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vin2basketball
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Analyst: 787 Profit Goal Is "unachievable" Part 1

Fri Apr 22, 2016 2:51 am

Quoting DocLightning (Reply 9):
We have seen U.S. manufacturing moved offshore. We have seen Boeing lay off 4,000 people because they can't balance their books and think that employees are a cost, rather than an investment. We have seen a decimation of the U.S. manufacturing sector.

So forgive me if I can't take you seriously.
Quoting DocLightning (Thread starter):
For me, this is just another example of the way that the American executive class is destroying American manufacturing.

The US manufacturing sector is not decimated, in fact it's stronger than ever:



The character of that manufacturing has changed (it includes more high value and less basic manufacturing, more oil and less coal, etc.) but US manufacturing production is at an all time peak on a real (inflation - adjusted basis).

What is true is that manufacturing jobs are down about 7 million off their peak. There's a variety of reasons for that, starting with increases in productivity of 3x (i.e. the average worker is three times as productive as they were in 2016):

http://mercatus.org/sites/default/fi...s/manufacturing-for-web-image3.pdf

On top of that, you have the impact of regulations - broadly throughout the economy making smaller mom and pop startup manufacturing much harder - http://www.brookings.edu/~/media/res...siness_dynamism_hathaway_litan.pdf

as well as on specific industries like coal, whose jobs were killed by environmental regulations amongst others (note not saying this was a bad thing, just saying that it did kill jobs) https://research.stlouisfed.org/fred2/series/CES1021210001

A piece of this also is that many of the children of manufacturing workers went on to become knowledge workers and move into the upper income territory.

http://www.aei.org/publication/chart...ing-into-higher-income-households/

Finally, competition from foreign businesses (not just outsourcing but companies like Sony coming in and stealing market share) - this would be the fault of policy maker

Once you add all of those effects up, American executives proper maybe (maybe) drove 500k of the 7m decline in jobs, so even if you want to rail at them for that, they'd be far down the list.
 
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CALTECH
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Analyst: 787 Profit Goal Is "unachievable" Part 1

Fri Apr 22, 2016 2:52 am

Quoting DocLightning (Thread starter):
I also predicted the year and quarter that first flight would occur, which was almost a year beyond anyone else's prediction. I was pooh-poohed and then when I was right, I was told it was dumb luck.

You missed the year and the quarter

http://boeing.mediaroom.com/2009-12-...-Dreamliner-Completes-First-Flight
Boeing 787 Dreamliner Completes First Flight.....December 15, 2009....

http://www1.airliners.net/aviation-f...ms/aviation_polls/read.main/165618
March 3, 2009: Bbinn333
March 20 2009: 787seattle
March 29 2009: Allpress
April 9, 2009:MEA-707
April 11, 2009: Pilotboi
April 14,2009:Isitsafenow
April 20, 2009: sebjacques92
May 15, 2009: ZBBYLW
June 1, 2009: B747forever
June 12, 2009: ACDC8
June 13, 2009: 767nutter
June 29, 2009: Kappel
July 4, 2009: Part147
July 8, 2009: TGIF
July 16, 2009: CairnterriAIR
July 21, 2009: Af773atmsp
August 4, 2009: PGNCS
August 7, 2009: ERJ135
August 18, 2009 N776AU
August 30, 2009: Virgin747lgw
September 10, 2009: Super80DFW
September 17, 2009: OHLHD
September 27, 2009: RussianJet
October 11, 2009: SAS A340
October 20, 2009: BlueShamu330s
January 15, 2010: DocLightning
You are here.
 
alyusuph
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Analyst: 787 Profit Goal Is "unachievable" Part 1

Fri Apr 22, 2016 3:04 am

This article focuses very much at short term benefits. Looking at the bigger picture accountants seem to overlook the money that Boeing will make from the technologies innovated and applied to the Dreamliner. Most of these technologies will make money for Boeing through other aircraft which will be produced by Boeing in the future.
I am not an Airbus or Boeing fan, just an aircraft fan
 
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Stitch
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Analyst: 787 Profit Goal Is "unachievable" Part 1

Fri Apr 22, 2016 3:04 am

Quoting solarflyer22 (Reply 49):
I(The outsourcing) has to go down as one of the biggest mistakes Boeing has ever made.

Boeing outsources plenty of the 737, 747, 767 and 777 and none of those programs were "unmitigated disasters".

The outsourcing on the 787 was not the problem. It was the lack of oversight and responsiveness by Boeing to issues raised that was the problem.
 
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seabosdca
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Analyst: 787 Profit Goal Is "unachievable" Part 1

Fri Apr 22, 2016 3:12 am

Quoting BlatantEcho (Reply 42):
It's just funny to hear people say 'the managers are exporting jobs and expertise'. Sure they are, why wouldn't they?
They made a decision to build the 787 differently.
It didn't work out, but that ship sailed.
So they adjust and move on.
You can call it incompetence, but it just makes you look silly.
Using the 787 as a platform to rant against globalization and offshoring just shows ignorance, not experience.

Sorry, but management doesn't get off that easily.

It's one thing to try to invent a new manufacturing model and fail. That's perfectly laudable.

