Airliners.net

https://www.seattletimes.com/business/b ... ni-moment/

The article states "Boeing continually moves airline progress payments from future quarters to the back end of the current quarter so that they can continue to beat Wall Street forecasts, usually by $1 or $2 billion."


The article suggests that it isn't sustainable long term.



While it doesn't run afoul of SEC, is this not an unethical approach to trying to show good times during bad periods in order to inflate the stock price?

Thoughts?

The article is a very good read! Thing is that this practice can and will backfire if the global economy really takes a downturn.

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One problem with the article is that it is based on a single anonymous source, apparently an employee that has a personal disagreement with how Boeing manages cash flow.

Buried further down in the article is the really important piece: payments are regularly adjusted as part of normal business. Sometimes the adjustments are not favorable to Boeing, like giving suppliers advances or airlines payment relief. Other times there are adjustments that help Boeing increase and retain cash. When there’s changes to cash flow, it’s management’s responsibility to manage it by making the necessary changes.

Cash flow can’t be faked or engineered. If Boeing was always accelerating airline payments and deferring those to suppliers it wouldn’t be sustainable. But that’s not the case.

Cash flow is constantly engineered. It is standard practice. The measures indicated in the article are pretty normal ways to run a business. BUT it is normally done to this extent when cash is under pressure. Here there isn't that pressure - apart from the need to boost executive bonus pots.

StTim wrote:

Cash flow is constantly engineered. It is standard practice. The measures indicated in the article are pretty normal ways to run a business. BUT it is normally done to this extent when cash is under pressure. Here there isn't that pressure - apart from the need to boost executive bonus pots.

I think people on aviation discussion boards spend way too much time thinking about Boeing's financial statements and what type of accounting it uses for various function. That said I'm also reminded of General Electric under Jack Welch and the 40 straight quarters of smoothly rising earnings - which turned out not to have the fundamentals claimed once Welch had retired and the next batch of executives had to clean up the mess (which they were never able to do).

Sancho99504 wrote:

https://www.seattletimes.com/business/boeing-aerospace/for-boeing-juggling-cash-flow-often-means-another-houdini-moment/

The article states "Boeing continually moves airline progress payments from future quarters to the back end of the current quarter so that they can continue to beat Wall Street forecasts, usually by $1 or $2 billion."


The article suggests that it isn't sustainable long term.



While it doesn't run afoul of SEC, is this not an unethical approach to trying to show good times during bad periods in order to inflate the stock price?

Thoughts?

Boeing is just answering the cash flow frenzy. As long as people or investors, or perhaps only some of them, confuse cash flow with profitability, Boeing will try to offer what people crave, good cash flow numbers.

Perhaps some should start to remember why an financial report has three main Statements:

1 Consolidated Statements of Comprehensive Income telling you about the profitability
2 Consolidated Statements of Financial Position telling you what a company owns and owes
3 Consolidated Statements of Cash Flows telling you about the company's liquidity.

None of the above gives a picture of the company's finances by itself. Only looking at all three gives you an image of the companies performance.

I think it all depends on how many months back the adjustments go. If it is a quarter or less it would be self-correcting. And adjusting cash flow is self limiting. Ponzi schemes only work on taking money in (the favored few investors excepted). Once serious money starts going out they quickly collapse. Boeing has serious money going out constantly. This strikes me as not too different that adjusting orders and deliveries - you can do a bit of it for bragging rights, but reality breaks in inexorably.

mjoelnir wrote:

Sancho99504 wrote:

https://www.seattletimes.com/business/boeing-aerospace/for-boeing-juggling-cash-flow-often-means-another-houdini-moment/

The article states "Boeing continually moves airline progress payments from future quarters to the back end of the current quarter so that they can continue to beat Wall Street forecasts, usually by $1 or $2 billion."


The article suggests that it isn't sustainable long term.



While it doesn't run afoul of SEC, is this not an unethical approach to trying to show good times during bad periods in order to inflate the stock price?

Thoughts?

Boeing is just answering the cash flow frenzy. As long as people or investors, or perhaps only some of them, confuse cash flow with profitability, Boeing will try to offer what people crave, good cash flow numbers.

Perhaps some should start to remember why an financial report has three main Statements:

1 Consolidated Statements of Comprehensive Income telling you about the profitability
2 Consolidated Statements of Financial Position telling you what a company owns and owes
3 Consolidated Statements of Cash Flows telling you about the company's liquidity.

None of the above gives a picture of the company's finances by itself. Only looking at all three gives you an image of the companies performance.

Exactly - and the banks/investment companies are pouring over this information. They only people who don't know what they are doing are retail investors. So, no, this isn't "unethical." The information is all there.

