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2175301
Posts: 1894
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Major Boeing Cost Cutting Programme - Part 1

Fri Feb 12, 2016 1:21 am

There is a cycle to this, and it does not surprise me that Boeing will be doing a modest restructuring. Nor do I think that the Boeing Company is in any great danger of major financial problems. Things may not be as great as they would like; but, at the same token they are not as bad off as some would make you think either.

I believe that the biggest factor that has affected and will affect various aircraft sales is the major drop in the price of Oil, and its likely very low price continuing for at least several years.

I have also always suspected that perhaps as much as 25% of all those aircraft ordered in the last few years would have their orders vanish prior to delivery. That will affect both Airbus and Boeing about the same.

Have a great day,
 
Hamlet69
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Major Boeing Cost Cutting Programme - Part 1

Fri Feb 12, 2016 1:45 am

I'll try to keep this short(ish):

Quoting N14AZ (Reply 6):
I see this rather like the graphs of sine and cosine. During some phases one is doing better than the other - depending on when / what aircraft programme has been introduced - and vice versa.

  

No doubt Boeing's in a (self-made) pickle right now. They'll be fine, tho.

Quoting moo (Reply 15):
The real question is why do aircraft manufacturers feel the need to discount heavily at launch...

Your first two points are spot on. And the answer to this is easy: risk. Just look at recent history. The A380. The 787. The A350. Even the GTF A320NEO. None of these programs have gone exactly according to what the OEM's said they would. Launch customers are accepting a certain amount of risk by being launch customers, and they expect a certain amount of financial incentive to do so.

Quoting flyglobal (Reply 25):
It now comes as a draw back that Boeing has to much used the program accounting to show profits on paper and make the shareholders happy.

I don't mean to particularly pick on you, flyglobal, so accept my apologies. However I am using this quote as I've seen in numerous times in numerous threads and it always makes me shake my head. The reason being all of our resident A.net "experts" seem to believe that Boeing using Program Accounting is a new thing, or particular to the 747-8 and 787 programs. I.E. - the ones they really screwed up. The narrative being that Boeing had to go to Program Accounting to save face.

The truth just demonstrates how un-"expert" people who concoct such a narrative are. Boeing has been using Program Accounting since the early 1990's, if not before. The 737 has been on it since at least then. The 777 has always been on it. We only talk about it now because of the massive cock-up of the 787 (and to lesser extent, the 747-8). I just wish our "experts" actually knew what they were talking about.

Quoting flyglobal (Reply 36):
Boeing should hire automotive experts or consultants and combine them with their Aeronautics experts to a team.

Ummmm. . . they have. Boeing hired an entire team from Toyota a number of years ago.

Quoting flyglobal (Reply 36):
Maybe Boeing should move Headquarters back to Seattle

   I'm all for this one! LOL!

Quoting morrisond (Reply 30):
The SEC just launched an Investigation on Boeing's accounting practises in regards to the 787 and 747 Programs...
Quoting DocLightning (Reply 35):
Oh dear.
Quoting robffm2 (Reply 37):
It seems, the SEC is looking exactly at this accounting

Wouldn't it be wonderful if A.net actually read the articles they like talking about? Instead of just pointing at headlines.

"Program accounting has been around for decades. It was first championed by the aerospace industry to address the problem that companies’ biggest expenses are amassed upfront, as they design planes and devise manufacturing processes. Costs typically fall as the assembly becomes more efficient, making it cheaper to build the later jets than the earlier ones."
"The method, which is fully compliant with Generally Accepted Accounting Principles"


And what they are actually looking at:

"SEC enforcement attorneys are examining whether Boeing’s financial statements relied on sales forecasts that might be too optimistic, one person said. Another avenue of inquiry is whether Boeing’s estimates for declining production costs will come to fruition, the person said." - i.e., they're looking at Boeing's projections. Not Program Accounting.

Quoting moo (Reply 41):
370 delivered aircraft and still making a loss per airframe - thats not a good position to be in

*shrug* - could be worse. They could be making a loss on each frame, have an order book that's dwindling rapidly, and openly be talking about needing a serious revamp to have any hope of keeping it viable in the next 5 years. . .    joking, joking. kinda.

Quoting PGNCS (Reply 48):
Interesting you both mentioned arrogance, and quite eloquently

Indeed. I bet there's a whole bunch of Boeing people sitting around in a public forum, eloquently criticizing a leading company in an industry they've never once worked in nor actually know much about, talking about how better they'd be at it. Boeing really has a lot of nerve!

Quoting StTim (Reply 52):
Correct and by using project accounting they have declared profit on all the 787's delivered to date

To my knowledge, Boeing has never declared a profit on the 787. Then again, they don't usually break each program down.

Quoting WIederling (Reply 53):
If you remove the mumbo jumbo what remains is fraud imho.

Shocking.    In other threads, you've declared that Boeing's UFO orders are nothing more than PR tricks, and the current Pratt GTF delays are the result of Boeing and/or CFM sabotage. Maybe you should just make of list of what laws you believe Boeing hasn't broken? Might save us all some time. . .

Quoting mjoelnir (Reply 59):
Deferred means that you already spend it, but you do not let it influence your profit now. You have to have reasonable expectation to make enough revenue with low enough cost inside the accounting block to clear out all the deferred cost.It is useless to talk about 2,000 possible sales, it has to fit the current accounting block.

  

Correct.

Quoting Coronado (Reply 65):
From analyzing Delta Air Lines 10Q and 10K statements

Thank you for this! It matches up pretty well from what I've heard, so it is nice to know my sources aren't just making things up.

