "787 Profit For Boeing A Dream" - Seattle Times

Mon Oct 19, 2015 5:12 am

Quoting seahawk (Reply 20):
The money sunk into the 787 must be seen as money spent on enabling a technology jump with Boeing now enjoying leadership in CFRP designs.

I respect you tremendously but I don't buy this line of reasoning. Companies invest in new programs because they feel they will make money on them, not because they will gain things that might be useful on the next program. If they just want to enable technology jumps, there are a lot more efficient ways of going about that rather than running full blown development programs.
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RE: "787 Profit For Boeing A Dream" - Seattle Times

Mon Oct 19, 2015 5:37 am

Quoting boeingbus (Reply 17):
I find this to be all regurgitated news. nothing new. boring. slow news day Mr Gates? Look, everybody knows it wasnt a well managed beginnings and the program still has another 30 year run or more. Let time decide not idiot journalists who recreate news articles every few months because they are lazy.

Really? I think it's one of the best articles I've read on aviation and Boeing in a long time. Using facts rather than opinion.

Apparently, to make money on the 787, Boeing needs to make a 30%+ profit margin.

The 777 and 737 only had 20-25% margin.

And apparently, the A330-NEO is pushing prices lower for Boeing. Similar to how the 747-8 is pushing the price of the A380 lower.

Given that Boeing needs to transition the 777 to 777X and the 737 to the 737-MAX, this may mean that Boeing is going to be in a much weaker position to fund the next airplane program than people assume.

You may disagree with the facts by bringing out your own. But insulting the messenger is not going to change facts.
 
NAV30
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RE: "787 Profit For Boeing A Dream" - Seattle Times

Mon Oct 19, 2015 5:50 am

Quoting Revelation (Reply 21):
not because they will gain things that might be useful on the next program. If they just want to enable technology jumps, there are a lot more efficient ways of going about that

Agreed that it was a very expensive 'step forward,' Revelation, but it opened up a complete new market sector - midsize long-range twins. It also 'paved the way' for the forthcoming larger B779s.

The B747 is already 'out of business' (except for freighters) and the A380 is getting quite a few order cancellations. Over the next few years the (admittedly very expensive) B787/B777X programmes may be viewed as the innovations that pretty well ensured that, from now on, 'two engines will increasingly be enough' even for the longest over-ocean trips, carrying passenger loads up to 400 or more (meaning lower costs and larger profits).
 
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seahawk
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RE: "787 Profit For Boeing A Dream" - Seattle Times

Mon Oct 19, 2015 5:57 am

Quoting Revelation (Reply 20):
I respect you tremendously but I don't buy this line of reasoning. Companies invest in new programs because they feel they will make money on them, not because they will gain things that might be useful on the next program. If they just want to enable technology jumps, there are a lot more efficient ways of going about that rather than running full blown development programs.

Surely that was not the plan, but one must see that the 787 gave Boeing some valuable insight not only in CFRP use, but also in program management. Lessons learned have their own worth and even if they can never recover the sunk costs, those costs gave them experience and knowledge which is very hard to quantify in monetary terms.

It is just the same as Airbus and the A380. The program itself will never recover the money sunk, but the knowledge gained helped to get the next programs on track. Pushing the edges of technology always comes with a risk, but it also gives you more rewards than just the product you come up with.
 
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zeke
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RE: "787 Profit For Boeing A Dream" - Seattle Times

Mon Oct 19, 2015 6:55 am

I think it is difficult for any OEM to try and recover all of their investment in technology over one project. The 787 technology will be seen on the 737max, 747-8, 777X as well as the KC-46. Likewise the 787 engine technology will be reused on many other engines. While the 787 project will be lumped with those costs, the other projects should see lower costs as they reuse developed technology.

I dont understand if all the cash being talked about in the article from 29-34 billion includes supplier risk sharing partners and engine manufactures, or if it is just Boeings exposure. Japan was supposed to have invested 5-10 billion into the 787 as well.
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PhoenixVIP
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RE: "787 Profit For Boeing A Dream" - Seattle Times

Mon Oct 19, 2015 7:59 am

Quoting NAV30 (Reply 22):
Agreed that it was a very expensive 'step forward,' Revelation, but it opened up a complete new market sector - midsize long-range twins. It also 'paved the way' for the forthcoming larger B779s.