Every company in the world, big and small, manages cash flow. If Boeing was falsifying, or "creating" cash flow, your suspicions would be correct and the problems would be more than with just the SEC, but with selecting the size of their orange jumpers. This reads like something a reporter who either has a personal grudge, or is completely ignorant of corporate operations, would concoct. The only people "fooled" by such management are those who haven't done their homework...

williaminsd wrote:

Every company in the world, big and small, manages cash flow. If Boeing was falsifying, or "creating" cash flow, your suspicions would be correct and the problems would be more than with just the SEC, but with selecting the size of their orange jumpers. This reads like something a reporter who either has a personal grudge, or is completely ignorant of corporate operations, would concoct. The only people "fooled" by such management are those who haven't done their homework...

Nobody in that article is talking about falsifying cash flow. The cash is there The point is the confusion about what cash flow is, how you manage it, were the cash comes from and what you can do about increasing cash flow. Not in the article, but mostly the people talking about cash flow, including I assume you, think cash flow is something you cannot manipulate.

The next misunderstanding is that higher cash flow numbers denotes a more profitable company. Cash flow calculation is a tool to manage your liquidity, nothing more, nothing less.

I wasn't saying that they were trying to inflate profitability or circumvent SEC regs. My question was and still is, that it looks like they're manipulating their cash flow numbers to give Wall Street a hard on, which stimulates the stock price($405 a share), which I feel is the unethical part. Eventually, they're not going to have any payments to pull forward to show a larger cash flow, which will tank the stock price.

Sancho99504 wrote:

I wasn't saying that they were trying to inflate profitability or circumvent SEC regs. My question was and still is, that it looks like they're manipulating their cash flow numbers to give Wall Street a hard on, which stimulates the stock price($405 a share), which I feel is the unethical part. Eventually, they're not going to have any payments to pull forward to show a larger cash flow, which will tank the stock price.

Accounting is not ethical, nor unethical. Regarding massaging numbers, the question is about what is aloud and what is forbidden. The USGAAP gives a huge scope to creative accounting. Boeing is using this wide open accounting rules to the limits. Investors swallow it, everybody happy.

Boeing, like every publicly traded company, is audited near constantly by an independent accounting firm. If they were actually doing something unethical or illegal, it would be brought to light pretty quickly, and shareholders would be suing the shit out of them.

mjoelnir wrote:

williaminsd wrote:

Every company in the world, big and small, manages cash flow. If Boeing was falsifying, or "creating" cash flow, your suspicions would be correct and the problems would be more than with just the SEC, but with selecting the size of their orange jumpers. This reads like something a reporter who either has a personal grudge, or is completely ignorant of corporate operations, would concoct. The only people "fooled" by such management are those who haven't done their homework...

Nobody in that article is talking about falsifying cash flow. The cash is there The point is the confusion about what cash flow is, how you manage it, were the cash comes from and what you can do about increasing cash flow. Not in the article, but mostly the people talking about cash flow, including I assume you, think cash flow is something you cannot manipulate.

The next misunderstanding is that higher cash flow numbers denotes a more profitable company. Cash flow calculation is a tool to manage your liquidity, nothing more, nothing less.

Yeah... I got that no one is claiming any cash flow falsification. (Hence the word, "if.") That's why I'm not seeing that this is such a huge story to anyone who does their homework. Doing your homework, which is, as noted, easily and readily available on any major corporation, let alone one of Boeing's magnitude, should clarify any "confusion" and no one should be fooled as to the financial health of the company. And as someone who manages cash flow on a daily basis, I have a pretty good idea of what it measures and how it is best used, but thanks for the enlightening words. Gonna just kill it at my next projects meeting now!

777PHX wrote:

Boeing, like every publicly traded company, is audited near constantly by an independent accounting firm. If they were actually doing something unethical or illegal, it would be brought to light pretty quickly, and shareholders would be suing the shit out of them.

You mean, like GA (as previously mentioned) or ENRON (before they collapsed)???

777PHX wrote:

Boeing, like every publicly traded company, is audited near constantly by an independent accounting firm. If they were actually doing something unethical or illegal, it would be brought to light pretty quickly, and shareholders would be suing the shit out of them.

WayexTDI wrote:

You mean, like GA (as previously mentioned) or ENRON (before they collapsed)???

Those examples are why accounting laws and oversight were tightened to prevent such shenanigans going forward.

777PHX wrote:

Boeing, like every publicly traded company, is audited near constantly by an independent accounting firm. If they were actually doing something unethical or illegal, it would be brought to light pretty quickly, and shareholders would be suing the shit out of them.

Not sure if you're being sarcastic but, without commenting on Boeing's position here, may I ask if you've ever heard about Enron or Arthur Andersen?

Stitch wrote:

777PHX wrote:

Boeing, like every publicly traded company, is audited near constantly by an independent accounting firm. If they were actually doing something unethical or illegal, it would be brought to light pretty quickly, and shareholders would be suing the shit out of them.

WayexTDI wrote:

You mean, like GA (as previously mentioned) or ENRON (before they collapsed)???

Those examples are why accounting laws and oversight were tightened to prevent such shenanigans going forward.

Exactly. And why brilliant accountants will find even more brilliant ways to get around the new laws.

Just as GE is making a huge profit every year, yet paying very little taxes: creativity beats the current laws, laws are changed to combat that, even more creativity is found, and so on, and so forth.

