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Analyst: 787 Profit Goal Is "unachievable" Part 2

Sat Apr 30, 2016 9:09 am

Please continue your discussion here.

Link to part 1:

Analyst: 787 Profit Goal Is "unachievable" Part 1 (by DocLightning Apr 21 2016 in Civil Aviation)
 
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enzo011
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RE: Analyst: 787 Profit Goal Is "unachievable" Part 2

Sat Apr 30, 2016 10:44 am

From previous thread:

Quoting art:
OK, but that's not fixed in stone, surely? If orders exceed 1300 in a couple of years' time, the prediction of total production of 1300 units becomes absurdly unrealistic. Not inevitably so. Earth could be hit by an asteroid etc

And they can only increase the block with the expectation of those extra sales. So if they can increase production to ensure extra slots they can possibly increase the unit block to make the needed profit margin per frame more manageable for the future. However increasing the production rate only works if you actually make a profit per delivery so they still have to work to ensure they receive their wanted margin per 787 delivered.

I agree that it is unlikely that the 787 will not reach at least 2000 sales and many more, but the accounting they are using for the program doesn't allow them to use figures we think they may sell, but realistic sales expectations. It will be interesting to see if they can sell 150 787s per year once they reach the production rate of 14 a month. If not they will need to reduce the production rate, if they can the money will roll in around 2025.
 
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RE: Analyst: 787 Profit Goal Is "unachievable" Part 2

Sat Apr 30, 2016 11:06 am

Quoting enzo011 (Reply 1):
If not they will need to reduce the production rate, if they can the money will roll in around 2025.

The money will start to roll in once they truely become cash positive BUT it will not flow to the bottom line (Profit) until that deffered cost mountain is gone. This is the effect of programme accounting - pulling an expectation of future profits forward to profits today.
 
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RE: Analyst: 787 Profit Goal Is "unachievable" Part 2

Sat Apr 30, 2016 11:34 am

I know the 787 rate has just increased to 12 units per month, but I don't know when they are planning to further increase production.

The reason why I ask is at an average of $20 million profit per plane fir the next 900 787's would result in revenues of $18 billion over the next six and a quarter years (mid 2022). A rate increase to 14 month in 2018 resulting in an average profit of $23 million per aircraft would result in revenues of $23 billion over the same period.

Either way my (conservative) numbers above suggest the 787 will be generating significant amounts of cash in the not too distant future.

The worry for Boeing will ultimately revolve around the A350 competition and not the 787's deferred costs.
 
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RE: Analyst: 787 Profit Goal Is "unachievable" Part 2

Sat Apr 30, 2016 11:44 am

Quoting travelhound (Reply 3):
The reason why I ask is at an average of $20 million profit per plane fir the next 900 787's

In the near future they are not going to acheive anything like that. To reduce the costs they currently have on producing each plane by an additional $20m isn't going to happen overnight. That is on the basis on how they have struggled recently to really get to cash positive per plane.


There is some academic analysis that says the learning curve they are/were anticipating on the 787 was way ahead of what they acheived on the 777. Progress so far tracks more to the 777 than what was planned. The easy big wins (the so called low hanging fruit) are long gone and now each additional saving becomes more and more difficult.


This is why I do not believe the projections. It is IMHO flim flam by Boeing.
 
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RE: Analyst: 787 Profit Goal Is "unachievable" Part 2

Sat Apr 30, 2016 12:49 pm

The person responsible for the numbers in a annual account is the CEO. The accountant is responsible for booking all things correctly. The auditor checks if all numbers are right and presented according to the rules, in Boeings case US GAAP.
It is not the place of the auditor to make "judgment" calls. If the CEO of Boeing makes the judgement call that the about $29 billions can be returned by the outstanding frames of the 1300 frames accounting block, that is his judgement call and his responsibility. The auditor confirms only that the 29 billion are really 29 billion and that the accounting block of 1300 is really 1300 and that their are 746 787 orders outstanding at years end.

It is there in the annual accounts, all the numbers we are talking about. It is our judgement call if we believe the CEO of Boeing, that Boeing will recoup the 29 billions in the next 746 787 frames delivered.
 
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RE: Analyst: 787 Profit Goal Is "unachievable" Part 2

Sat Apr 30, 2016 1:08 pm

Quoting mjoelnir (Reply 5):
It is not the place of the auditor to make "judgment" calls. If the CEO of Boeing makes the judgement call that the about $29 billions can be returned by the outstanding frames of the 1300 frames accounting block, that is his judgement call and his responsibility. The auditor confirms only that the 29 billion are really 29 billion and that the accounting block of 1300 is really 1300 and that their are 746 787 orders outstanding at years end.