The B747 is already 'out of business' (except for freighters) and the A380 is getting quite a few order cancellations. Over the next few years the (admittedly very expensive) B787/B777X programmes may be viewed as the innovations that pretty well ensured that, from now on, 'two engines will increasingly be enough' even for the longest over-ocean trips, carrying passenger loads up to 400 or more (meaning lower costs and larger profits).

So when NAV0 loses his or her own way in the A380neo thread he/she takes it to a completely unrelated place to vent anger over four holers. Surely there must be a stop to that?

The 747-400 was out of business ages ago and we saw another 5 orders CA placed for the 747-8 last month. Excellent and CA needs that capacity. The A380 didn't receive any cancellations from my memory. The 787 and indeed A380s plus A350 (to lesser extent) have bled money for both companies and new programs like 777X will be a good way to see how Boeing have calculated costs and how to recoup them. Both A and B now have similar accounting methods and have written off those costs for 787s and A380s to the past and the 787 will indeed turn profit as it is an excellent aircraft that will keep selling and can generate that. A380neo can do that too carrying passenger loads up to 650 or more (meaning lower costs and larger profits) .
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speedbored
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RE: "787 Profit For Boeing A Dream" - Seattle Times

Mon Oct 19, 2015 8:28 am

Quoting PhoenixVIP (Reply 25):
The A380 didn't receive any cancellations from my memory.

Actually, a total of 25 A380 orders (or 52 if we include freighters) have been cancelled so far. Every program gets cancellations from time to time.

Quoting PhoenixVIP (Reply 25):
Both A and B now have similar accounting methods

Oh no they don't. Not even close.

Quoting PhoenixVIP (Reply 25):
and have written off those costs for 787s

No. There's ~$32bn of deferred 787 production costs still on the books.

Quoting PhoenixVIP (Reply 25):
the 787 will indeed turn profit

Many analysts would disagree with you on this one. It's very hard to see how it will be possible now.

The important thing to remember is that the deferred costs are simply an accounting matter. Just as with the A380 program, the cash has already been spent. What has been spent cannot be unspent, no matter how you go about accounting for it.

Whether either program makes a profit, as a whole, is largely irrelevant - all that matters now is getting unit production past the break-even point so that the program starts bringing cash in, and makes a positive contribution to the company in the future.

Personally, I see program accounting as nothing more than a vehicle for increasing the bonuses of the current management at the expense of their successors, and it is very open to abuse (not that I am saying that is the case here   ). Sensible investors will look at reported profits and the cash position to get a better picture of the health of a company.
 
JoeCanuck
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RE: "787 Profit For Boeing A Dream" - Seattle Times

Mon Oct 19, 2015 8:38 am

You know when you're in a slow news cycle when the, "_______ will need to sell gagillions of units to make a profit', articles appear.

What they all seem to miss is the real point; it's way too damned late to wax philosophical about past expenses on current programs...and spin it to seem like news...and the point of the story is.........? What does this kick at the cat say that all of the others didn't? Does it offer any solutions to how Boeing can magically make the money already spent to have been spent better? Maybe a space/time continuum thing.

The fact is, the 787 exists. It is being built and sold and hundreds are plying the skies. Nothing seems likely to be coming down the pike that is likely to change any of that.

There is absolutely nothing that can be done about money that is already spent, and nothing that will change production or deferred costs...except selling more planes...which Boeing is doing.

I imagine we'll be getting some very serious, well thought out and soberly written news flashes about how the A380 will never make a dime.

Also, Neil Armstrong was the first guy on the moon, dolphins are mammals not fish, and ice is cold.
What the...?
 
Freshside3
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RE: "787 Profit For Boeing A Dream" - Seattle Times

Mon Oct 19, 2015 9:13 am

A couple of odd/interesting things about the 787:

(1) When the project really started to get going, Boeing was obsessed with leaving Seattle for Chicago. I personally think, to some degree, that the move of the corporate headquarters distracted management's attention away from the product itself.

(2) Unlike previous Boeing airliners, there are no orders from the US military(at least, as far as I know).
 
travelhound
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RE: "787 Profit For Boeing A Dream" - Seattle Times

Mon Oct 19, 2015 9:30 am

Quoting JoeCanuck (Reply 27):
There is absolutely nothing that can be done about money that is already spent, and nothing that will change production or deferred costs...except selling more planes...which Boeing is doing.