But you have to get all the information you can and make an honest effort to anticipate problems. Boeing management didn't do that. They ignored input both from their own managers and line employees and from the analyst community (for what that's worth). There were plenty of people who anticipated the particular problems they ran into, and those people were ignored just like the people who tried to tell Paul Wolfowitz why our troops wouldn't be greeted as liberators in Baghdad.

I think there are only two reasons management could have stuck their head in the sand that willfully on a matter of bet-the company importance.

One is that they got blinded by dollar signs and the pristine beauty of their own genius vision and just refused to hear information that was being presented to them, an elementary management mistake that anyone who is paying attention to their coursework in business school would avoid.

The other is that they saw the new process as an opportunity to break the unions once and for all, and concentrated more on its perceived union-busting efficacy than on its actual business efficacy.

Based on the way McNerney talked about labor, I'm inclined to think it was a bit of both, but more about union-busting.

Of course, the irony for him is that the failure of the new process gave the unions a lot of ammo in subsequent negotiations.
 
IndianicWorld
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Analyst: 787 Profit Goal Is "unachievable" Part 1

Fri Apr 22, 2016 3:15 am

Quoting Flighty (Reply 5):
More or less, the contradictions published in Airbus and Boeing press releases over time confirm that leaders were learning how to complete a large program. They were incurring billions in tuition fees to build the skillsets they originally claimed they had.

I tend to agree.

Many of the A380 key learnings went into A350 development, production and testing, which were valuable in enabling a more effective outcome on that project. Doesn't help the numbers of the A380 program specifically, but as a group it can at least be a more palatable outcome.
 
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777Jet
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Analyst: 787 Profit Goal Is "unachievable" Part 1

Fri Apr 22, 2016 3:21 am

Quoting DocLightning (Thread starter):
A few years back, I posted that with the 787 development overruns and delays that there was NO WAY that the program would turn a net profit within a reasonable timescale. I was told I was ridiculous and over-dramatic.

I also predicted the year and quarter that first flight would occur, which was almost a year beyond anyone else's prediction. I was pooh-poohed and then when I was right, I was told it was dumb luck.

My general view of the 787 program is vindicated.

Congrats for being correct and starting a thread to let us all know   

Where is that image of the empty cargo area you always post??? 

To quote a.net user casinterest from another thread; "May all the empty cargo bays of the world rejoice"

BTW that was a very interesting article, thank you for sharing  
DC10-10/30,MD82/88/90, 717,727,732/3/4/5/7/8/9ER,742/4,752/3,763/ER,772/E/L/3/W,788/9, 306,320,321,332/3,346,359,388
 
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BoeingVista
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Analyst: 787 Profit Goal Is "unachievable" Part 1

Fri Apr 22, 2016 3:35 am

Quoting RayChuang (Reply 44):
I believe the 787-9 is different than the 787-8 because I think the 787-9 structural design became the basis for the 787-10, the first components are already under construction for the first prototype, MSN 528, which will fly in 2017.

Well, no and yes. The -9 fixed the issues of the -8 and then became the basis for the -10 later on.

Quoting DocLightning (Reply 48):

I'm not aware of major structural problems. There were some minor structural problems, yes. The big delays stemmed from the systems, not from the structure. That said, the first few frames were rushed and so because of improper manufacturing, they WERE structurally unsound.

Come on Doc, the SoB issue kept it out of the air for a 6 months, if a problem hanging the wings on the thing is not a structutal problem what is?

Quoting DocLightning (Reply 48):
Is that actually true? I can't find any such information.

It is according to Leeham

Quote:
According to our Market Intelligence, there are enough differences between the production of the -8 and that of the -9/10 that Boeing essentially is building two different airplanes. The -9/10 are about 90% common, but—depending on who’s doing the talking—the -8 may only be about 40% common to the -9.

https://leehamnews.com/2016/03/21/pontifications-787-8-no-longer-favored-boeing/#more-19063
BV
 
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ssteve
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Analyst: 787 Profit Goal Is "unachievable" Part 1

Fri Apr 22, 2016 3:50 am

Quoting seabosdca (Reply 54):
I think there are only two reasons management could have stuck their head in the sand that willfully on a matter of bet-the company importance.

To some extent there's confirmation bias among a bunch of MBAs who all really thought they could turn the battleship just because their powerpoint decks and spreadsheets said so. But yeah, the big motivation is to somehow provide the answer to "how do we dramatically reduce costs?" They don't want to hear there aren't necessarily any means to that end. They all want to think they're the disruptors, there to break the old business models. And it really is almost entirely a management failing, because in the end, the engineers delivered and the plane performed, with the side of body join being a big asterisk. What utterly failed though was supply chain management and with the reality slowly percolating up that every outsourced failure needed to be solved by Boeing, not the supplier. Defeat is an orphan, they say...
 
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DocLightning
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Analyst: 787 Profit Goal Is "unachievable" Part 1

Fri Apr 22, 2016 4:01 am

Quoting vin2basketball (Reply 50):

The US manufacturing sector is not decimated, in fact it's stronger than ever:

um...did you look at your own graph? It's stronger than it was in 2008. Barely.

Quoting CALTECH (Reply 51):

You missed the year and the quarter

Wrong thread. I revised that estimate later, as did others.