Quoting astuteman (Reply 68):
To me, this is reminiscent of when Airbus were in the throes of the A380's difficulties and also developing the A350XWB.In this case it's the throes of the 787 (financially at least), and developing the 777X and MAX.

And thank you, astuteman, for another good post.   

One other thing that I think many here have lost sight of, is the target audience of this webcast. It was for employees, who Boeing is now asking for more cost cutting from. Of course they are going to make things sound as dire as possible. Just as their marketing material to airlines is going to make it sound as rosy as possible. Neither one is necessarily true. . .

Quoting alfablue (Reply 77):
Boeing did spend the money on the 787 but not write it off

They can't, unless they can prove a valid reason. Once they started on the Program Accounting method, they are stuck on it. Legally. They can not just change their mind , bite the bullet and decide to write off a significant chunk of the deferred costs. For better or worse, they are now stuck to their current accounting. The only way they can write off costs now is by declaring a Forward Loss on the program. And based on current sales, they have no ability to do that. The 747-8, on the other hand. . .

Quoting mham001 (Reply 81):
That said, the SEC thing could be a problem for the profit watchers and I think both A & B order books are going to take a solid hit as growth around the world slows.

Agreed. It will be very interesting to see how this is managed.


Regards,

Hamlet69
All gave some. Some gave all.
 
Aither
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Major Boeing Cost Cutting Programme - Part 1

Fri Feb 12, 2016 1:52 am

It's becoming a lose lose game with 2 external winners: wall street and COMAC.
If Airbus and Boeing cut on design studies they will only compete on price and there is no way they could win this game against the economic and political power of COMAC in a near future.
Never trust the obvious
 
mjoelnir
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Major Boeing Cost Cutting Programme - Part 1

Fri Feb 12, 2016 2:02 am

Quoting Hamlet69 (Reply 101):
They can't, unless they can prove a valid reason.

They can. How much you defer is a judgement call. You can declare overruns as unusual cost and write them off. You make a plan when you start off and you can keep to it, taking overruns as they come and not defer them.
Every time you defer you have to decide if you expect the payback inside the block or not.
If you get it right you never declare a forward loss, you do not need to.
 
Hamlet69
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Major Boeing Cost Cutting Programme - Part 1

Fri Feb 12, 2016 2:09 am

Quoting mjoelnir (Reply 103):
They can. How much you defer is a judgement call. You can declare overruns as unusual cost and write them off. You make a plan when you start off and you can keep to it, taking overruns as they come and not defer them.
Every time you defer you have to decide if you expect the payback inside the block or not.
If you get it right you never declare a forward loss, you do not need to.

Ah. I see what you're saying. I suppose it is possible. Or at least, would have been.

I asked that question to a Boeing guy about a year ago, and was told the answer I gave above. But I only asked about writing off all, or a significant piece. Not incremental changes.

That said, I don't think, today, they could. Costs are coming down to the point where they are almost cash-positive on delivered frames. Unless there is some F-up in the -10 (unlikely, considering the -9 development), I don't forsee any more 'overruns' coming.

Regards,

Hamlet69
All gave some. Some gave all.
 
RickNRoll
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Major Boeing Cost Cutting Programme - Part 1

Fri Feb 12, 2016 2:42 am

Quoting Hamlet69 (Reply 101):
I don't mean to particularly pick on you, flyglobal, so accept my apologies. However I am using this quote as I've seen in numerous times in numerous threads and it always makes me shake my head. The reason being all of our resident A.net "experts" seem to believe that Boeing using Program Accounting is a new thing, or particular to the 747-8 and 787 programs. I.E. - the ones they really screwed up. The narrative being that Boeing had to go to Program Accounting to save face.The truth just demonstrates how un-"expert" people who concoct such a narrative are. Boeing has been using Program Accounting since the early 1990's, if not before. The 737 has been on it since at least then. The 777 has always been on it. We only talk about it now because of the massive cock-up of the 787 (and to lesser extent, the 747-8). I just wish our "experts" actually knew what they were talking about.

That is all well and good. The issue is the potential to abuse this method of accounting to defer the bad news till it is no longer your problem.

Do you

a) take a hit now because there are obviously problems.
b) extend the accounting block because that defers taking the hit.

For the 737 and 777 this question did not arise.
 
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kanban
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Major Boeing Cost Cutting Programme - Part 1

Fri Feb 12, 2016 2:48 am

Quoting PEK777 (Reply 98):
This is a lie - Boeing has the tooling, it has been proven on here several time

a myth.. tooling for spares and certain incident repair components exists, however the rest is gone, the wing line has been reconfigured and the drivematics replaced.. Tooling common to the 767 is available. however the buildings are gone and the ability to perform some of the manufacturing processes no longer exists thanks to a over zealous health and safety restrictions.

HOWEVER, this thread is about cost cutting measures coming, not financial issues .. that's a separate thread.
 
sxf24
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Major Boeing Cost Cutting Programme - Part 1

Fri Feb 12, 2016 2:53 am

Quoting Chaostheory (Reply 93):

5 Years ago perhaps.

No way in hell you're getting an A333 today for sub $110m.

Have a look at slb transactions involving -300s in the last 12-18 months. The banks and lessors are mugs if they're paying airlines $110m+ for -300s when as you state they could get them directly from TLS for $80-85m.

Delta and other airlines are getting sub $85m A333s, with a few sub $80m deliveries. The banks and lessors are getting burned on A330s, which is why you see fewer transactions. Ultimately, Airbus offers way more dynamic pricing than Boeing with $80m and $160m A330s delivering in the same week.
 