We are talking about whether there is a "material misstatement" in the accounting estimate of recovering the deferred production cost within the current program account quantity. The auditor responsibility is quite a bit larger than just establishing the deferred production cost and frames remaining in the program accounting quantity, see for example http://pcaobus.org/Standards/Auditing/Pages/AS2501.aspx

Quote:
The auditor is responsible for evaluating the reasonableness of accounting estimates made by management in the context of the financial statements taken as a whole. As estimates are based on subjective as well as objective factors, it may be difficult for management to establish controls over them. Even when management's estimation process involves competent personnel using relevant and reliable data, there is potential for bias in the subjective factors. Accordingly, when planning and performing procedures to evaluate accounting estimates, the auditor should consider, with an attitude of professional skepticism, both the subjective and objective factors.
 
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RE: Analyst: 787 Profit Goal Is "unachievable" Part 2

Sat Apr 30, 2016 1:30 pm

Quoting Finn350 (Reply 6):
The auditor responsibility is quite a bit larger than just establishing the deferred production cost and frames remaining in the program accounting quantity, see for example http://pcaobus.org/Standards/Auditin....aspx

However, this is one of the areas in accounting as it's very subjective if an accountant has met its obligations in this area. Very difficult to proof.
 
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RE: Analyst: 787 Profit Goal Is "unachievable" Part 2

Sat Apr 30, 2016 1:37 pm

Quoting enzo011 (Reply 1):
It will be interesting to see if they can sell 150 787s per year once they reach the production rate of 14 a month. If not they will need to reduce the production rate,

....or just continue the production rate, kill the backlog then kill the program and move on. Maintaining a backlog on a program that still has deferred cost will only increase the deferred cost, especially if interest is included.
The a/c is not the problem, users appear to be fine with the a/c, so if they are willing to accept the a/c get them out, then one can make a decision on the way forward for the company.
 
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RE: Analyst: 787 Profit Goal Is "unachievable" Part 2

Sat Apr 30, 2016 4:52 pm

had that $29B not been spent on poorly done production Boeing would have more money in bank, likely would have not bargained so hard with state over taxes, nor with unions. it is a real loss to all concerned - except for executives.
Buffet: the airline business...has eaten up capital...like..no other (business)
 
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RE: Analyst: 787 Profit Goal Is "unachievable" Part 2

Sun May 01, 2016 11:56 am

Quoting travelhound (Reply 3):
The reason why I ask is at an average of $20 million profit per plane fir the next 900 787's would result in revenues of $18 billion over the next six and a quarter years (mid 2022).

Is why the analyst at Bank of America predicted only $16m profit per frame only generating $14Billion thru 2022. So Boeing will have choice.....either extend the 1300 block.........or take a hefty charge against earnings.
 
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RE: Analyst: 787 Profit Goal Is "unachievable" Part 2

Sun May 01, 2016 12:23 pm

Quoting scotron11 (Reply 10):

I hadn't read the Bank of America analysis. My numbers were simply a conservative guess (60% of Boeing's projections).

The Bank of America numbers do seem a little low. 50% of Boeing's numbers. Either way $14 billion over the next six years is not a disaster waiting to happen! Boeing will survive.

The problem with the deferred costs is that we don't know what is and isn't included. For instance tooling and IP held by the suppliers could be part of the cost. If this is the case and the costs are being front loaded we could actually be seeing deferred costs that are not representative of other programs.

From where I sit, with all the new technology and associated IP managing the contracts of suppliers would be a fairly complex affair.
 
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RE: Analyst: 787 Profit Goal Is "unachievable" Part 2

Sun May 01, 2016 12:55 pm

Quoting travelhound (Reply 11):
I hadn't read the Bank of America analysis. My numbers were simply a conservative guess (60% of Boeing's projections).

Is also maybe the reason SEC is investigating a somewhat "rosy" prediction on the 1300 block....and as you mention..there will be competition.The 350-1000 will start deliveries next year. Even the China Eastern order was 20x350s against15x787s

[Edited 2016-05-01 06:02:16]
 
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RE: Analyst: 787 Profit Goal Is "unachievable" Part 2

Sun May 01, 2016 1:06 pm

Quoting travelhound (Reply 11):
The problem with the deferred costs is that we don't know what is and isn't included. For instance tooling and IP held by the suppliers could be part of the cost. If this is the case and the costs are being front loaded we could actually be seeing deferred costs that are not representative of other programs.

