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ElroyJetson wrote:What all the reports indicate, and what Boeing confirms, is the accounting block is improving
Cerecl wrote:Therefore, unless the production cost unexpectedly comes down faster than expected the accounting block will not reduce in number.
glbltrvlr wrote:Cerecl wrote:Therefore, unless the production cost unexpectedly comes down faster than expected the accounting block will not reduce in number.
I don't think anyone expects the accounting block number to reduce. The question is whether Boeing can show a profit with the current accounting block. If not, they have to write off the loss, or try to make an argument that the accounting block quantity should increase, which would give them more frames to amortize against. Right now, I don't think anyone believes the sales number would support an expanded accounting block.
Newbiepilot wrote:This confuses me. Unless we aren't speaking about the same thing. The 787 accountinh block is 1300 airplanes. Total orders for the 787 are about 1275. It is entirely feasible that the total number of orders for the 787 will exceed the accounting block either this year or next. Why do you think the sales numbers don't support an expanded accounting block?
glbltrvlr wrote:This is a pretty good explanation about why investors question changing the size of accounting blocks: https://seekingalpha.com/article/390118 ... erent-time
glbltrvlr wrote:Newbiepilot wrote:This confuses me. Unless we aren't speaking about the same thing. The 787 accountinh block is 1300 airplanes. Total orders for the 787 are about 1275. It is entirely feasible that the total number of orders for the 787 will exceed the accounting block either this year or next. Why do you think the sales numbers don't support an expanded accounting block?
Accounting blocks aren't intended to capture the entire production of a given model. They are intended to spread the higher costs of frames in the beginning stages of production against the efficiencies gained once production settles down.
This is a pretty good explanation about why investors question changing the size of accounting blocks: https://seekingalpha.com/article/390118 ... erent-time
Strato2 wrote:Anyway surely Boeing will make money from the ancillaries even if producing the planes will result in a loss?
Unfortunately most of the article is behind paywall but thoughts?
glbltrvlr wrote:Therefore, unless the production cost unexpectedly comes down faster than expected the accounting block will not reduce in number.
Cerecl wrote:The question is whether Boeing can show a profit with the current accounting block. If not, they have to write off the loss, or try to make an argument that the accounting block quantity should increase, which would give them more frames to amortize against. Right now, I don't think anyone believes the sales number would support an expanded accounting block.
Newbiepilot wrote:glbltrvlr wrote:Cerecl wrote:Therefore, unless the production cost unexpectedly comes down faster than expected the accounting block will not reduce in number.
I don't think anyone expects the accounting block number to reduce. The question is whether Boeing can show a profit with the current accounting block. If not, they have to write off the loss, or try to make an argument that the accounting block quantity should increase, which would give them more frames to amortize against. Right now, I don't think anyone believes the sales number would support an expanded accounting block.
This confuses me. Unless we aren't speaking about the same thing. The 787 accountinh block is 1300 airplanes. Total orders for the 787 are about 1275. It is entirely feasible that the total number of orders for the 787 will exceed the accounting block either this year or next. Why do you think the sales numbers don't support an expanded accounting block?
Stitch wrote:glbltrvlr wrote:Therefore, unless the production cost unexpectedly comes down faster than expected the accounting block will not reduce in number.
It can only reduce if airlines cancel existing orders and do not place new orders ever.Cerecl wrote:The question is whether Boeing can show a profit with the current accounting block. If not, they have to write off the loss, or try to make an argument that the accounting block quantity should increase, which would give them more frames to amortize against. Right now, I don't think anyone believes the sales number would support an expanded accounting block.
As of last Thursday, the 787 order book is already at 1350 - 50 more than the current Accounting Block. So we're very likely going to see an increase in the 787 Accounting Block in 2018 should 787 orders continue to be placed. I expect the next Block will be around 1500-1600 frames.
zeke wrote:glbltrvlr wrote:This is a pretty good explanation about why investors question changing the size of accounting blocks: https://seekingalpha.com/article/390118 ... erent-time
That's the guy who is being laughed at around the globe for announcing that EK has ordered the 787 when both the airline and Boeing deny it ?