BoeingGuy
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Major Boeing Cost Cutting Programme - Part 1

Fri Feb 12, 2016 2:57 am

Quoting PEK777 (Reply 98):
Quoting NWAROOSTER (Reply 26):
The tooling for the 757 is gone and no more757s will be built

This is a lie - Boeing has the tooling, it has been proven on here several times

Guys, once again, the 757 was discontinued in 2004 because no-one would buy any of them. What makes anyone thing it would be different 12 years later? Doesn't matter if the tooling exists.
 
Jetport
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Major Boeing Cost Cutting Programme - Part 1

Fri Feb 12, 2016 3:26 am

Quoting mjoelnir (Reply 90):
I am also no t saying that Boeing is hiding anything, the deferrals are there, the forward movement of payments are there.The point where I assume the SEC could be irritated, are dividends, management bonuses and share buybacks, if they judge the deferrals of cost and resulting profits as unsustainable high.

I'm confused, why would deferred accounting (or any method of recognizing future revenue or costs) have any impact on dividends or bonuses? Boeing is solidly cash flow positive, they can finance their dividends, buy backs and bonuses out of cash flow. Even if they took a large write off it wouldn't impact cash flow. Always look at the cash flow, it is what matters. All the rest is just accounting jargon. Boeing has plenty of cash flow to pay all their obligations and service their debt, why are people freaking out over how they account for money already spent in the past on the 787?
 
mjoelnir
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Major Boeing Cost Cutting Programme - Part 1

Fri Feb 12, 2016 3:37 am

Quoting Jetport (Reply 109):
Quoting mjoelnir (Reply 90):
I am also no t saying that Boeing is hiding anything, the deferrals are there, the forward movement of payments are there.The point where I assume the SEC could be irritated, are dividends, management bonuses and share buybacks, if they judge the deferrals of cost and resulting profits as unsustainable high.

I'm confused, why would deferred accounting (or any method of recognizing future revenue or costs) have any impact on dividends or bonuses? Boeing is solidly cash flow positive, they can finance their dividends, buy backs and bonuses out of cash flow. Even if they took a large write off it wouldn't impact cash flow. Always look at the cash flow, it is what matters. All the rest is just accounting jargon. Boeing has plenty of cash flow to pay all their obligations and service their debt, why are people freaking out over how they account for money already spent in the past on the 787?

Because you turn a loss or small profit into a record profit and you pay out high dividends and bonuses instead of none or smaller ones. If you do that in a reasonable way OK, but when you go overboard with deferring, not OK.
Boeing has declared profit to the tune of 30 billion USD that Boeing has still to earn in the future and has to someday cut profits by that amount and pay than lower dividends and bonuses.
 
Planesmart
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Major Boeing Cost Cutting Programme - Part 1

Fri Feb 12, 2016 3:47 am

Quoting sxf24 (Reply 107):
Delta and other airlines are getting sub $85m A333s, with a few sub $80m deliveries.

They might be settling those amounts on delivery, but are you taking into account payment tranches pre-delivery. Are you factoring in airlines purchasing engines separately? How are you arriving at purchase prices for airlines funding in a basket of currencies? Are you just calculating funding per aircraft?

Quoting sxf24 (Reply 107):
The banks and lessors are getting burned on A330s, which is why you see fewer transactions.

Quite the opposite. You have a better choice of funder if acquiring aircraft under USD100m a unit, including airlines using their own bank consortiums.
 
lutfi
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Major Boeing Cost Cutting Programme - Part 1

Fri Feb 12, 2016 3:48 am

Quoting Chaostheory (Reply 93):
5 Years ago perhaps.No way in hell you're getting an A333 today for sub $110m.Have a look at slb transactions involving -300s in the last 12-18 months. The banks and lessors are mugs if they're paying airlines $110m+ for -300s when as you state they could get them directly from TLS for $80-85m.

SLB transactions have little to do with the original purchase price of the aircraft/ replacement cost of the aircraft, but the interest rates/ residual value guarantees the airline is willing to negotiate. It is quite common for airlines (e.g. Indigo) to buy an aircraft for X, then SLB for X + a few million USD. Likewise many EETC's in the US are/ were for amounts > the purchase price of the aircraft

As an not very good analogy, a bank might be able to buy land and build a house cheaper than a SLB (mortgage) on an existing property, but they will still give a mortgage for more than a house costs to build.

Big lessors can buy aircraft at good prices, but are then taking a risk on finding some one to lease it from them.
 
solarflyer22
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Major Boeing Cost Cutting Programme - Part 1

Fri Feb 12, 2016 4:18 am

Well, they sure could use Eye Ran as a customer right about now. Love that the US has politicized aviation so much over sanctions they can barely sell the most desperate yet cash rich nation in modern times a few air frames. Even worse, the extra 2-3 million bpd will keep oil prices low and make 787 sales harder. Boeing looks like its in trouble like Bombardier.
 
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7BOEING7
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Major Boeing Cost Cutting Programme - Part 1

Fri Feb 12, 2016 5:29 am

Quoting Jetport (Reply 109):
I'm confused, why would deferred accounting (or any method of recognizing future revenue or costs) have any impact on dividends or bonuses? Boeing is solidly cash flow positive, they can finance their dividends, buy backs and bonuses out of cash flow. Even if they took a large write off it wouldn't impact cash flow. Always look at the cash flow, it is what matters. All the rest is just accounting jargon. Boeing has plenty of cash flow to pay all their obligations and service their debt, why are people freaking out over how they account for money already spent in the past on the 787?