Quoting BoeingVista (Reply 57):

Come on Doc, the SoB issue kept it out of the air for a 6 months, if a problem hanging the wings on the thing is not a structutal problem what is?

There were issues with the structure, and I don't deny that. But if that had been the only delay, it would have been a success. The A350 is widely considered a success and it was six months late.
-Doc Lightning-

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Analyst: 787 Profit Goal Is "unachievable" Part 1

Fri Apr 22, 2016 4:54 am

Quoting DocLightning (Thread starter):
My general view of the 787 program is vindicated. The 787 program can be most characterized by the spectacular and almost unprecedented incompetence of the BCA management team.

The two companies HQ'ed in Chicago seem to have a lot in common. Ivory tower, outsource everything, play labor off each other, blame everyone but yourself, bring in consultants to do your job, Ivy League MBAs running around chasing dumb metrics for Wall Street while the operation falls apart... At least the other company has loads of competition. What is Boeing's excuse? They're a duopoly with quasi guaranteed government spending pipeline.
I don't take responsibility at all
 
abba
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Analyst: 787 Profit Goal Is "unachievable" Part 1

Fri Apr 22, 2016 5:43 am

Quoting MrHMSH (Reply 3):
That sounds more accurate to me. I think if it is the case that ~2000 sales would see an overall profit on the program, then it's not a hugely unrealistic one, another 900 or so sales from now on, I think the 78X has much more to giv

Well we are NOT seeing an overall profit of the program as such after 2.000 frames. Only an overall profit of manufacturing the frame. Only now Boeing is able to reach break even on production and, therefore, begin to repay the loss made on each and every frame produced so far. Only when Boeing has managed to repay the accumulated deficit in production can they - and that is only after 2.000 frames if the analyst is to be believed - begin the re-payment of the R&D costs (and the cost of capital included here)....
 
WIederling
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Analyst: 787 Profit Goal Is "unachievable" Part 1

Fri Apr 22, 2016 6:43 am

Quoting BlatantEcho (Reply 2):
Personally, I can't imagine it matters anymore. Costs are sunk, they are building planes and will gain efficiency.

With all that strong language around pointing to Boeing's existential objective "to earn money" and
deriding Airbus for being "a socialist jobs programme" with no interest in ever making a profit
Boeing sinking vast amounts of cash obscured by program accounting and
without much chance to ever recoup the outlay ...
... IMHO matters quite a bit.

Turns the "profit acolytes" stance ad absurdum and elevates the "money is spent, whatever" argument into sky high laughing stock.
Murphy is an optimist
 
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enzo011
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Analyst: 787 Profit Goal Is "unachievable" Part 1

Fri Apr 22, 2016 7:30 am

Quoting abba (Reply 61):
Only when Boeing has managed to repay the accumulated deficit in production can they - and that is only after 2.000 frames if the analyst is to be believed - begin the re-payment of the R&D costs (and the cost of capital included here)....

To be fair the R&D cost has already been written off. The same way with the A380, they massively blew the budget but their costs are sunk, so any profit is a profit. It is the deferred cost that is hurting the 787 now, not the R&D.
 
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enzo011
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Analyst: 787 Profit Goal Is "unachievable" Part 1

Fri Apr 22, 2016 7:36 am

Quoting solarflyer22 (Reply 49):
(granted Elon Musk is South African)

He is Canadian-South African-American, high school in South Africa and University in Canada. I am sure all South Africans would like to claim him as one of our own, he has though spent more than half of his life out of the country.
 
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seahawk
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Analyst: 787 Profit Goal Is "unachievable" Part 1

Fri Apr 22, 2016 7:52 am

It is mostly a matter of accounting. The deferred costs are as much spent as the development costs spent on the A380, they just have not been booked yet. It is just a noncurrent asset in the books.
 
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hilram
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Analyst: 787 Profit Goal Is "unachievable" Part 1

Fri Apr 22, 2016 8:34 am

Quoting ssteve (Reply 15):
The outsourcing was such an unmitigated cluster.

Time to bury the idea that you can best manage costs down in a complex program by negotiating more supplier contracts of increasing complexity. Which was plainly such a terrible idea that you have to wonder if management's own loathing of its workforce meant drove them to cut off their nose to spite their face. We'd rather bleed money than share gains with those unions.

  

I think you are spot on on this one. I think management wanted to teach unions a lesson, and clearly signal to the workforce that "you need us more than we need you".

Now eat your hearts out!
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enzo011
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Analyst: 787 Profit Goal Is "unachievable" Part 1

Fri Apr 22, 2016 8:42 am

Quoting seahawk (Reply 65):
It is mostly a matter of accounting. The deferred costs are as much spent as the development costs spent on the A380, they just have not been booked yet. It is just a noncurrent asset in the books.

If it was just a matter of accounting, why would they worry about it at all? This is what I don't get, posters tell us the deferred cost is spent. It is nothing to be worried about. It is just an accounting tool. Why then is Boeing complaining about Airbus pricing against the 787 if they didn't need to maintain a high margin? So either you and others are correct and this is nothing more than moving numbers across the page, or it is a burden that needs to be paid back. Seeing as jobs are being cut it seems that it just isn't a accounting matter.
 