We definitively know that tooling is not included. It is the plain production loss calculated as each frame is sold and added to the bill. The question mark could be, if the early frames should not be part of the development cost.
 
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RE: Analyst: 787 Profit Goal Is "unachievable" Part 2

Sun May 01, 2016 2:12 pm

Boeing Q1 2016 Accounts Deferred Cost Table
http://www.boeing.com/investors/accounting-considerations.page/

May I thank contributors for helping me see daylight on the short term maths.

As has been said eons ago, the short term maths are that every delivery which adds to Deferred Costs also decreases the number of frames in the accounting block against which Deferred Costs can be apportioned.

The achievement of unit cash positive deliveries at an early date is becoming ever more important, or else the maths will spiral to produce an even more commercially impossible charge of Deferred Costs against each future delivery.

Given that Deferred Costs are sunk cash, some or all of it may have already been lost forever. If in the unlikely event that unit cash positive deliveries cannot be achieved, it will be best to shut down the 787 program. This is the second reason why achieving unit cash positive deliveries is ever more important.

As to whether Boeing Commercial Airplanes is at risk, other programs need consideration.
737, 767-KC47 and 777 have to be taken into account.
 
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RE: Analyst: 787 Profit Goal Is "unachievable" Part 2

Sun May 01, 2016 2:25 pm

Quoting Egerton (Reply 14):
If in the unlikely event that unit cash positive deliveries cannot be achieved, it will be best to shut down the 787 program.

No, they'd be better off taking a one-time charge, then realising the full profit on each subsequent 787 delivered. Closing down 787 production would absolutely be the worst possible solution to what is, at the end of the day, an accounting issue.
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RE: Analyst: 787 Profit Goal Is "unachievable" Part 2

Sun May 01, 2016 2:28 pm

Quoting Egerton (Reply 14):
Given that Deferred Costs are sunk cash, some or all of it may have already been lost forever. If in the unlikely event that unit cash positive deliveries cannot be achieved, it will be best to shut down the 787 program.

Actually this is probably the worst proposal.

Shut down yes: Shut down dividends share buy backs and bonus payments for executives is probably more appropriate.
Better to do it in a few large steps then over another 10 years 'slowly'

Again I ask: would it be possible to e.g. single out the Terrible teens (all at least until 20) in a seperate accounting block and write of the losses there. This should lower the pain for the other 1280.
My impression also is that the rework cost caused by the terrible teens are a main contributor to the deferred cost.

Time to get those out of the door.

Flyglobal
 
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RE: Analyst: 787 Profit Goal Is "unachievable" Part 2

Sun May 01, 2016 3:32 pm

Quoting Flyglobal (Reply 16):
My impression also is that the rework cost caused by the terrible teens are a main contributor to the deferred cost.

It is pretty significant. Some of them are said to be pushing almost half a billion. On a Unit Cost Accounting basis, taking out those frames would have helped shed $5.4 billion in value between 2012-2014. Add in the $2.5 billion for ZA001-ZA003, that would be around $8 billion.

On the flip side, Boeing Commercial would have been $2.7 billion positive last year and is currently running $1billion positive in 2016 (Q1) so they would have "recovered" a third of it, already.
 
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RE: Analyst: 787 Profit Goal Is "unachievable" Part 2

Sun May 01, 2016 4:07 pm

Quoting Stitch (Reply 17):
It is pretty significant. Some of them are said to be pushing almost half a billion. On a Unit Cost Accounting basis, taking out those frames would have helped shed $5.4 billion in value between 2012-2014. Add in the $2.5 billion for ZA001-ZA003, that would be around $8 billion.
Quote:
At March 31, 2016 and December 31, 2015, commercial aircraft programs inventory included the following amounts related to the 787 program: $35,522 and $34,656 of work in process (including deferred production costs of $28,651 and $28,510), $2,500 and $2,551 of supplier advances, and $3,767 and $3,890 of unamortized tooling and other non-recurring costs. At March 31, 2016, $23,661 of 787 deferred production costs, unamortized tooling and other non-recurring costs are expected to be recovered from units included in the program accounting quantity that have firm orders and $8,757 is expected to be recovered from units included in the program accounting quantity that represent expected future orders.

Source: http://www.sec.gov/Archives/edgar/da...1292716000113/a201603mar3110-q.htm

It is a bit complicated, but the breakdown of the 787 program inventory is as follows as of March 31, 2016:
- deferred production cost (of already delivered frames) $28,651 million
- other work in process (of not yet delivered frames under production) $6,871 million
- work in process (total) $35,522 million
- supplier advances $2,500 million
- unamortized tooling and other non-recurring costs $3,767 million

To be recovered from the remaining program accounting quantity is the deferred production cost and unamortized tooling and other non-recurring costs totalling $32,418 million.