ElroyJetson wrote:The article really doesn't say much.....it just repeats the initial accounting block figure of $30 billion that at this point is very old news. The last number I saw has indicated that the $30 billion dollar figure has been reduced about $3 billion and decreases with every plane delivered.
ElroyJetson wrote:As to whether the this decrease is "fast enough," ah.....I dunno....is it ever fast enough? Unless Boeing makes a fresh statement regarding the situation call me dubious. Leeham rarely has anything positive to say about Boeing, and wave the Airbus pom-poms whenever they can.
ElroyJetson wrote:What all the reports indicate, and what Boeing confirms, is the accounting block is improving....the break even point was reached over 1 1/2 years ago, and the numbers get better with every plane delivered. Whether or not this is "fast enough," only Boeing knows for sure.
Stitch wrote:I expect the next Block will be around 1500-1600 frames.
scbriml wrote:Well, let's look at Boeing's 2017Q1 figures from their own website...
Deferred Production Costs = $26.992billion
Unamortized tooling, etc = $3.851billion
Total = $30.843billion
That total is a reduction of just $90million compared to 2016Q4. Given they delivered 32 787s in Q1, that represents an average reduction of just $2.81million per delivery.
At the end of Q1, the 787 backlog was 679 frames. $30.851billion over 679 frames means that Boeing needs to reduce deferred costs by $45.42million average per delivery. Last quarter they managed $2.81million. Even if we increase the deliveries to the current accounting block of 1,300 (i.e. a backlog of 768), they still need to reduce it by over $40million per delivery in order to clear it in the current accounting block.
It's little wonder that many analysts believe Boeing will have to take a significant charge at some point in the future.
scbriml wrote:Stitch wrote:I expect the next Block will be around 1500-1600 frames.
I'm sure that's what Boeing wants and needs. However, it remains to be seen if the SEC will allow it.
scbriml wrote:Stitch wrote:I expect the next Block will be around 1500-1600 frames.
I'm sure that's what Boeing wants and needs. However, it remains to be seen if the SEC will allow it.
scbriml wrote:Yes, Boeing is reducing deferred costs with each 787 delivery. Is it fast enough? The answer to that is as plain as the nose on your face and everyone knows it.
kelvin933 wrote:The original accounting block was 1100 planes Boeing has already extended the accounting block once to 1300 planes, it is far from certain that Boeing will get permission to extend the accounting block again. The securities regulator will decide that.
scbriml wrote:I'm sure (a 1500-1600 accounting block is what) Boeing wants and needs. However, it remains to be seen if the SEC will allow it.
scbriml wrote:ElroyJetson wrote:The article really doesn't say much.....it just repeats the initial accounting block figure of $30 billion that at this point is very old news. The last number I saw has indicated that the $30 billion dollar figure has been reduced about $3 billion and decreases with every plane delivered.
Well, let's look at Boeing's 2017Q1 figures from their own website...
Deferred Production Costs = $26.992billion
Unamortized tooling, etc = $3.851billion
Total = $30.843billion
That total is a reduction of just $90million compared to 2016Q4. Given they delivered 32 787s in Q1, that represents an average reduction of just $2.81million per delivery.
At the end of Q1, the 787 backlog was 679 frames. $30.851billion over 679 frames means that Boeing needs to reduce deferred costs by $45.42million average per delivery. Last quarter they managed $2.81million. Even if we increase the deliveries to the current accounting block of 1,300 (i.e. a backlog of 768), they still need to reduce it by over $40million per delivery in order to clear it in the current accounting block.
It's little wonder that many analysts believe Boeing will have to take a significant charge at some point in the future.
piedmontf284000 wrote:When it is all said and done many many moons from now...the 787 will be lucky to break even. Great airplane. Tremendous cost savings for the airlines. Just not so much for Boeing. They built a state of the art airplane but they were in way over their head. The good news is that their next model which will most likely similar in nature albeit smaller in size will be pure profit because they have already paid up front for it's development costs give or take a few billion.
diverdave wrote:scbriml wrote:Yes, Boeing is reducing deferred costs with each 787 delivery. Is it fast enough? The answer to that is as plain as the nose on your face and everyone knows it.