  

Quoting mjoelnir (Reply 110):
Because you turn a loss or small profit into a record profit and you pay out high dividends and bonuses instead of none or smaller ones

Dividends are paid out of cold hard cash, not profits, imaginary or otherwise. They have increased as Boeing's cash as increased because that's what stock holders expect and they're not particularly high, generally less that 3%.
 
lutfi
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Major Boeing Cost Cutting Programme - Part 1

Fri Feb 12, 2016 7:32 am

There is a view that Boeing have been "borrowing" from future cash flow by giving discounts/ better deals on deposits if customers are willing to make earlier payments. Improves cash flow now in return for receiving less cash than you otherwise would have.

I.e. pay me 90m USD today, or 100m USD tomorrow,
 
StTim
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Major Boeing Cost Cutting Programme - Part 1

Fri Feb 12, 2016 7:57 am

Quoting Hamlet69 (Reply 101):
They can't, unless they can prove a valid reason. Once they started on the Program Accounting method, they are stuck on it. Legally. They can not just change their mind , bite the bullet and decide to write off a significant chunk of the deferred costs. For better or worse, they are now stuck to their current accounting. The only way they can write off costs now is by declaring a Forward Loss on the program.

I am not anti Programme Accounting per see. The issue is however when Programme Accounting is used on a poorly delivered programme. Here you have the two issues that the SEC seem to be looking at. The robustness of the projects used for cost (and specifically cost reductions) and Revenues. See below.

Quoting Hamlet69 (Reply 101):
"SEC enforcement attorneys are examining whether Boeing’s financial statements relied on sales forecasts that might be too optimistic, one person said. Another avenue of inquiry is whether Boeing’s estimates for declining production costs will come to fruition, the person said." - i.e., they're looking at Boeing's projections. Not Program Accounting.

What the SEC seem to believe is that Boeing are being too optimistic. These sort of calculations are very sensitive to small changes to the base assumptions.

Quoting 7BOEING7 (Reply 114):

Dividends are paid out of cold hard cash, not profits, imaginary or otherwise. They have increased as Boeing's cash as increased because that's what stock holders expect and they're not particularly high, generally less that 3%.

A business that has never made a profit cannot declare a dividend. Dividends are paid with cash but must be supported by profit in this or previous years. Thus increasing the profits by $30 billion (the deferred costs amount give or take) gives and additional $30 billion available to pay out in dividends. Institutional shareholders (pension funds etc) love dividends as it provides cash for their operations etc. Thus a high dividend makes the share attractive and supports the share price. The other model (as used by some of the internet companies) is where they are growing so fast, but usually making losses, then the business growth is driving the share price. Boeing is not in that space.
 
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seahawk
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Major Boeing Cost Cutting Programme - Part 1

Fri Feb 12, 2016 8:04 am

We will soon see what is happening at Boeing, once the first 787 reaches a profit in production. When this profit is used to reduce the deferred costs there is nothing to complain, if it is booked as a profit and the deferred costs are not reduced it becomes dubious.
 
WIederling
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Major Boeing Cost Cutting Programme - Part 1

Fri Feb 12, 2016 8:35 am

Quoting StTim (Reply 79):

already incurred and future projected manufacturing costs are accumulated over the full accounting block.
Then they divide by size of accounting block.
What you get is the project accounted cost per frame, constant over time.

Subtract from revenue and voila : there is your profit.
_IF_ this profit is negative the project is "in forward loss".

Looking at Boeings nonGAAP accounting numbers is quite insightful.

There are imho two major issues in project accounting:
you munge real numbers and projected numbers.
you munge real numbers and projected numbers.

Good accounting practice in IFRS is to provide a conservatively valued snapshot
of the status quo. ( i.e.
In the next step you can explain outlook and assets.
( But the shareholder crowd is unable to think beyond yesterday.)
Murphy is an optimist
 
Chaostheory
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Major Boeing Cost Cutting Programme - Part 1

Fri Feb 12, 2016 8:50 am

Quoting lutfi (Reply 112):
SLB transactions have little to do with the original purchase price of the aircraft/ replacement cost of the aircraft, but the interest rates/ residual value guarantees the airline is willing to negotiate. It is quite common for airlines (e.g. Indigo) to buy an aircraft for X, then SLB for X + a few million USD. Likewise many EETC's in the US are/ were for amounts > the purchase price of the aircraft

Whilst slb values won't directly translate to airline purchase price, any difference is insignificant and the market values for new aircraft are based largely on what appraisers/financiers/insurers know the airlines to be paying.
 
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scbriml
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Major Boeing Cost Cutting Programme - Part 1

Fri Feb 12, 2016 9:32 am

Quoting racercoup (Reply 10):
Unlike Airbus, Boeing exists to make a profit for it's shareholders and as a result employs thousands. Boeing does not exist to sustain jobs.

And yet BCA seems to employ significantly more people than Airbus Commercial does. Odd.   

Quoting kanban (Reply 106):
HOWEVER, this thread is about cost cutting measures coming, not financial issues ..

It would seem to me the two are not unrelated.
Time flies like an arrow. Fruit flies like a banana!
There are 10 types of people in the World - those that understand binary and those that don't.
 
Andy33
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Major Boeing Cost Cutting Programme - Part 1

Fri Feb 12, 2016 10:05 am

Quoting 777Jet (Reply 94):
At least US airlines know what they will be paying for Boeing aircraft and likewise for EU airlines purchasing Airbuses.