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scbriml
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Analyst: 787 Profit Goal Is "unachievable" Part 1

Fri Apr 22, 2016 8:56 am

Quoting seahawk (Reply 65):
It is mostly a matter of accounting. The deferred costs are as much spent as the development costs spent on the A380, they just have not been booked yet.

Yes, we all understand that. But the bottom line is, accounting for that spend is/will impact the bottom line for years to come.

It is, by all accounts, impacting thinking at the top level and influencing new project decisions. It cannot just be ignored with a shrug of the shoulders while saying "Well, it's already been spent."

Next week we'll see Boeing's 2016Q1 results. It will be very interesting to see if they have finally started to reduce the 787 deferred costs.
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.
 
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seahawk
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Analyst: 787 Profit Goal Is "unachievable" Part 1

Fri Apr 22, 2016 8:56 am

It is a burden to keep the profit margin in the balance sheet. It has no importance if you look at the cash flow, but a big influence when you look at the balance profit.

Deferred costs are not something mystic. If a company owns a building and pays an annual fee for the insurance and does a quarterly balance report, you can defer 3/4 of the insurance fee in your 1st quarter, 1/2 in the second and 1/4 in the 3rd quarter. The insurance company would book the same money as a deferred income.

They worry because reducing the deferred costs will hit their balance profits, which will hit their share buy back scheme, the bonuses of the management and the dividends of the share holders.

[Edited 2016-04-22 01:57:15]
 
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moo
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Analyst: 787 Profit Goal Is "unachievable" Part 1

Fri Apr 22, 2016 9:19 am

Quoting enzo011 (Reply 67):
If it was just a matter of accounting, why would they worry about it at all? This is what I don't get, posters tell us the deferred cost is spent. It is nothing to be worried about. It is just an accounting tool. Why then is Boeing complaining about Airbus pricing against the 787 if they didn't need to maintain a high margin? So either you and others are correct and this is nothing more than moving numbers across the page, or it is a burden that needs to be paid back. Seeing as jobs are being cut it seems that it just isn't a accounting matter.

Yes, its just an accounting matter.

The issue isn't that the money has been spent, its about how its been acknowledged as spent - Boeing has actually spent the money, but is saying that it hasn't spent the money today, but has spent the money next year (the tense is intended in that sentence)...

Boeing has a (legal) hole in its finances, the deferred cost.

At some point that (legal) hole needs to be filled. By deferring, Boeing is saying "this hole will be filled at a later date" and is intending to start shovelling money into the hole with each airframe delivery, slowly but surely. The other option is to fill the hole with overall company profits.

One approach lowers an companies overall annual profits in one hit, the other docks the companies annual profits gradually over a number of years.

Regardless of how they account for the money, Boeing still has to account for it now that they have spent it.

If they lower the margin on the 787 then they can shovel money into the hole at a slower rate, lowering the companies profits over a longer period of time - but at some point the people who scrutinise accounting practices start raising eyebrows at this, as your deferred cost repayment period needs to be realistic.

So yes, its just an accounting matter, but one that matters a heck of a lot. Its an accounting fiction which allows companies which have massive outlays to create a long tail of smaller value sales not look like a financial disaster each time they launch such a product...
 
WIederling
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Analyst: 787 Profit Goal Is "unachievable" Part 1

Fri Apr 22, 2016 9:25 am

Quoting seahawk (Reply 69):

What they worry about is having booked and spent profits up front ( sized on nefarious projections )
that will probably never happen in the projected amounts.

On first blush and untiringly explained program accounting is a profit evening tool.

If you introduce the process over time into the evaluation it turns into a loss hiding tool.
( high losses up front versus high tehoretical profits when the project has matured.)

Additionally it has extremely low early sensitivity to expose mismatch between projected and
actually happening loss hiding.

Better would be booking the losses and (better) educating the share holders and analysts.
Murphy is an optimist
 
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BoeingVista
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Analyst: 787 Profit Goal Is "unachievable" Part 1

Fri Apr 22, 2016 9:51 am

Quoting DocLightning (Reply 48):
I'm not aware of major structural problems. There were some minor structural problems, yes.

Sorry but in no way was the SoB join a minor structural issue.

Quoting enzo011 (Reply 64):

He is Canadian-South African-American

Hes an African American from Southern Canada? Who knew..
BV
 
abba
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Analyst: 787 Profit Goal Is "unachievable" Part 1

Fri Apr 22, 2016 10:03 am

Quoting enzo011 (Reply 63):
To be fair the R&D cost has already been written off. The same way with the A380, they massively blew the budget but their costs are sunk, so any profit is a profit. It is the deferred cost that is hurting the 787 now, not the R&D.

As far as Boeing's cash flow and annual reports are concerned, you are absolutely right. But when it comes to evaluateing the the programs as such (as did Mr HMSH) it is another matter. The program as such will not turn a profit just because the cost of production has reached a break even.

Quoting enzo011 (Reply 67):
If it was just a matter of accounting, why would they worry about it at all? This is what I don't get, posters tell us the deferred cost is spent. It is nothing to be worried about. It is just an accounting tool. Why then is Boeing complaining about Airbus pricing against the 787 if they didn't need to maintain a high margin? So either you and others are correct and this is nothing more than moving numbers across the page, or it is a burden that needs to be paid back. Seeing as jobs are being cut it seems that it just isn't a accounting matter.