100% spot on. Rather than attempt to extend the accounting block, I expect Boeing will pick a year and take much of it as a large write-off.
That will clear the books, and Boeing can start to book larger profits going forward and more importantly justifying larger bonuses for management.
David
MaxiAir wrote:I've been looking into that some time ago and some sources claim, deferred production costs reached some 38 billion USD at some point.
Flighty wrote:piedmontf284000 wrote:When it is all said and done many many moons from now...the 787 will be lucky to break even. Great airplane. Tremendous cost savings for the airlines. Just not so much for Boeing. They built a state of the art airplane but they were in way over their head. The good news is that their next model which will most likely similar in nature albeit smaller in size will be pure profit because they have already paid up front for it's development costs give or take a few billion.
Exactly true. Out of $30 billion at least $15 billion was "tuition money" to give Boeing leaders and engineers the training to develop a program like that. It's money that will never be seen again. But it gave them skills to do the 787 and other programs. Airbus same with A380. The goal is that the same lessons can be applied multiple times. And it appears to be true.
Newbiepilot wrote:I think that is the opposite of what would happen. A one time loss would kill the stock price. Slowly driving down production costs and increase margin for each airplane while slowly writing down production cost to R&D is far more likely.
Varsity1 wrote:The 787 will be the first widebody to break 2000 frames.
I'm not worried about it.
iamlucky13 wrote:Is Leeham saying anything new compared to 3-6 months ago when he argued (and many of us agreed) the program is not on a pace to pay down the deferred costs in the existing block?.
StTim wrote:An accounting block of 1500 to 1600 will still not be enough to clear the accumulated deferred costs. It does however kick the issue down the road and allow Boeing to continue to pay big executive bonuses etc.
Newbiepilot wrote:Leeham news is known for its negative commentary regarding Boeing. In addition to this article the one prior is "Is Norwegian in Trouble, part 2?" (Remember they are an all Boeing operator) and prior to that is "business case for NMA remains uncertain". After a good showing at the Paris Airshow, maybe Scott Hamilton feels the need to publish some articles that paint Boeing, its factories or customers in a negative light.
Newbiepilot wrote:iamlucky13 wrote:Is Leeham saying anything new compared to 3-6 months ago when he argued (and many of us agreed) the program is not on a pace to pay down the deferred costs in the existing block?.
I don't think there is any new information because Boeing has not yet released 2nd quarter financial numbers yet.
787 program accounting and deferred production costs is something that has been known for years.
Leeham news is known for its negative commentary regarding Boeing. In addition to this article the one prior is "Is Norwegian in Trouble, part 2?" (Remember they are an all Boeing operator) and prior to that is "business case for NMA remains uncertain". After a good showing at the Paris Airshow, maybe Scott Hamilton feels the need to publish some articles that paint Boeing, its factories or customers in a negative light.
ScottB wrote:Strato2 wrote:Anyway surely Boeing will make money from the ancillaries even if producing the planes will result in a loss?
Unfortunately most of the article is behind paywall but thoughts?
In the end it makes little difference in that the 787 deferred production costs, like the A380 development costs, are sunk costs. The money has already been spent and chasing after it would be futile, so you make decisions to optimize future economic outcomes while ignoring past costs. At some point, Boeing will have to do one or more of three things:
* Write down some portion of the deferred costs (they did this in 2016 by reclassifying $1.2 billion in costs assigned to two flight test aircraft to R&D when they determined they wouldn't be able to sell those aircraft). This typically results in a one-time hit to earnings as a spacial charge.
* Increase the size of the accounting block (as many have suggested they may do). This spreads the costs further to the right on the time axis.
* Increase the amount of costs assigned to each aircraft produced going forward. This is the only way they'd be able to avoid increasing the size of the accounting block without taking special charges as in the first option.