Other work in process (besides deferred production cost) includes production cost of "terrible teens" and all the other frames under production but not yet delivered. The production cost exceeding the average will be entered into deferred production cost once they are delivered.
 
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RE: Analyst: 787 Profit Goal Is "unachievable" Part 2

Sun May 01, 2016 4:23 pm

Quoting Finn350 (Reply 18):
includes production cost of "terrible teens"

How many terrible teens are there left to deliver? Do we know the average production cost of the teens? There is still a not insignificant sum to be added to the deferred production cost from the WIP cost, is there not?
 
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RE: Analyst: 787 Profit Goal Is "unachievable" Part 2

Sun May 01, 2016 4:41 pm

Quoting enzo011 (Reply 1):
agree that it is unlikely that the 787 will not reach at least 2000 sales and many more,

That would be a major world-record for a widebody type, given that the 787 now competes with the A350 and the A330NEO.
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RE: Analyst: 787 Profit Goal Is "unachievable" Part 2

Sun May 01, 2016 4:49 pm

Quoting Finn350 (Reply 18):
To be recovered from the remaining program accounting quantity is the deferred production cost and unamortized tooling and other non-recurring costs totalling $32,418 million.

Thanks Finn350, well done.

If the accounting block is 1,300 and there were 393 delivered up to the end of Q1, then there were 907 undelivered against which the $32.418 billion (not million?) Deferred and other similar costs have to be applied = $35.74 million for each of 907.
Have I got this correct? There are far more zeros in this than my brain (such as it is) can handle!
 
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DocLightning
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RE: Analyst: 787 Profit Goal Is "unachievable" Part 2

Sun May 01, 2016 4:52 pm

Quoting Egerton (Reply 21):

If the accounting block is 1,300 and there were 393 delivered up to the end of Q1, then there were 907 undelivered against which the $32.418 billion (not million?) Deferred and other similar costs have to be applied = $35.74 million for each of 907.
Have I got this correct? There are far more zeros in this than my brain (such as it is) can handle!

You are correct. Boeing must net that much from each airframe sold (on average).

Im making an educated guess that around $15M/frame would be a more appropriate net.
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RE: Analyst: 787 Profit Goal Is "unachievable" Part 2

Sun May 01, 2016 5:30 pm

Quoting Egerton (Reply 21):
Thanks Finn350, well done.

If the accounting block is 1,300 and there were 393 delivered up to the end of Q1, then there were 907 undelivered against which the $32.418 billion (not million?) Deferred and other similar costs have to be applied = $35.74 million for each of 907.
Have I got this correct? There are far more zeros in this than my brain (such as it is) can handle!

Yes, that is correct. And note that $32,418 million = $32.418 billion.
 
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RE: Analyst: 787 Profit Goal Is "unachievable" Part 2

Sun May 01, 2016 5:41 pm

Quoting Finn350 (Reply 23):
And note that $32,418 million = $32.418 billion.

Thanks. What a difference there is between and full stop and a comma!
 
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RE: Analyst: 787 Profit Goal Is "unachievable" Part 2

Sun May 01, 2016 5:44 pm

Quoting Ncfc99 (Reply 19):
How many terrible teens are there left to deliver? Do we know the average production cost of the teens? There is still a not insignificant sum to be added to the deferred production cost from the WIP cost, is there not?

You are correct about "terrible teens" production cost being high. Boeing leaves a backdoor open in case teens are not sellable. Reclassification of teens production costs would decrease WIP of the program:

Quote:
During 2009, we concluded that the first three flight-test 787 aircraft could not be sold as previously anticipated due to the inordinate amount of rework and unique and extensive modifications made to those aircraft. As a result, costs associated with these airplanes were included in research and development expense. Based on sales activity and market interest we continue to believe that the remaining 787 flight-test aircraft are commercially saleable and we continue to include costs related to these aircraft in program inventory. However, there is risk that we may be unable to sell these aircraft. If we determine that any of the remaining flight test aircraft cannot be sold, we would incur additional material charges related to the reclassification of costs associated with those aircraft to research and development expense.

Source: http://www.sec.gov/Archives/edgar/da...1292716000113/a201603mar3110-q.htm
 
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RE: Analyst: 787 Profit Goal Is "unachievable" Part 2

Sun May 01, 2016 10:07 pm

Quoting DocLightning (Reply 20):
That would be a major world-record for a widebody type, given that the 787 now competes with the A350 and the A330NEO.