I think that you can compare this to investing in say buildings or machinery. You are spending the money now - and that will impact your financial standing. But you will write the investment off over a set number of years and thereby spread the impact on your annual profit over a period.
 
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enzo011
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Analyst: 787 Profit Goal Is "unachievable" Part 1

Fri Apr 22, 2016 10:24 am

Quoting seahawk (Reply 69):
It is a burden to keep the profit margin in the balance sheet. It has no importance if you look at the cash flow, but a big influence when you look at the balance profit.

So the question is, when reporting their figures does the cash flow matter or reported profits? Will the share price go down when it is reported that the cash flow is going down but profits are up? Or will it actually go up?

Quoting moo (Reply 70):
Yes, its just an accounting matter.

The issue isn't that the money has been spent, its about how its been acknowledged as spent - Boeing has actually spent the money, but is saying that it hasn't spent the money today, but has spent the money next year (the tense is intended in that sentence)...

Boeing has a (legal) hole in its finances, the deferred cost.

At some point that (legal) hole needs to be filled. By deferring, Boeing is saying "this hole will be filled at a later date" and is intending to start shovelling money into the hole with each airframe delivery, slowly but surely. The other option is to fill the hole with overall company profits.

One approach lowers an companies overall annual profits in one hit, the other docks the companies annual profits gradually over a number of years.

Regardless of how they account for the money, Boeing still has to account for it now that they have spent it.

If they lower the margin on the 787 then they can shovel money into the hole at a slower rate, lowering the companies profits over a longer period of time - but at some point the people who scrutinise accounting practices start raising eyebrows at this, as your deferred cost repayment period needs to be realistic.

So yes, its just an accounting matter, but one that matters a heck of a lot. Its an accounting fiction which allows companies which have massive outlays to create a long tail of smaller value sales not look like a financial disaster each time they launch such a product...

I think I understand the way they are accounting for the 787. This has taken lots of posts and threads explaining the nuances, yet I am probably still not near understanding all of this. The question is, will their investors understand all of this or will they only worry about the bottom line, how much profit or margins are they making?

I also want to point out, same as you do, this cost that they have spent already have to be accounted. So its not as simple as just saying it is a accounting method. Seems the comparisons with a credit card, while not perfect is apt. They have used money already and will receive incoming money in the future to pay it off. The question is did they overestimate their future income and will not be short on monthly payments? I understand this comparisons has many flaws, yet it seems an easy way to understand.

Quoting BoeingVista (Reply 72):
Hes an African American from Southern Canada? Who knew..

Those that don't know how he looks, if they read your description and see his picture they will be a little confused. 
Quoting abba (Reply 73):
I think that you can compare this to investing in say buildings or machinery. You are spending the money now - and that will impact your financial standing. But you will write the investment off over a set number of years and thereby spread the impact on your annual profit over a period.

You can, but their aircraft aren't investments but products that are sold. If your sales price goes down or your sales dry up you cannot just sell the building or machinery, so like the credit card comparison it can be used but its not the same either.
 
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moo
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Analyst: 787 Profit Goal Is "unachievable" Part 1

Fri Apr 22, 2016 10:28 am

Quoting abba (Reply 73):
I think that you can compare this to investing in say buildings or machinery. You are spending the money now - and that will impact your financial standing. But you will write the investment off over a set number of years and thereby spread the impact on your annual profit over a period.

The difference there is between "business expenses" and "capital expenditure".

"Business expenses" must always be recorded immediately.

"Capital expenditure" is recorded immediately, capitalised (ie, the value of your business rises by the amount spent, as you now have a valued asset) and deprecated over a given time period (which allows you to show that what was once a top of the line computer is no longer worth anything). Buildings are a very special capex case where they are constantly maintained and thus the depreciation period changes.

"Program accounting" is a weird one in that it sits in neither camps, but is allowed by the SEC.
 
peterinlisbon
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Analyst: 787 Profit Goal Is "unachievable" Part 1

Fri Apr 22, 2016 10:31 am

The obvious solution would be to fire the management of Boeing's commercial aircraft division and put the person who created this topic on airliners.net in charge of the 787 program.
 
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TheRedBaron
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Analyst: 787 Profit Goal Is "unachievable" Part 1

Fri Apr 22, 2016 12:34 pm

Quoting peterinlisbon (Reply 76):
The obvious solution would be to fire the management of Boeing's commercial aircraft division and put the person who created this topic on airliners.net in charge of the 787 program.

Too late, the ship has sailed and apparently sank... (its deferred costs).

TRB
The best seat in a Plane is the Jumpseat.
 
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United787
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Analyst: 787 Profit Goal Is "unachievable" Part 1

Fri Apr 22, 2016 1:15 pm

I am sure this has been discussed before but I wonder what would have happened had the 787 not been such a disaster? Would the Yellowstone Project have been seen through? If Boeing wasn't so bogged down with the 787, might they have been able to:

1) Develop a real Y3 instead of the interim and questionable 748 program and then the 777X program...

2) Develop a clean sheet replacement of the 737 that covers the 737 and 757 market (a real Y1) now rather than the warmed over 737 MAX...

Is this the real long term damage of the 787 mistakes...the legacy?
 