Of course not all EU countries use the Euro (just 19 out of 28 do), the rest still have their traditional national currencies at the moment.
Do Airbus actually quote prices to airlines in Euros or USD (or both depending on what the airline wants)?
 
StTim
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Major Boeing Cost Cutting Programme - Part 1

Fri Feb 12, 2016 10:07 am

Airbus price list are in dollars. Not that price lists do anything other than provide a start point.
 
Planesmart
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Major Boeing Cost Cutting Programme - Part 1

Fri Feb 12, 2016 10:15 am

Quoting StTim (Reply 122):
Airbus price list are in dollars. Not that price lists do anything other than provide a start point.

And Airbus price in just about any currency or basket of currencies the customer requests. Boeing a reluctant follower.

[Edited 2016-02-12 02:17:10]
 
mjoelnir
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Major Boeing Cost Cutting Programme - Part 1

Fri Feb 12, 2016 11:02 am

Quoting 7BOEING7 (Reply 114):
Dividends are paid out of cold hard cash, not profits, imaginary or otherwise. They have increased as Boeing's cash as increased because that's what stock holders expect and they're not particularly high, generally less that 3%.

very simple, no profits no dividends. You have to show a profit to be aloud to pay a dividend. If you have old profits you have not payed out yet you can keep paying a very reduced dividend.
For dividends the cash position is not interesting only profits, you can take a loan to pay dividends.
Usually bonuses are also connected to profits, not cash positions. New cash you can get in four ways, reducing your inventory, making a profit, taking a loan or selling additional shares. If you of course make deferrals while showing profits, your real change in cash is profit minus deferrals.
 
Aither
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Major Boeing Cost Cutting Programme - Part 1

Fri Feb 12, 2016 11:56 am

So to summarize: when things are going well Boeing gives away from the employees tons of dividends and buy back shares to keep the stock price high. When things are not going so well Boeing fire staff and cut investment for the future. And the employees accept that? What can be the future of this company? Is Boeing just a financial institution ? Ive heard some people have Boeing stocks on their retirement plan. Not sure it's a wise thing.

[Edited 2016-02-12 03:59:04]
Never trust the obvious
 
mjoelnir
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Major Boeing Cost Cutting Programme - Part 1

Fri Feb 12, 2016 12:30 pm

Quoting Aither (Reply 125):
So to summarize: when things are going well Boeing gives away from the employees tons of dividends and buy back shares to keep the stock price high. When things are not going so well Boeing fire staff and cut investment for the future. And the employees accept that? What can be the future of this company? Is Boeing just a financial institution ? Ive heard some people have Boeing stocks on their retirement plan. Not sure it's a wise thing.

The employees do not rule, aim is maximizing shareholder value    and management bonuses   .
 
81819
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Major Boeing Cost Cutting Programme - Part 1

Fri Feb 12, 2016 1:01 pm

How long has the new CEO been in office.

I'd suggest he is clearing the decks! This is standard practice!
 
sxf24
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Major Boeing Cost Cutting Programme - Part 1

Fri Feb 12, 2016 1:20 pm

Quoting Planesmart (Reply 111):

They might be settling those amounts on delivery, but are you taking into account payment tranches pre-delivery. Are you factoring in airlines purchasing engines separately? How are you arriving at purchase prices for airlines funding in a basket of currencies? Are you just calculating funding per aircraft?

Yes. Delta, and others, pay net prices in the low $80m.

Quoting Planesmart (Reply 111):

Quite the opposite. You have a better choice of funder if acquiring aircraft under USD100m a unit, including airlines using their own bank consortiums.

Banks and lessors have been burned by high priced A330s, along with high priced 777s.
 
roseflyer
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Major Boeing Cost Cutting Programme - Part 1

Fri Feb 12, 2016 2:26 pm

Quoting Chaostheory (Reply 93):
Quoting sxf24 (Reply 11):
Actually, Airbus will be happy sell you an A330 or A330neo for $80-85m. Boeing can't compete with that.

5 Years ago perhaps.

No way in hell you're getting an A333 today for sub $110m.

Have a look at slb transactions involving -300s in the last 12-18 months. The banks and lessors are mugs if they're paying airlines $110m+ for -300s when as you state they could get them directly from TLS for $80-85m.

Typical life cycle pricing would have A330-300s at the lowest price (inflation adjusted) right now. There are better airplanes on the market for sale than the A330 with lower operating costs. In order to sell an A330, Airbus has to price it low to make up for the costs since the 787 is cheaper to operate. The A330-200/300s are probably are cheaper now than at any other point except for the launch customers. The same thing is true for 767s, 777s and 737NGs. 787, 777x, A350, A320neo and 737max should be commanding the highest prices right now that they will get in their product life. From what I am reading, Boeing is doing these significant cost cutting efforts since the 787 and 737max are not achieving the margins now that Boeing expected since Airbus is aggressive with A320neo and A330/A330neo prices.
If you have never designed an airplane part before, let the real designers do the work!
 
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robffm2
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Major Boeing Cost Cutting Programme - Part 1

Fri Feb 12, 2016 3:02 pm

Quoting roseflyer (Reply 129):
In order to sell an A330, Airbus has to price it low to make up for the costs since the 787 is cheaper to operate.

The A330 is also cheaper to produce.
 
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moo
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Major Boeing Cost Cutting Programme - Part 1

Fri Feb 12, 2016 3:38 pm

Quoting robffm2 (Reply 130):
The A330 is also cheaper to produce.