It would be, but the 787 had 900 orders before first delivery, so we are looking at a program that has record orders. You can also look at how the OEMs are looking at putting new engines on frames instead of new designs, you can easily see the 787 being around for another 40 years and I am sure we will see it pass 2000 orders by then.

Quoting Finn350 (Reply 25):
You are correct about "terrible teens" production cost being high. Boeing leaves a backdoor open in case teens are not sellable. Reclassification of teens production costs would decrease WIP of the program:

Quote:
During 2009, we concluded that the first three flight-test 787 aircraft could not be sold as previously anticipated due to the inordinate amount of rework and unique and extensive modifications made to those aircraft. As a result, costs associated with these airplanes were included in research and development expense. Based on sales activity and market interest we continue to believe that the remaining 787 flight-test aircraft are commercially saleable and we continue to include costs related to these aircraft in program inventory. However, there is risk that we may be unable to sell these aircraft. If we determine that any of the remaining flight test aircraft cannot be sold, we would incur additional material charges related to the reclassification of costs associated with those aircraft to research and development expense.

I think you are discussing two separate batches here. Your post refers to the flight test aircraft whereas Ncfc99 refers to the aircraft that were built whilst the flight testing was going on and they had to do re-work on the frames before they could be delivered. Due to the additional work and the performance shortfalls the original owners of these aircraft decided not take up the frames.
 
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RE: Analyst: 787 Profit Goal Is "unachievable" Part 2

Mon May 02, 2016 8:12 am

http://www.boeing.com/investors/acco...onsiderations.page/#/cost-programs

A link from a Leeham article showing Boeing reporting in unit cost accounting.
I take it from some of the figures, being discussed upthread, that Boeing is leaving out some of the costs in this report.
 
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RE: Analyst: 787 Profit Goal Is "unachievable" Part 2

Mon May 02, 2016 9:50 am

Quoting enzo011 (Reply 26):
I think you are discussing two separate batches here. Your post refers to the flight test aircraft whereas Ncfc99 refers to the aircraft that were built whilst the flight testing was going on and they had to do re-work on the frames before they could be delivered. Due to the additional work and the performance shortfalls the original owners of these aircraft decided not take up the frames.

You are correct, Boeing filing refers only to the flight test frames, not terrible teens.

Quoting RandWkop (Reply 27):
A link from a Leeham article showing Boeing reporting in unit cost accounting.
I take it from some of the figures, being discussed upthread, that Boeing is leaving out some of the costs in this report.

Production cost deferrals prior to 2012 are not shown in the report. If prior years would be taken into account, the cumulative difference in unit accounting and program accounting earnings would be around $32 billion.
 
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RE: Analyst: 787 Profit Goal Is "unachievable" Part 2

Mon May 02, 2016 10:17 am

Quoting RandWkop (Reply 27):

If I am reading the chart properly Boeing currently have a deficit of $24 billion between deferred costs, tooling and inventories less forward progress payments.

That's $8 billion less money the program needs to break cash flow even!
 
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RE: Analyst: 787 Profit Goal Is "unachievable" Part 2

Mon May 02, 2016 10:33 am

Quoting enzo011 (Reply 26):
It would be, but the 787 had 900 orders before first delivery, so we are looking at a program that has record orders. You can also look at how the OEMs are looking at putting new engines on frames instead of new designs, you can easily see the 787 being around for another 40 years and I am sure we will see it pass 2000 orders by then.

It may be that Boeing will sell 10,000 787. That is completely irrelevant to this discussion here. The current accounting block is 1,300 frames, the current combined deferrals are about 29 billions USD, that two has to fit together.
 
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RE: Analyst: 787 Profit Goal Is "unachievable" Part 2

Mon May 02, 2016 11:02 am

Quoting mjoelnir (Reply 30):
It may be that Boeing will sell 10,000 787. That is completely irrelevant to this discussion here. The current accounting block is 1,300 frames, the current combined deferrals are about 29 billions USD, that two has to fit together.

But it doesn't fit. Something(s) I don't know: (a) why the accounting block set at 1300 in the first place (b) as a rider, was that number related to the number of 787's expected to be produced to recover program costs?

If 787 production becomes profitable at some point (each 787 produced is bought for more than components and labour to assemble it cost) what bearing does program profit/loss have on 787 production? If it has no bearing, who cares whether Boeing recovers 10% or 50% or whatever% of its investment in 787.
 