Egerton
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Analyst: 787 Profit Goal Is "unachievable" Part 1

Fri Apr 22, 2016 3:33 pm

Boeing expects to stop having to investing in the -10 at some future date, and only then can we get a close look at the total 787 cash investment which has proved to be necessary to get by then a known quantity aeroplanes into customer hands.

By then we will also have a clear view of the sales price proposition as between the various 787 models and the Airbus A330 NEOs and A350s. This is a potentially difficult future income issue for Boeing.

Having the actual annual cash costs and income sorted out, we run a DCF to get the then present value of these items.

Meanwhile it is well established in A-net that as far as we can tell, the present value (PV) will look pretty likely a negative. The question is how big a negative.

The learning curve favours all these aeroplanes, assuming all will benefit equally from gradually rising production rates into the foreseeable future, as has happened with the respective narrow bodies.

I conclude there is little that can now be done to make 787 financials better. The die has been cast. How big a negative?

[Edited 2016-04-22 09:25:24]
 
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seabosdca
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Analyst: 787 Profit Goal Is "unachievable" Part 1

Fri Apr 22, 2016 3:46 pm

Quoting Egerton (Reply 79):
I conclude there is little that can now be done to make 757 financials better.

Since the line closed 12 years ago I would say you are probably right.  
Quoting United787 (Reply 78):
wonder what would have happened had the 787 not been such a disaster?

I don't think much would have changed with the 777 or 747 - the 777-300ER was just too profitable to disrupt for a long time.

I do think it's very likely we would have NSA launching within the next three or four years. Boeing would have been able to get the airframe engineering done a lot sooner. The narrowbody marketplace might look rather different, whether Airbus would have been able to respond with an A320neo+ or would have had to develop an all-new frame of its own.
 
Egerton
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Analyst: 787 Profit Goal Is "unachievable" Part 1

Fri Apr 22, 2016 4:29 pm

Quoting seabosdca (Reply 80):

Thanks, well corrected on my 757 typo, amusing too. As luck would have it, an hour is provided for me to fix it.
 
travelhound
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Analyst: 787 Profit Goal Is "unachievable" Part 1

Sat Apr 23, 2016 1:12 am

Quoting Egerton (Reply 81):
Thanks, well corrected on my 757 typo, amusing too. As luck would have it, an hour is provided for me to fix it.

Maybe that's the issue Boeing had with the 787. They only had a month or two to fix it!
 
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RayChuang
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Analyst: 787 Profit Goal Is "unachievable" Part 1

Sat Apr 23, 2016 4:16 am

I think the analyst is basing the view based in the majority of the production of the 787 to be -8 and -9 models.

I think Boeing is now aiming for producing mostly -9 and -10 models of the 787, and that means higher revenue per plane sold. And Boeing may be quietly looking at making improvements to the 787-10 design so the range--instead of the currently-stated 6.850 nautical miles--is in reality 7,100 nautical miles, which makes the 787-10 a viable replacement for the 777-200ER. Such a product mix means Boeing could start to make a profit on the 787 probably by 2020.

After all, when what became the 777-300ER was first proposed in the late 1990's, the stated range was only 7,100 nautical miles, about the same as the 747-400. But improvements in design made it possible to stretch the range to 7,800 nautical miles, and that made the 777-300ER a MUCH more viable plane, as noted by the very strong sales of the plane since 2003.
 
abba
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Analyst: 787 Profit Goal Is "unachievable" Part 1

Sat Apr 23, 2016 5:57 am

Quoting RayChuang (Reply 83):
Such a product mix means Boeing could start to make a profit on the 787 probably by 2020.

What do you mean by that? That they have reached a program break even? Or only a production run break even by 2020? Remember that is only now they have reached a frame break even - and they have still a huge amount of 788s to deliver at rather low margins compared to what might be expected from the bigger models. These 788s will fill up a lot of the capacity on the line for the next many years. The effect you are talking about will only, I believe, kick in in earnest after 2020. And don't forget that - if you are looking not only on production run break even but on the broader program break even - that the development of the bigger models (even if it makes very good sense) on an overall program perspective have increased the R & D yet to be paid back.
 
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enzo011
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Analyst: 787 Profit Goal Is "unachievable" Part 1

Sat Apr 23, 2016 6:34 am

Quoting RayChuang (Reply 83):
I think the analyst is basing the view based in the majority of the production of the 787 to be -8 and -9 models.

I think Boeing is now aiming for producing mostly -9 and -10 models of the 787, and that means higher revenue per plane sold. And Boeing may be quietly looking at making improvements to the 787-10 design so the range--instead of the currently-stated 6.850 nautical miles--is in reality 7,100 nautical miles, which makes the 787-10 a viable replacement for the 777-200ER. Such a product mix means Boeing could start to make a profit on the 787 probably by 2020.

After all, when what became the 777-300ER was first proposed in the late 1990's, the stated range was only 7,100 nautical miles, about the same as the 747-400. But improvements in design made it possible to stretch the range to 7,800 nautical miles, and that made the 777-300ER a MUCH more viable plane, as noted by the very strong sales of the plane since 2003.

Any improvements to the 787-10 will need more investment and that will increase the margin needed on sales. That would be fine if the models could sell without competition but it will have competition from the A359 and the A333.