For example, production costs for the A330 are completely amortized, and the A330NEO will largely benefit from the same situation for most of the aircraft.

And even when the 787 costs are amortized, it remains to be seen if a 787 can be produced as cheaply as an A330, as production costs for existing production methods are dropping all the time as materials cost less to produce, more automation is brought in etc.
 
Jetport
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Major Boeing Cost Cutting Programme - Part 1

Fri Feb 12, 2016 3:57 pm

Quoting mjoelnir (Reply 124):
very simple, no profits no dividends. You have to show a profit to be aloud to pay a dividend. If you have old profits you have not payed out yet you can keep paying a very reduced dividend.
For dividends the cash position is not interesting only profits, you can take a loan to pay dividends.
Usually bonuses are also connected to profits, not cash positions. New cash you can get in four ways, reducing your inventory, making a profit, taking a loan or selling additional shares. If you of course make deferrals while showing profits, your real change in cash is profit minus deferrals.

Maybe the rules are different in Iceland, but in the USA you can certainly pay dividends while still showing a loss, check out some oil companies if you don’t believe me. Over the long term you certainly need profits to pay dividends, but not over the short and even medium term. A company can report large losses for years and still be cash flow positive. A company can report large profits for years and still be cash flow negative. Look at cash flow, not profit and loss which have become very misleading numbers with modern accounting practices. From my brief look at Boeing’s financials it appears they can easily service their debt, pay their dividends and fund their buybacks out of cash flow now and for the foreseeable future.
 
StTim
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Major Boeing Cost Cutting Programme - Part 1

Fri Feb 12, 2016 4:14 pm

Quoting moo (Reply 131):
For example, production costs for the A330 are completely amortized, and the A330NEO will largely benefit from the same situation for most of the aircraft.

And even when the 787 costs are amortized, it remains to be seen if a 787 can be produced as cheaply as an A330, as production costs for existing production methods are dropping all the time as materials cost less to produce, more automation is brought in etc.

Whilst your first point is largely true the second point highlights that Airbus (and Boeing) continually invest in improved production processes. Most of these will require investment. I have no idea what production numbers are used to make the business case but the will be some costs to be amortized.
 
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moo
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Major Boeing Cost Cutting Programme - Part 1

Fri Feb 12, 2016 4:34 pm

Quoting StTim (Reply 133):
Whilst your first point is largely true the second point highlights that Airbus (and Boeing) continually invest in improved production processes. Most of these will require investment. I have no idea what production numbers are used to make the business case but the will be some costs to be amortized.

This late in any production run, no company is going to make significant and wide reaching production method changes - I would be surprised if any change made wasn't amortized fully with significant margin to spare by the time the first airframe has passed through it.

Changes to ongoing production lines are typically done as and when toolings need refreshing or refurbishing - you can bet your life that the toolings that make an A320 today are not the same toolings, unchanged and unloved, that produced the first A320 off the production line in the 1980s. So there is always ongoing cost in a production line, whether you update the process or not.
 
StTim
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Major Boeing Cost Cutting Programme - Part 1

Fri Feb 12, 2016 4:42 pm

There was a post in the neo thread I think about the large number of complex machine tools that were being delivered to suppliers to support ramp up rates without adding significant labour elements. I know there are many frames to cover the cost but these will not be cheap.

Even for the 330 there will be refreshes required (as you point out) and improvements to be gained. Some of these will be short term pay offs. Some might be testing for wider improvements. The same will also be the case in the supply chain.
 
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moo
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Major Boeing Cost Cutting Programme - Part 1

Fri Feb 12, 2016 4:49 pm

Quoting StTim (Reply 135):
There was a post in the neo thread I think about the large number of complex machine tools that were being delivered to suppliers to support ramp up rates without adding significant labour elements. I know there are many frames to cover the cost but these will not be cheap.

Additional capacity is again a different story tho - if there isn't existing capacity then there must be investment to increase capacity.

It all boils down to the fact that there are *always* new costs to be amortized in a long standing production line, so adding in new techniques isn't as huge a cost as people think as you can introduce it naturally as you replace worn out toolings etc.
 
StTim
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Major Boeing Cost Cutting Programme - Part 1

Fri Feb 12, 2016 5:02 pm

Quoting Jetport (Reply 132):
Maybe the rules are different in Iceland, but in the USA you can certainly pay dividends while still showing a loss, check out some oil companies if you don’t believe me. Over the long term you certainly need profits to pay dividends, but not over the short and even medium term. A company can report large losses for years and still be cash flow positive. A company can report large profits for years and still be cash flow negative. Look at cash flow, not profit and loss which have become very misleading numbers with modern accounting practices. From my brief look at Boeing’s financials it appears they can easily service their debt, pay their dividends and fund their buybacks out of cash flow now and for the foreseeable future.

The rules here in the UK are that you must have earned profits at some point in order to be able to pay dividends. These do not have to be in the same year. But one (profit) must preceed and outweigh the other (losses).
 
mjoelnir
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Major Boeing Cost Cutting Programme - Part 1

Fri Feb 12, 2016 5:03 pm

Quoting Jetport (Reply 132):
Maybe the rules are different in Iceland, but in the USA you can certainly pay dividends while still showing a loss, check out some oil companies if you don’t believe me. Over the long term you certainly need profits to pay dividends, but not over the short and even medium term. A company can report large losses for years and still be cash flow positive. A company can report large profits for years and still be cash flow negative. Look at cash flow, not profit and loss which have become very misleading numbers with modern accounting practices. From my brief look at Boeing’s financials it appears they can easily service their debt, pay their dividends and fund their buybacks out of cash flow now and for the foreseeable future.