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RE: Analyst: 787 Profit Goal Is "unachievable" Part 2

Mon May 02, 2016 11:21 am

Quoting art (Reply 31):
But it doesn't fit. Something(s) I don't know: (a) why the accounting block set at 1300 in the first place (b) as a rider, was that number related to the number of 787's expected to be produced to recover program costs?

Boeing started out with a smaller accounting block than 1,300 frames, it has already been increased. The accounting block has to be in some relation to the frames already ordered and that number is at 1,139 frames.

The accounting block is the number of frames in that the deferred cost are expected to even out.

Quoting art (Reply 31):
If 787 production becomes profitable at some point (each 787 produced is bought for more than components and labour to assemble it cost) what bearing does program profit/loss have on 787 production? If it has no bearing, who cares whether Boeing recovers 10% or 50% or whatever% of its investment in 787.

Because Boeing has already counted and spend the profits. If Boeing does not recover the deferred cost they have to declare a loss.
 
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RE: Analyst: 787 Profit Goal Is "unachievable" Part 2

Mon May 02, 2016 11:45 am

Quoting mjoelnir (Reply 32):
Because Boeing has already counted and spend the profits. If Boeing does not recover the deferred cost they have to declare a loss.

I think you are jumping the gun here.

Where I agree it would/could be in Boeing's interest to write of some of the deferred c787 costs, the reality is Boeing doesn't have the authority to write of assets at will. We all know the 787 will sell more than the current accounting block of 1300 aircraft. We all know a large part of the deferred costs relates to the redesign if the 787 for the 9 series and we all know some of these deferred costs relate to the ten, which will not start being produced in any meaningful numbers until line number 700 and future available 10 slots wont be available in any meaningful number until well into line numbers above 1000.

As such the 1300 accounting block number is almost redundant for the simple fact it has no real relevance to what is actually being produced.

If we throw into the mix the recent competitive market threats from the A330NEO we have a landscape that is very different to the one when the 1300 accounting block was announced.
 
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speedbored
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RE: Analyst: 787 Profit Goal Is "unachievable" Part 2

Mon May 02, 2016 12:08 pm

Quoting travelhound (Reply 33):
We all know the 787 will sell more than the current accounting block of 1300 aircraft.

No-one can possibly know that. While it seems likely, it is impossible to know at this stage what is going to happen in even 5 years time, let alone 10.

Quoting travelhound (Reply 33):
We all know a large part of the deferred costs relates to the redesign if the 787 for the 9 series

Most of us don't, and anyone who "knows" that is wrong. The deferred costs only include production cost overruns - they do not include design or development costs.

Quoting travelhound (Reply 33):
we all know some of these deferred costs relate to the ten,

See above.

Quoting travelhound (Reply 33):
As such the 1300 accounting block number is almost redundant for the simple fact it has no real relevance to what is actually being produced.

At the time that the block size was last increased, 1300 was Boeings "best guess" as to likely sales. Unless you have a crystal ball, it is impossible to make the block size exactly match what will be produced. But block size is never redundant - it is a vital part of program accounting, which would be impossible without a block size.
 
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par13del
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RE: Analyst: 787 Profit Goal Is "unachievable" Part 2

Mon May 02, 2016 12:16 pm

Quoting travelhound (Reply 33):
If we throw into the mix the recent competitive market threats from the A330NEO we have a landscape that is very different to the one when the 1300 accounting block was announced.

...however, the primary consideration is whether the 1300 block is still relevant, can Boeing reasonably be expected to produce and deliver 1300 frames, if yes the number is on firm legal standing with the SEC.
When they approach the physical number a new review of the physical market will have to take place which will see a greater influence of the A350 / A330 and possibly the 777X, how many future sales they predict will then be the driving force for increasing the block and by how many, what we do know is that they cannot simply set the block to cover their deferred cost, it has to be based on projected sales, the deferred cost are then allocated among the sales numbers.
 
scotron11
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RE: Analyst: 787 Profit Goal Is "unachievable" Part 2

Mon May 02, 2016 3:50 pm

Quoting par13del (Reply 35):
however, the primary consideration is whether the 1300 block is still relevant, can Boeing reasonably be expected to produce and deliver 1300 frames, if yes the number is on firm legal standing with the SEC.
When they approach the physical number a new review of the physical market will have to take place which will see a greater influence of the A350 / A330 and possibly the 777X, how many future sales they predict will then be the driving force for increasing the block and by how many, what we do know is that they cannot simply set the block to cover their deferred cost, it has to be based on projected sales, the deferred cost are then allocated among the sales numbers.