I think this is a good point.

From memory the 787 is going to 144 unit deliveries per year from the current 120 at the end of the year.

Boeing have already stated by the end of the decade they will substantially increase production again.

I know the $32 billion development costs are eye watering, but we have to put this into perspective.

The 777, at a maximum production rate hit 100 units per year. In a couple of years time the 787 production rates should be 60% higher than this. With the 777 program costing (at a guess) $15 billion in today's money, $24 billion for the 787 probably isn't too bad. $32 billion is probably a tad too much.

I think where the real issues lie, are the actual costs to manufacture the aeroplane. I suspect the 787 is taking 2-3 times longer to build than first envisaged.

For instance using 1350 units as the accounting block for writing off production costs, the 787 needs to generate surplus incomes of approximately $24 million per unit to hit this target or $32 million if we consider the 787 is not at break even yet with 350 units produced.

If we consider the costs to manufacture each aeroplane could be $5-10 million higher than first envisaged, Boeing has another and probably more pressing issue to deal with. Boeing, regardless of the sunk costs really need this aeroplane to start producing substantial free cash flows.

I suspect the 787 is going to find it very difficult to recoup its costs. I'd suggest a write-off in the region of $10 billion is required. This would substantially change the psychology for the program and mean Boeing's sales staff will be more agile in being able to put together deals when selling these aircraft.
 
olle
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RE: "787 Profit For Boeing A Dream" - Seattle Times

Mon Oct 19, 2015 9:43 am

The situation of 787 is like the A380.

If the projects had been executed correctly they would both had been in profit position by now.

Therefore the management need to see the situation from the current situation.

OK, 787 might need 2000 copies to make profit. But they already sold 1300 of them 700 more over its life cycle does not sound impossible.

The A380 needs 400 and a replacement with EK for 200 (the NEO) and we are there.

It is not a business case like the A330 who could see a 1000 copies with investment of 1 billion but they are both part of the future of A and B.
 
mildaiv
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RE: "787 Profit For Boeing A Dream" - Seattle Times

Mon Oct 19, 2015 10:13 am

Interesting point in the article is that wall street allready wrote off those costs from price of Boeing shares. There is remaining question how much. I'am also wondering how much it cost Boeing to announce delays much later than they know. That must be Bilions in compenations. Or was they using more realistic dates in deals with airlines than in public announcements?
 
Flyglobal
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RE: "787 Profit For Boeing A Dream" - Seattle Times

Mon Oct 19, 2015 10:39 am

Quoting olle (Reply 30):
The situation of 787 is like the A380.

If the projects had been executed correctly they would both had been in profit position by now.
....

The small difference between the two projects is: that the A380 is written off in the balance sheets, even if from a project accounting point of view the project wasn't profitable. Boeing still has the wall of 32.000.000.000 Dollars to compensate + eventually cash flow losses from current deliveries vs payments, while the A380 only has the cash flow losses to compensate.

Hope one realizes that you shouldn’t always pay your shareholders in advance.
One should have the guts to star with write offs to lower this negative mountain.

By the way: who pays when there will be a global crisis and the profit making business of 737s, 777s goes down.

Flyglobal
 
mjoelnir
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RE: "787 Profit For Boeing A Dream" - Seattle Times

Mon Oct 19, 2015 11:36 am

Quoting travelhound (Reply 29):
I know the $32 billion development costs are eye watering, but we have to put this into perspective.

Not development cost, PRODUCTION COST, the kind you can not activate, the kind any other business writes on cost in the year they occur:
The development cost are extra.

So Boeing has to recoup this 30 billion USD before they can start on trying to recoup the development cost.

The quoted article assumes that Boeing will need 2,000 frames sold to recoup the deferred cost, before Boeing can start on the development cost

The problem is, Boeing has used the "program accounting for cost" to pay out future profits in the last years, profits that most likely will never be realized.

Nothing against program accounting for cost, but there must have been a planned upper limit for the deferrals, when that upper limit was reached because the program hit the skids, they should have started cutting profits instead of deferring.
If the upper limit was 20 billion USD, profits should have been lower by 2 billion USD the last five years.
If the upper limit was 15 billion USD, profits should have been lower by 3 billion USD the last five years.