In any event, it really only matters much if you're a shareholder. And IMO the larger worry is the $26 billion in retiree health care & pension liability they're carrying on the books.
Newbiepilot wrote:iamlucky13 wrote:Is Leeham saying anything new compared to 3-6 months ago when he argued (and many of us agreed) the program is not on a pace to pay down the deferred costs in the existing block?.
I don't think there is any new information because Boeing has not yet released 2nd quarter financial numbers yet.
787 program accounting and deferred production costs is something that has been known for years.
Leeham news is known for its negative commentary regarding Boeing. In addition to this article the one prior is "Is Norwegian in Trouble, part 2?" (Remember they are an all Boeing operator) and prior to that is "business case for NMA remains uncertain". After a good showing at the Paris Airshow, maybe Scott Hamilton feels the need to publish some articles that paint Boeing, its factories or customers in a negative light.
scbriml wrote:If the accounting block was increased to 1,600 that would mean that each 787 delivery still needs to reduce the deferred costs by $28.88million. While that's a lot nicer number than $40.16million (for 1,300), it's still more than 10 times what they managed in Q1 this year. The real killer is, each delivery that fails to hit that number, increases the number for all subsequent deliveries.
scbriml wrote:Stitch wrote:I expect the next Block will be around 1500-1600 frames.
I'm sure that's what Boeing wants and needs. However, it remains to be seen if the SEC will allow it.
MaxiAir wrote:If they extend the accounting block size to the point of having all deffered costs accounted for, they still need to recover all R&D costs, needn't they?
scbriml wrote:Newbiepilot wrote:Leeham news is known for its negative commentary regarding Boeing. In addition to this article the one prior is "Is Norwegian in Trouble, part 2?" (Remember they are an all Boeing operator) and prior to that is "business case for NMA remains uncertain". After a good showing at the Paris Airshow, maybe Scott Hamilton feels the need to publish some articles that paint Boeing, its factories or customers in a negative light.
I guess you missed some articles "Boeing’s advantage going into 2018" and "Propelled by MAX 10, Boeing thumps Airbus at Paris Air Show".
MrHMSH wrote:Newbiepilot wrote:iamlucky13 wrote:Is Leeham saying anything new compared to 3-6 months ago when he argued (and many of us agreed) the program is not on a pace to pay down the deferred costs in the existing block?.
I don't think there is any new information because Boeing has not yet released 2nd quarter financial numbers yet.
787 program accounting and deferred production costs is something that has been known for years.
Leeham news is known for its negative commentary regarding Boeing. In addition to this article the one prior is "Is Norwegian in Trouble, part 2?" (Remember they are an all Boeing operator) and prior to that is "business case for NMA remains uncertain". After a good showing at the Paris Airshow, maybe Scott Hamilton feels the need to publish some articles that paint Boeing, its factories or customers in a negative light.
There's grounds for believing that what Leeham says may be accurate. After all, the 787 has had it bad financially, Norwegian haven't been convincing in some aspects and of course the NMA market is uncertain, we don't really know who wants it, and what specifications airlines want it to have. There may be a slant against Boeing, but that doesn't mean the arguments are invalid. They tend to argue their cases quite well. I think they make a lot of very valid points.
Side note, Norwegian are an Airbus customer.
Stitch wrote:MaxiAir wrote:If they extend the accounting block size to the point of having all deffered costs accounted for, they still need to recover all R&D costs, needn't they?
R&D costs are (and have been) booked against earnings in the year they were incurred so the bulk of those have already been accounted for (excuse the pun) in the early 2000s with the rest booked more recently during the 787-9's and 787-10's development.
Newbiepilot wrote:MrHMSH wrote:
Side note, Norwegian are an Airbus customer.
And regarding your side note, I said operator not customer. Norwegian is not an Airbus operator.
MaxiAir wrote:Thanks for your explanation, but booking them against earnings is indirectly making the 737 pay for 787 R&D, isn't it? So for a clean break even of the programm itself we are talking about more than 4000 frames, realistically, which it will never reach. So Boeing played all accounting tricks there are