And there is the rub,,,They have not reached the 1300 block size yet....still almost 200 frames to go...how many orders are they going to win against the A350-1000 and 900 going forward...nevermind what other derivaties Airbus comes up with?
 
justloveplanes
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RE: Analyst: 787 Profit Goal Is "unachievable" Part 2

Mon May 02, 2016 5:22 pm

Quoting mjoelnir (Reply 32):
The accounting block is the number of frames in that the deferred cost are expected to even out.

We have discussed this a lot before. The Accounting block is ONLY related to real+expected sales. Nothing else. It's why the 737 accounting block keeps increasing to match sales for a program that has been profitable for decades.

Quoting par13del (Reply 35):
...however, the primary consideration is whether the 1300 block is still relevant, can Boeing reasonably be expected to produce and deliver 1300 frames, if yes the number is on firm legal standing with the SEC.

1300 is obviously a highly conservative number. It's only 160 more frames that what they have on order already.
 
art
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RE: Analyst: 787 Profit Goal Is "unachievable" Part 2

Mon May 02, 2016 5:41 pm

Quoting scotron11 (Reply 36):
And there is the rub,,,They have not reached the 1300 block size yet....still almost 200 frames to go...how many orders are they going to win against the A350-1000 and 900 going forward...nevermind what other derivaties Airbus comes up with?

I know it's a Boeing forecast (and it's only a forecast) but the prediction is 8,000 WB sales over the next 20 years. Exactly how many of those will be 787 sales nobody can say with 100% certainty. However I think it is almost 100% certain that 787 sales will exceed 1300 by a big margin. To reach that figure the 787 would need to capture ~ 2% of predicted WB sales between now and 2035.

Quoting justloveplanes (Reply 37):
The Accounting block is ONLY related to real+expected sales. Nothing else. It's why the 737 accounting block keeps increasing to match sales for a program that has been profitable for decades.

In the same way the 787 Accounting block should be increased to match sales that can realistically be expected, shouldn't it?
 
StTim
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RE: Analyst: 787 Profit Goal Is "unachievable" Part 2

Mon May 02, 2016 5:52 pm

I think we all expect the 787 to exceed 1,300 at some point. But the rules, such as they are, say if you are predicting a loss at the end if the accounting block ( a forward loss) then this should be realised.

If Boeing hang on long enough they will be able to extend the accounting block, probably to 1,500 initially. I don't think that is yet enough to recover the deferred costs.
 
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Stitch
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RE: Analyst: 787 Profit Goal Is "unachievable" Part 2

Mon May 02, 2016 6:47 pm

Quoting art (Reply 38):
In the same way the 787 Accounting block should be increased to match sales that can realistically be expected, shouldn't it?

Yes. And it has. It started at 1100 and when Boeing closed in on that number, it was raised to the current 1300. When they close in on 1300 sales, I expect it to rise more.
 
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kanban
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RE: Analyst: 787 Profit Goal Is "unachievable" Part 2

Mon May 02, 2016 7:44 pm

Quoting Stitch (Reply 40):

I seem to recall that there is a direct connection between the accounting block and long lead procurement and partner contracts.. If we figure the long lead procurement time frame is between 5-7 years out, one can approximate when the accounting block will be extended to provide the authorization.
 
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enzo011
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RE: Analyst: 787 Profit Goal Is "unachievable" Part 2

Mon May 02, 2016 10:04 pm

Quoting art (Reply 38):
I know it's a Boeing forecast (and it's only a forecast) but the prediction is 8,000 WB sales over the next 20 years. Exactly how many of those will be 787 sales nobody can say with 100% certainty. However I think it is almost 100% certain that 787 sales will exceed 1300 by a big margin. To reach that figure the 787 would need to capture ~ 2% of predicted WB sales between now and 2035.


In the same way the 787 Accounting block should be increased to match sales that can realistically be expected, shouldn't it?

What would you like the accounting block to be then? The problem comes in for Boeing on the 787 program is that they have deferred so much production cost. They have already declared profits on the frames delivered when it cost way more to produce than the income received. Now whether this money is sitting in the bank or has been used to fund the 737MAX and 777X programs or just to cover some of the cost of buybacks, it has influenced their financial reporting and their current share price as well.

If they were able to get the cost under control a couple years ago we would not be having these discussions, but they are still adding to the program with each frame delivered. Later this year it will turn around, but it will not go from breaking even to $25 million profit per frame in a few months. So it will take a few more years before they reach the 737 and 777 margins, but they are expecting to achieve margins higher than those programs.