[Edited 2015-10-19 05:24:13]
 
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BaconButty
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RE: "787 Profit For Boeing A Dream" - Seattle Times

Mon Oct 19, 2015 11:46 am

Quoting mjoelnir (Reply 33):
So Boeing has recoup this 30 billion USD before they can start on trying to recoup the development cost.

The quoted article assumes that Boeing will need 2,000 frames sold to recoup the deferred cost, before Boeing can start on the development cost

I don't think anyones even suggesting that 2,000 frames will be enough:

Quote:
The most conservative of IISL’s models, the one most favorable to Boeing, projects that after delivering 2,000 Dreamliners, the jet-maker will still have “a total program loss of approximately $5 billion.”

Worse, the above IISL, Wall Street and Leeham analyses of 787 costs don’t include Boeing’s original investment to develop the jet, estimated by most analysts at a further $20 billion or more.

Frightening.
Down with that sort of thing!
 
olle
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RE: "787 Profit For Boeing A Dream" - Seattle Times

Mon Oct 19, 2015 12:06 pm

I can imagine that working at Boeing right now and suggesting a clean sheet airliner for top management is quit a task right now  

One manager ones said earn your right for growth....

This is very correct but also his company went from 85% market share to 35%  


I have a sensation that The Boeing situation is similar. After Airbus execution of 350 they have an easier task when proposing new projects.
 
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speedbored
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RE: "787 Profit For Boeing A Dream" - Seattle Times

Mon Oct 19, 2015 12:10 pm

Quoting BaconButty (Reply 34):
Frightening.

It shouldn't be, not any more. Boeing are well past the highest risk periods on the 787 project.

Would shareholders be better off right now if things had been done differently? Yes, of course. But the fact is that Boeing screwed it up, the money has been spent, and it can't now be unspent. No point crying over spilt milk. Better to concentrate on making the most of what happens from here on in.

All that matters now is that they get past unit production break-even and start generating as much positive cashflow as possible, even if it is unlikely that it will ever cover what has already been spent.

Given that the markets are so aware of the scale of the development and deferred production costs on this program, I would not be at all surprised if, were Boeing to write the entire amount off right now and declare a huge loss this year, the markets might actually respond positively and push the share price up.
 
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TheRedBaron
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RE: "787 Profit For Boeing A Dream" - Seattle Times

Mon Oct 19, 2015 12:11 pm

Quoting BaconButty (Reply 34):
Frightening.

I guess they approached the 787 project from a militar perspective, where expenses can be left to its own devices, because funding is endless...

I remember a decade ago when they announced the "Dreamliner", and sold them like pancakes at the Paris Airshow, more than one poster here on A net said the price was so low that It would make Airbus lose the Middle size WB market... guess they did not even "dreamed" of the problems and delays the program would eventually have.

TRB
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WIederling
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RE: "787 Profit For Boeing A Dream" - Seattle Times

Mon Oct 19, 2015 12:21 pm

Quoting Freshside3 (Reply 28):
(1) When the project really started to get going, Boeing was obsessed with leaving Seattle for Chicago. I personally think, to some degree, that the move of the corporate headquarters distracted management's attention away from the product itself.

At the time the A380 shew to be troubled Airbus management was busy with a game of "Musical Chairs".
Distracted.
Murphy is an optimist
 
WIederling
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RE: "787 Profit For Boeing A Dream" - Seattle Times

Mon Oct 19, 2015 12:35 pm

Quoting Stitch (Reply 11):
Even if the program never turns a profit, Boeing had to launch it to remain competitive as a commercial airline manufacturer. Let the 737 and 777 generate the profits.

Are you sure those programs generate "real" profits in the amount needed for compensation?

See, Boeing does program accounting.
In other words : Boeing eats its pie before they bake it. Always has.

737 and 777 profits are imu already needed to fill the jar that previous profits have been taken out of.

program accounting is a habit forming drug  
Murphy is an optimist
 
mjoelnir
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RE: "787 Profit For Boeing A Dream" - Seattle Times

Mon Oct 19, 2015 12:49 pm

Quoting WIederling (Reply 39):
See, Boeing does program accounting.
In other words : Boeing eats its pie before they bake it. Always has.

I think James McNerney introduced Boeing, or BCA, to program accounting, so the 777 and the 737 would produce real profits.

My question would be, why James McNerney introduced it and why the use on the 787 is nearly limitless.