Cash flow and dividends have nothing to do with each other. If you have a positive cash flow while making losses, you are eating up your company. Profit is when you earn more money than you spend, loss is when you spend more money than you earn. Cash flow is an important consideration when you run a company, but only in so far as you always have to have enough cash or liquidity to pay your bills. The mark of success of a company is profits.
You can pay out a dividend in a year you make a loss out of retained earnings, but that means you must have had profits in the years before and not paid out all the profit but retained some of it.

If a company has no profit it will not be able to serve their depts, pay dividends and fund paybacks and not eat up the company.
You seem to have no understanding where an increase in cash is coming from. There are following possibilities to get cash:
You are taking loans and increase your depts or liabilities.
You sell property or inventories.
You sell new shares.
You retain part of your profits and increase your retained earnings.
 
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PW100
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Major Boeing Cost Cutting Programme - Part 1

Fri Feb 12, 2016 5:09 pm

Quoting mham001 (Reply 96):
This would be deliveries for the 2020-2024 period. They sell X number of planes each year, would it be reasonable to believe they will sell another 350 over the next 4-6 years?

I have little doubt that they will be able to to sell another couple of hundreds in next 4-6 years. I have little more doubt they'll be able to achieve the required 20-30M in production cost reduction over the next 800 frames or so. I do recognize that cost savings of 30M per frame will not be required, as later frames were probably sold with higher margins. Although some are claiming that 330ce/neo are now undermining just that.

Quoting Hamlet69 (Reply 101):
The truth just demonstrates how un-"expert" people who concoct such a narrative are. Boeing has been using Program Accounting since the early 1990's, if not before. The 737 has been on it since at least then. The 777 has always been on it

I guess most of us do not have too much problems with the program accounting per se. But the level of which is being applied to the 787 program might be the reason for the raising eyebrows. If I'm correct, I believe that the 777 program never went deeper than 4B 9after correction for inflation since mid nineties)

Quoting sxf24 (Reply 107):
Delta and other airlines are getting sub $85m A333s, with a few sub $80m deliveries
Quoting sxf24 (Reply 128):
Yes. Delta, and others, pay net prices in the low $80m.

I wonder if that includes engines? Some of them may be under a Power By The Hour program, where engine ownership is not transferred to the end customer?

PW100
Immigration officer: "What's the purpose of your visit to the USA?" Spotter: "Shooting airliners with my Canon!"
 
racercoup
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Major Boeing Cost Cutting Programme - Part 1

Fri Feb 12, 2016 6:00 pm

Quoting scbriml (Reply 120):
And yet BCA seems to employ significantly more people than Airbus Commercial does. Odd.

I don't have division beak downs, but... Airbus total revenues = $54 billion 139,000 employees. Boeing total Revenues $91 Billion 165,000 employees - seems like Boeing is a great deal more efficient.
This is reflected by operating profit margins where Being leads 7.4% to Airbus 4.4%.

Airbus employs 2,574 people for every billion dollars in revenue versus 1,813 at Boeing
 
Jetport
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Major Boeing Cost Cutting Programme - Part 1

Fri Feb 12, 2016 6:04 pm

Quoting mjoelnir (Reply 138):
Cash flow and dividends have nothing to do with each other. If you have a positive cash flow while making losses, you are eating up your company. Profit is when you earn more money than you spend, loss is when you spend more money than you earn. Cash flow is an important consideration when you run a company, but only in so far as you always have to have enough cash or liquidity to pay your bills. The mark of success of a company is profits.
You can pay out a dividend in a year you make a loss out of retained earnings, but that means you must have had profits in the years before and not paid out all the profit but retained some of it.

If a company has no profit it will not be able to serve their depts, pay dividends and fund paybacks and not eat up the company.
You seem to have no understanding where an increase in cash is coming from. There are following possibilities to get cash:
You are taking loans and increase your depts or liabilities.
You sell property or inventories.
You sell new shares.
You retain part of your profits and increase your retained earnings.
Quoting mjoelnir (Reply 138):
Cash flow and dividends have nothing to do with each other. If you have a positive cash flow while making losses, you are eating up your company. Profit is when you earn more money than you spend, loss is when you spend more money than you earn. Cash flow is an important consideration when you run a company, but only in so far as you always have to have enough cash or liquidity to pay your bills. The mark of success of a company is profits.
You can pay out a dividend in a year you make a loss out of retained earnings, but that means you must have had profits in the years before and not paid out all the profit but retained some of it.

If a company has no profit it will not be able to serve their depts, pay dividends and fund paybacks and not eat up the company.
You seem to have no understanding where an increase in cash is coming from. There are following possibilities to get cash:
You are taking loans and increase your depts or liabilities.
You sell property or inventories.
You sell new shares.
You retain part of your profits and increase your retained earnings.

I know exactly where Boeing’s cash is coming from, selling aircraft and other aerospace products and services. Boing has plenty of cash coming in from ongoing sales to easily cover all of their promised outlays (dividends, buybacks, capital expenditure, debt payments, etc.) for many years to come. Even if they have to re-jigger the cost accounting or take a write down on the 787, it is just a change on paper; most of the costs associated with the 787 were spent years ago. I’m thinking about buying Boeing stock at its current price. Maybe this link will explain it better than I can.
http://www.fool.com/investing/genera...m_medium=feed&utm_campaign=article
 
StTim
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Major Boeing Cost Cutting Programme - Part 1

Fri Feb 12, 2016 6:05 pm

Quoting racercoup (Reply 140):
This is reflected by operating profit margins where Being leads 7.4% to Airbus 4.4%.