Also, we have seen that to reach profit for the program they will need to make margins on each delivery that has not been seen before on mature programs. These are programs that have been paid off a long time ago, 737, or the 777 that had the whole market to itself only reached 20% margin. Yet Boeing expects to reach 30% on the 787 in a few years time? Are you sure you want to stay with your prediction? The only way to reach that is to either take a hit on the program, or to increase the block to more than the current number, which would send the timeline to break even a lot longer than 2020.
 
LJ
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Analyst: 787 Profit Goal Is "unachievable" Part 1

Sat Apr 23, 2016 6:40 am

Quoting enzo011 (Reply 74):
So the question is, when reporting their figures does the cash flow matter or reported profits?

This is a discussion in accounting which is similar to the usual Airbus vs Boeing discussions here on Anet.

Quoting enzo011 (Reply 74):
Will the share price go down when it is reported that the cash flow is going down but profits are up? Or will it actually go up?

The "market" tends to favour looking at profit rather than cash flow. However, if your cash flow is pretty bad, they'll notice. In the end this is strange as it's lack of liquidity which will run you into bankruptcy, not losses.

Quoting Egerton (Reply 79):
The learning curve favours all these aeroplanes, assuming all will benefit equally from gradually rising production rates into the foreseeable future, as has happened with the respective narrow bodies.

That's on the cost side. However, profit has always been revenue -/- cost. If we get another economic downturn, my guess is that prices of both aircraft will go down and thus they can't really profit from the lower costs due to teh learning curve. However, what will happen in future will be a big guess.

The only positve thing is that those 767-300ERs and old A330s must be replaced at one point of time. As such there is some potential to reach the 2,000 frames (unless something new come).
 
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jambrain
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Analyst: 787 Profit Goal Is "unachievable" Part 1

Sat Apr 23, 2016 9:29 am

Quoting Egerton (Reply 79):
The learning curve favours all these aeroplanes, assuming all will benefit equally from gradually rising production rates into the foreseeable future, as has happened with the respective narrow bodies.

Quite right I don't see 787 having a much better learning curve from now onward then the A330NEO. Surely after 400 have been produced they have exhausted the quick wins? I was always taught that 80% of cost is locked in at design time* and I don't see any major redesign on the horizon.

Advances in automated drilling & fastening apply to Al bodies as much as to C. I would like to know what % of the 787 costs are down to carbon-fibre parts vs assembly.

A 787 is something like 2 million parts most of which are are produced by the same or by the competitor supplier that produces the A330NEO parts. Increased economy of scale applies to both supply chains. I have seen the stream of high speed 5 axis mill & turn machines (and 3D printers) turning up at the common suppliers to both A & B.

*My professional experience is mainly in IT (and I don't mean Kingfisher) which may not be real engineering, but I think that's equally true for Airliners.
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NAV30
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Analyst: 787 Profit Goal Is "unachievable" Part 1

Sat Apr 23, 2016 2:01 pm

Quoting jambrain (Reply 87):
Surely after 400 have been produced they have exhausted the quick wins?

Total firm orders so far stand at 1,139, of which 394 have so far been delivered. It looks as if Boeing will be going flat out for the best part of a decade just filling the orders they have already received..

I find it impressive that such a wide range of airlines have already ordered the B787 in numbers. Pretty well all the big names are on the list. It's also impressive that orders for the next model, the B789, appear to be mounting at a very satisfactory rate.

https://en.wikipedia.org/wiki/List_of_Boeing_787_orders_and_deliveries



[Edited 2016-04-23 07:21:26]
 
WIederling
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Analyst: 787 Profit Goal Is "unachievable" Part 1

Sat Apr 23, 2016 4:58 pm

Quoting NAV30 (Reply 88):
It's also impressive that orders for the next model, the B789, appear to be mounting at a very satisfactory rate.

Customers are mostly swapping away from the 788 "never buy a Mk1" initial model.
Murphy is an optimist
 
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Stitch
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Analyst: 787 Profit Goal Is "unachievable" Part 1

Sat Apr 23, 2016 5:26 pm

Quoting WIederling (Reply 89):
Customers are mostly swapping away from the 788 "never buy a Mk1" initial model.

I'll remember that line vis-a-vis the A350-900 when the A350-1000 starts becoming the bulk of orders.  

Much more likely we're seeing the natural shift from the baseline model to the stretched model due to similar trip costs and superior trip revenue.
 
WIederling
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Analyst: 787 Profit Goal Is "unachievable" Part 1

Sat Apr 23, 2016 5:45 pm

Quoting Stitch (Reply 90):

swaps in conjunction with deferrals:
http://www.pdxlight.com/787.htm
Murphy is an optimist
 
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SEPilot
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Analyst: 787 Profit Goal Is "unachievable" Part 1

Sat Apr 23, 2016 6:49 pm

Quoting DocLightning (Reply 9):
So it's not as if the 787 was so revolutionary that there was no way to do it the old way.