[Edited 2015-10-19 05:52:01]
 
WIederling
Posts: 8888
Joined: Sun Sep 13, 2015 2:15 pm

RE: "787 Profit For Boeing A Dream" - Seattle Times

Mon Oct 19, 2015 1:05 pm

Quoting mjoelnir (Reply 40):
so the 777 and the 737 would produce real profits.
....
My question would be, why James McNerney introduced it and why the use on the 787 is nearly limitless.

program accounting must have been used before the NG production meltdown. see:
http://www.bloomberg.com/bw/stories/2002-05-19/boeings-secret
Murphy is an optimist
 
frmrCapCadet
Posts: 3126
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RE: "787 Profit For Boeing A Dream" - Seattle Times

Mon Oct 19, 2015 1:15 pm

Quoting TheRedBaron (Reply 17):
Well Boeing has a Black hole called the 787, and to be competitive Airbus has his own black hole, called the A380..

So I guess even in failure they are very competitive!

One of the great ironies for those of us following this industry

Quoting seahawk (Reply 19):
The money sunk into the 787 must be seen as money spent on enabling a technology jump with Boeing now enjoying leadership in CFRP designs.
Quoting seahawk (Reply 23):
Surely that was not the plan, but one must see that the 787 gave Boeing some valuable insight not only in CFRP use, but also in program management. Lessons learned
Quoting seahawk (Reply 23):
Pushing the edges of technology always comes with a risk, but it also gives you more rewards than just the product you come up with.

Indeed unnecessarily expensive lesson, but the price has been paid. Boeing has even decided to again build a high tech wing for the 777X, this is significant.

Quoting zeke (Reply 24):
I dont understand if all the cash being talked about in the article from 29-34 billion includes supplier risk sharing partners and engine manufactures, or if it is just Boeings exposure

Good question, hope someone on line here can provide an answer.

Quoting speedbored (Reply 26):
Personally, I see program accounting as nothing more than a vehicle for increasing the bonuses of the current management at the expense of their successors, and it is very open to abuse
Quoting travelhound (Reply 29):
I suspect the 787 is going to find it very difficult to recoup its costs. I'd suggest a write-off in the region of $10 billion is required. This would substantially change the psychology for the program and mean Boeing's sales staff will be more agile in being able to put together deals when selling these aircraft.
Quoting mildaiv (Reply 31):
Interesting point in the article is that wall street allready wrote off those costs from price of Boeing shares.

Most of my friends and relatives here in the Northwest were vaguely aware of the 787 troubles. The Seattle Times article has accurately and clearly explained the financials of the debacle, as well as explaining that those who needed or wanted to know did indeed know. That is why along with program accounting financial reports also provide cash flow reports. No one has been blindsided. (except maybe the workers, but tney knew they were being screwed - execs did well - what's new)
Buffet: the airline business...has eaten up capital...like..no other (business)
 
racercoup
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RE: "787 Profit For Boeing A Dream" - Seattle Times

Mon Oct 19, 2015 1:55 pm

Quoting TheRedBaron (Reply 17):
ell Boeing has a Black hole called the 787, and to be competitive Airbus has his own black hole, called the A380..

So I guess even in failure they are very competitive!

Not quite. At 1,300 deliveries Boeing will have paid off a good portion of the "sunk costs". Airbus has essentially given up any hope of paying back sunk costs on the Whale Jet program.
 
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EPA001
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RE: "787 Profit For Boeing A Dream" - Seattle Times

Mon Oct 19, 2015 2:00 pm

Quoting racercoup (Reply 43):
Not quite. At 1,300 deliveries Boeing will have paid off a good portion of the "sunk costs".

That might very well be the case, but then there is still no profit for the whole program.

Quoting racercoup (Reply 43):
irbus has essentially given up any hope of paying back sunk costs on the Whale Jet program.

Which is why they already swallowed the very expensive bitter pill and have written all these costs of already.
 
ckfred
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RE: "787 Profit For Boeing A Dream" - Seattle Times

Mon Oct 19, 2015 2:16 pm

First, accounting can be very, very creative. Hollywood has blockbusters that don't make money, because of accounting. Actors learned years ago to take a percentage of the gross, rather than the profits, because creative ways that profits (or the lack of) are determined.

Second, everyone knows that Boeing tried to do two things with one project. It changed the manufacturing process, going from metal skins to composite skins. It changed the assembly process, with larger sub-assemblies being delivered to Everett. That was doing too many things on one project, and it will make the 787 project less profitable, but not less successful.