Maybe the executives are hoping that future sales will eventually mean that the margins only need to match the 777 to finally pay back the deferred cost. But this doesn't help them now as they cannot decide to change the accounting block just because they want to. These are the guidelines (not sure if it is rules or not) that they have to follow to if they are using program accounting. They reap the rewards of program accounting now, when it may turn against them because they have deferred huge amounts of cost, you cannot decide to change the way it is used to benefit you again. You cannot have your cake and eat it as well.
 
RandWkop
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RE: Analyst: 787 Profit Goal Is "unachievable" Part 2

Wed May 11, 2016 2:44 am

http://news.morningstar.com/all/dow-...g-makes-some-analysts-jittery.aspx

Another article which was originally behind a paywall on WSJ.
 
sv11
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RE: Analyst: 787 Profit Goal Is "unachievable" Part 2

Wed May 11, 2016 2:51 am

Seems like the composite 787 is expensive to build. Wonder how Airbus is doing with similar A350. Probably makes sense to just build the wing composite like in the 777X.

sv11
 
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speedbored
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RE: Analyst: 787 Profit Goal Is "unachievable" Part 2

Wed May 11, 2016 5:32 am

Quoting RandWkop (Reply 43):
Another article which was originally behind a paywall on WSJ.

"Boeing during recent years has traded earlier cash payments for concessions like improved pricing or making changes to their orders."
"Boeing has also asked its most stalwart customers, and biggest buyers, for earlier payments"
I find it very odd that Boeing are asking customers to bring forward cash payments at the same time as they are paying increased dividends and executing share buybacks. Sounds a bit like they could be storing up trouble for the future.

Or maybe the current board is just seeking to increase their bonuses prior to retirement  

Another quote that sticks out is:
"The company says it won't generate positive cash on each 787 delivery until late this year."
Wasn't that supposed to have already happened?
 
ap305
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RE: Analyst: 787 Profit Goal Is "unachievable" Part 2

Wed May 11, 2016 5:39 am

Quoting sv11 (Reply 44):
Seems like the composite 787 is expensive to build. Wonder how Airbus is doing with similar A350. Probably makes sense to just build the wing composite like in the 777X.

This is almost always the case at the start of any revolutionary change in process.... But as Boeing learns more, it will in all probability find a way to lower costs substantially below that of building a metal tube.
Racing, competing, is in my blood. It's part of me, it's part of my life; I've been doing it all my life. And it stands up before anything else- Ayrton Senna
 
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jambrain
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RE: Analyst: 787 Profit Goal Is "unachievable" Part 2

Wed May 11, 2016 6:59 am

Quoting sv11 (Reply 44):
Seems like the composite 787 is expensive to build.

Really fancy that! (speaking as a sports car & bike enthusiast I could have predicted Carbon Fibre is more than Al) I still can't get why B didn't increase selling price to get a positive margin when the backlog reached 350+ in 2006. (when they were still selling like hot cakes surely they could have asked for 10% more.

Will the sales team in Boeing that were pricing those frames ever have to account for their decisions?

http://www.pdxlight.com/787a.jpg
Jambrain
 
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scbriml
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RE: Analyst: 787 Profit Goal Is "unachievable" Part 2

Wed May 11, 2016 7:30 am

Quoting travelhound (Reply 29):
If I am reading the chart properly Boeing currently have a deficit of $24 billion between deferred costs, tooling and inventories less forward progress payments.

That's $8 billion less money the program needs to break cash flow even!

Where are you seeing that number?   

The 787 deferred costs table shows $32.418 billion at end 1Q16. Deferred costs increased by $141 million over 4Q15, but tooling and other non-recurring costs were down a bit.

http://i18.photobucket.com/albums/b101/scbriml/Boeing%20787%20deferred%20costs.jpg

An increase of $141 million while delivering 30 787s (of which only 6 were -8s) means an average 'loss per frame' of $4.7 million.

Quoting speedbored (Reply 45):
Another quote that sticks out is:
"The company says it won't generate positive cash on each 787 delivery until late this year."
Wasn't that supposed to have already happened?

I'm pretty sure they said the same thing last year.
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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enzo011
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RE: Analyst: 787 Profit Goal Is "unachievable" Part 2

Wed May 11, 2016 7:38 am

Quoting jambrain (Reply 47):
Will the sales team in Boeing that were pricing those frames ever have to account for their decisions?

They have probably cashed their bonus checks/shares already. They did have the best selling aircraft on their hands. They probably had airlines knocking their door down to make purchases and the amount of sales meant the teams didn't have to price it expensively either, quantity meant big amounts of cash for Boeing even if it was sold at cheap prices.

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