I would disagree; the big change in the 787 was the CFRP primary structure, which changed completely the way the plane was assembled. This was huge, because it meant that there were NO experienced assembly people; everybody had to learn from scratch. So in hindsight it is not too surprising that they ran into unexpected problems. And while the numbers needed to reach profitability are unprecedented, I do not think they are unachievable. I can see ultimate demand for the 787 to be 3,000-4,000 units. It will not be soon obsoleted, unless some new material that is even lighter and stronger becomes practical. And I do not see that happening for several decades, which will give Boeing the time to sell that many.
The problem with making things foolproof is that fools are so doggone ingenious...Dan Keebler
 
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RayChuang
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Analyst: 787 Profit Goal Is "unachievable" Part 1

Sat Apr 23, 2016 7:35 pm

I think even Boeing itself is emphasizing less and less 787-8 sales in favor of more profitable 787-9 sales now--the airlines nowadays want the higher capacity of the 787-9, which also has more range than the 787-8. I believe the order book for the 787 is mostly 787-9 models currently.
 
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scbriml
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Analyst: 787 Profit Goal Is "unachievable" Part 1

Sat Apr 23, 2016 10:29 pm

Quoting RayChuang (Reply 93):
I believe the order book for the 787 is mostly 787-9 models currently.

It is, but Boeing still lists 140 -8s to be delivered.
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.
 
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DocLightning
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Analyst: 787 Profit Goal Is "unachievable" Part 1

Sat Apr 23, 2016 11:20 pm

Quoting SEPilot (Reply 92):

I would disagree; the big change in the 787 was the CFRP primary structure, which changed completely the way the plane was assembled. This was huge, because it meant that there were NO experienced assembly people; everybody had to learn from scratch. So in hindsight it is not too surprising that they ran into unexpected problems.

I agree with you there. But if they knew that this was likely to happen (and if they didn't, then that's inexcusable), then wouldn't it make sense to keep as much of the work in-house where it could be controlled as possible?

Quoting SEPilot (Reply 92):
I can see ultimate demand for the 787 to be 3,000-4,000 units.

No widebody in history has ever sold so many units. Not even close.

Quoting SEPilot (Reply 92):
It will not be soon obsoleted, unless some new material that is even lighter and stronger becomes practical.

NTRP. Cold-cured composites. Lord-knows-what.
-Doc Lightning-

"The sky calls to us. If we do not destroy ourselves, we will one day venture to the stars."
-Carl Sagan
 
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Erebus
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Analyst: 787 Profit Goal Is "unachievable" Part 1

Sun Apr 24, 2016 12:05 am

Quoting DocLightning (Reply 95):
No widebody in history has ever sold so many units. Not even close.

The global market forecast over the next 20 years or so is more important than what historic figures tell us, IMHO.

According to Boeing, the total widebody deliveries between 2015-2034 is predicted to be ~8,800. As to how much of that goes to the 787, it's anyone's guess.
 
nry
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Analyst: 787 Profit Goal Is "unachievable" Part 1

Sun Apr 24, 2016 12:12 am

For anyone who perceives "management" and "MBAs" making boneheaded decisions, I highly recommend looking at the back catalog of Stratechery (http://stratechery.com). Ben Thompson is a guy that focuses on tech, but his observations on organization, legacy companies and how they're set up apply to many if not most industries. The benefit of observing tech, especially in the last 30 years, is that the innovation cycles are so much more accelerated that it's the best petri dish to observe how companies grow, evolve and die -- and why that happens.

Actually what's interesting is that if the business case for the 787 did not include the "savings" from outsourcing, would it have even been approved by the board?

Something to think about.
B727, B737, B747, B757, B767, B777, B787, DC9/MD80, DC10, MD11
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SEPilot
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Analyst: 787 Profit Goal Is "unachievable" Part 1

Sun Apr 24, 2016 2:26 am

Quoting DocLightning (Reply 95):
Quoting SEPilot (Reply 92):
I can see ultimate demand for the 787 to be 3,000-4,000 units.

No widebody in history has ever sold so many units. Not even close.

True. But more people are flying than ever before, and more planes than ever are being sold, with the average size increasing. No other plane has ever had 900+ orders before entering service either. Just because no widebody has sold this many before is meaningless. Unless there is a worldwide financial collapse I see no reason why the 787 cannot achieve this mark if it stays current for the next 30-40 years. Of course it will need upgrades, particularly engines along the way.

Quoting DocLightning (Reply 95):

NTRP. Cold-cured composites. Lord-knows-what.

While the cold-cured composites may be cheaper, and may cut build time, I do not think they will be lighter. And it will undoubtedly be cheaper for Boeing to continue the "old" technology of the 787 rather than to redesign it, unless they can use the same design with the new material and just get the new build techniques certified without a whole new certification.
The problem with making things foolproof is that fools are so doggone ingenious...Dan Keebler
 
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seabosdca
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Analyst: 787 Profit Goal Is "unachievable" Part 1

Sun Apr 24, 2016 3:22 am

Quoting nry (Reply 97):
Actually what's interesting is that if the business case for the 787 did not include the "savings" from outsourcing, would it have even been approved by the board?

I think so, because there was no alternative. Without the 787 Boeing would have been stuck with no competitive entry below the 777-300ER, missing most of the widebody market. The 767 wasn't salvageable; the cross-section just wouldn't work in the modern marketplace. The 787 might have looked a little bit different, with a little less envelope-pushing... in other words, a little bit more like the A350, which would have been just fine.

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