Let's not forget that Boeing also launched the 747-8 program, which had its problems, including missing its window of opportunity, which was probably 10 years earlier. Had Boeing decided to let Airbus have the 450+ seat market to itself, resources from the 747-8 program could have been devoted to the 787 program, meaning planes would have been ready for delivery earlier. That would have saved on the penalties, and final payments would have been received sooner.

Clearly, the problems with the 787 program mean that Boeing should have fewer problems with the 737 MAX and 777X programs, and eventually, the program to design an all-new narrowbody.
 
WIederling
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RE: "787 Profit For Boeing A Dream" - Seattle Times

Mon Oct 19, 2015 2:21 pm

Quoting racercoup (Reply 43):
Airbus has essentially given up any hope of paying back sunk costs on the Whale Jet program.

There is nothing to repay for Airbus. historic outlay has been accounted for against same timeframe historic profits for a remaining profit or a loss.

No "bowwave".

Boeing via program accounting shows future income as todays profit. To do that you have to borrow money elsewhere.

A gigantic "bowwave" . ( did they really take out credit for this or did they rob the pension funds ;-? )
Murphy is an optimist
 
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BaconButty
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RE: "787 Profit For Boeing A Dream" - Seattle Times

Mon Oct 19, 2015 2:24 pm

Quoting racercoup (Reply 43):
Not quite. At 1,300 deliveries Boeing will have paid off a good portion of the "sunk costs". Airbus has essentially given up any hope of paying back sunk costs on the Whale Jet program.

Eh? The A380 starts delivering a profit (production wise) this year, so it will start to repay its development costs and earlier production losses. Given the state of the order book it won't be much of them, but then again it hasn't accumulated nearly as many. The irony is, even if Airbus didn't deliver a single further A380, and even if the 787 program tracks to the most optimistic projections, 787 losses will still be higher. Though it's worth remembering we're ignoring ancillary sales (on both programs).

Quoting speedbored (Reply 36):

Quoting BaconButty (Reply 34):
Frightening.

It shouldn't be, not any more. Boeing are well past the highest risk periods on the 787 project.

Yeah, sunk costs and all that. But how will this affect future clean-sheet programs? I imagine it will be frightening for the board and investors when they're pitching the MOM at them, and their last two clean sheet programs suffered massive cost overruns. Coupled with the fact that their projections are still proving optimistic*, it's going to be a hard sell. Successful execution of the 77X is a must

* From the link in the OP: "[Losses] already $10 billion higher than Boeing projected just two years ago"
Down with that sort of thing!
 
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Faro
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RE: "787 Profit For Boeing A Dream" - Seattle Times

Mon Oct 19, 2015 2:41 pm

The article only talks about deferred production costs. How much pure deferred development cost, ie design, prototyping, certification, etc, does Boeing also have sitting on its balance sheet?


Faro
The chalice not my son
 
mjoelnir
Posts: 8494
Joined: Sun Feb 03, 2013 11:06 pm

RE: "787 Profit For Boeing A Dream" - Seattle Times

Mon Oct 19, 2015 2:42 pm

Quoting frmrCapCadet (Reply 42):
but the price has been paid

The price has been deferred, not paid.

Quoting frmrCapCadet (Reply 42):
Quoting zeke (Reply 24):
I dont understand if all the cash being talked about in the article from 29-34 billion includes supplier risk sharing partners and engine manufactures, or if it is just Boeings exposure

Good question, hope someone on line here can provide an answer.

Only Boeing's exposure, money spend but not accounted for, but in deferral.

Quoting racercoup (Reply 43):
Not quite. At 1,300 deliveries Boeing will have paid off a good portion of the "sunk costs". Airbus has essentially given up any hope of paying back sunk costs on the Whale Jet program.

It has nothing to do with the hope paying back sunk cost, the difference is only when you accept it by lowering profits or showing loss.
 
StTim
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RE: "787 Profit For Boeing A Dream" - Seattle Times

Mon Oct 19, 2015 2:43 pm

What is Boeing's accounting procedure on development costs? Are they amortized over the accounting block? If so are they considered to be part of the cost of production? Are they written off in the year they were incurred (unlikely once a big project is underway). I have seen no clear statement on how they are handled.

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