Is that operating profit on a project accounting or a unit cost perspective? You cannot compare the headline profitability of the two companies as the way they calculate this figure is so radically different. To just blandly quote it is misleading.
 
StTim
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Major Boeing Cost Cutting Programme - Part 1

Fri Feb 12, 2016 6:11 pm

Quoting Jetport (Reply 143):

Good thing Airbus exists, since Europe can sure use all the Jobs and Pride it can possibly get right now.

Good grief!
 
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cougar15
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Major Boeing Cost Cutting Programme - Part 1

Fri Feb 12, 2016 6:25 pm

Quoting Jetport (Reply 143):
Good thing Airbus exists, since Europe can sure use all the Jobs and Pride it can possibly get right now.

yeah & looking over the brim of a teacup represents a challenge to many souls on this earth.........
some you lose, others you can´t win!
 
mjoelnir
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Major Boeing Cost Cutting Programme - Part 1

Fri Feb 12, 2016 6:41 pm

Quoting Jetport (Reply 141):
I know exactly where Boeing’s cash is coming from, selling aircraft and other aerospace products and services. Boing has plenty of cash coming in from ongoing sales to easily cover all of their promised outlays (dividends, buybacks, capital expenditure, debt payments, etc.) for many years to come. Even if they have to re-jigger the cost accounting or take a write down on the 787, it is just a change on paper; most of the costs associated with the 787 were spent years ago. I’m thinking about buying Boeing stock at its current price. Maybe this link will explain it better than I can.
http://www.fool.com/investing/genera...m_medium=feed&utm_campaign=article

But you do not seem to understand it. If Boeing is getting cash from selling airplanes that they do not have on stock but are manufacturing, than Boeing is making a profit on that.

You do seem to be able to read that article without understanding a word of it.

quote: "By contrast, if Boeing can't recover its nearly $29 billion in 787 deferred production costs, it would have a much bigger impact on Boeing stock. Based on the current 1,300-unit 787 accounting block, Boeing needs to produce an average cash profit of about $40 million for its 787 deliveries between 2017 and early 2022 (when it is likely to deliver the 1,300th Dreamliner)."

I would translate cash profit as real profit, not making profit by deferring cost. And this profit can not even be shown as profit, because Boeing has already drawn this profit forward.

As everybody agrees that Boeing will not go bust over the 787, it is a good time to buy Boeing stocks as they are low, just do not expect to make your money on coming dividends, but rather on rising stock prices.
 
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enzo011
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Major Boeing Cost Cutting Programme - Part 1

Fri Feb 12, 2016 7:08 pm

Quoting Hamlet69 (Reply 101):
Of course they are going to make things sound as dire as possible. Just as their marketing material to airlines is going to make it sound as rosy as possible. Neither one is necessarily true. . .

Are you saying the management is lying to the workforce? What would this do for morale when a new contract is up for negotiation and it is shown that management intentionally lied to make savings when they kept on paying bonuses and buying back shares on the backs of the jobs of the employees when things weren't as bad as they said it was?
 
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par13del
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Major Boeing Cost Cutting Programme - Part 1

Fri Feb 12, 2016 7:10 pm

Quoting Thomaas (Reply 64):
Boeing would actually be in a worse situation than they are today had they done this. The much cheaper purchase cost of the A320NEO would have killed any MoM aircraft
Quoting Thomaas (Reply 64):
Boeing's problem is that they milked the 737 for too long, a new aircraft should have been in the cards in the early 2000s.

Not sure how to reconcile the two, if the A320 would kill any MOM a/c how could they avoid milking the 737?

Quoting StTim (Reply 116):
A business that has never made a profit cannot declare a dividend.
Quoting mjoelnir (Reply 124):
very simple, no profits no dividends. You have to show a profit to be aloud to pay a dividend

Boeing is a business, it is showing a profit, it has a number of profitable programs and the shareholders and investors are paid dividends based on the performance of the company not one single program.
So the 737 is a cash cow, as if the 777 (winding down), their defence portfolio is smaller than Lockheed but I have not seen where it is loosing money, the P8 was delivered on budget ( maybe a bit under have to confirm ) but on time, the MAX and 777X are new and not yet expected to contribute to the bottom line until they go into full production.
So unless Boeing says it wants to defer dividends for some specific purpose, why would investors and shareholders not expect a payment when profits are declared?
 
mjoelnir
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Major Boeing Cost Cutting Programme - Part 1

Fri Feb 12, 2016 7:22 pm

Quoting par13del (Reply 148):
So unless Boeing says it wants to defer dividends for some specific purpose, why would investors and shareholders not expect a payment when profits are declared?

The discussion was if you need cash flow or profits to be able to pay dividends. I said that Boeing has to declare profits to pay dividends.
I am a bit baffled by your comment.
 
StTim
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Major Boeing Cost Cutting Programme - Part 1

Fri Feb 12, 2016 7:25 pm

Quoting par13del (Reply 148):
Boeing is a business, it is showing a profit, it has a number of profitable programs and the shareholders and investors are paid dividends based on the performance of the company not one single program.

If they didn't have programme accounting they would have made very large losses - not very large profits - over several of the last years - to the tune of the deferred costs.

They probably could still declare a dividend based on past profits but it would Wall Street have been so accepting?
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