It amazes me at how much the media in Seattle hates Boeing. They never publish anything good about them. I wish they would it all to Charleston where they are appreciated.

sphealey wrote:

StTim wrote:

Cash flow is constantly engineered. It is standard practice. The measures indicated in the article are pretty normal ways to run a business. BUT it is normally done to this extent when cash is under pressure. Here there isn't that pressure - apart from the need to boost executive bonus pots.

I think people on aviation discussion boards spend way too much time thinking about Boeing's financial statements and what type of accounting it uses for various function. That said I'm also reminded of General Electric under Jack Welch and the 40 straight quarters of smoothly rising earnings - which turned out not to have the fundamentals claimed once Welch had retired and the next batch of executives had to clean up the mess (which they were never able to do).

Or Crazy Eddie who skimmed off he top for 10 years, only to then launder that money back into the company over a period of 5 years in order to boost the same store growth numbers, pump up the stock price and make millions on stock sales.

TTailedTiger wrote:

It amazes me at how much the media in Seattle hates Boeing. They never publish anything good about them. I wish they would it all to Charleston where they are appreciated.

Good news seldom has legs or endurance... bad news goes everywhere quickly... There are positive Boeing news items more frequently than bad news. the exception is when a plane goes down an the the uh ooh squad is all over it for days

TTailedTiger wrote:

It amazes me at how much the media in Seattle hates Boeing. They never publish anything good about them. I wish they would it all to Charleston where they are appreciated.

That is such a childish and amateurish comment, I don’t even know where to begin. You sound like a 13 year old.

This is why we live in a democracy and not in someplace like China. The media has a right to publish stories that challenge major companies.

And if you’d bother to read, the media publishes plenty good about Boeing. They present various aspects about Boeing, not all of which is good.

I do not see any controversy here. In view of the many "moving parts" in getting an airplane assembled and delivered, it would be rather impossible to stick to all agreed delivery and payment schedules. Boeing working with its customers and suppliers sounds like a good management practice rather than fixing its cash flow.

Cash flow can be quite fascinating. Try looking at a cable company's financials. Until the last round of mergers, almost all cable companies reported losses every year. And stayed in business, connected new subscribers, brought new equipment, paid for new programming.

One way to manage cash flow is to time expenditures. We see DL parking aircraft they intend to keep using. To move the heavy maintenance expense to another quarter, or even fiscal year. Many airlines time deliveries for the same purpose.

If an airline delays a delivery, a delivery payment is delayed for Boeing. But for the great majority of those delays, Boeing knows they will eventually get paid. So why not move up the affected progress payments?

The real question is whether the amount of total unallocated progress payments is consistently going up, or consistently going down, or zig-zagging? Only if the total amount is consistently going down is there a long term problem.

When I read the article the thought that popped into my head was Airbus 5th quarter where they’d have an incredible amount of sales in December and a dearth of sales in January and February. My take on it is a high sales number at Airbus is important, for Boeing it’s having good cash flow.

I don’t see either systems as right or wrong, they just reflect what’s important for the corporations at the time. What I’m wondering about at Boeing is that their military projects seem to be a drag on cash flow. I know the tanker deal has been problematic and Boeing has had to eat cost overruns, are there other military contracts in trouble?

Don't forget that "black project" money has to hit the financial books at some point. Some of that accounting could be a result of those dollars hitting the balance sheet and income statements.

777PHX wrote:

Boeing, like every publicly traded company, is audited near constantly by an independent accounting firm. If they were actually doing something unethical or illegal, it would be brought to light pretty quickly, and shareholders would be suing the shit out of them.

US GAAP has "excessively pimping the numbers" designed in.

Entities that appear strongly profitable under US GAAP
would show as loss making under IFRS.
Gladly ignored.
Amusing attack vector: The US has strongly pushed for more stringent rules defining IFRS.
( but though being vocal on going for takeup they never proceeded. Tilting the table "just a tiny bit" ? )

The main problem in this thread and discussion of corporate finances is the misunderstanding what cash flow is. Cash flow is not a measurement of profitability.

You can have a loss making company with a high cash flow and you can have profit making company with a low cash flow. A loss making company can have a positive cash flow mainly when investors, including suppliers and customers through prepayments, are prepared to risk their money. You can also keep a company running by selling new shares for example. Or you can produce a high cash flow for some years, by selling of inventories, parts of the company or assets.

The point is to have a look what points have influence on cash flow.

- Profits, higher profits higher cash flow.
- Investments, more investments less cash flow.
- Inventory, higher inventories lower cash flow.
- Customer prepayments, higher prepayments higher cash flow.
- Paying bills, paying late higher cash flow.
- Loans, higher loans more cash flow.
- Accounts receivable, higher accounts receivables lowers cash flow

and the most overlooked factor growth, increased growth of a company usually results in more cash needed for operation.

mjoelnir wrote:

by selling of inventories, parts of the company or assets.

reducing aka "selling off" some "deferred cost" asset works in the same way, doesn't it?

WIederling wrote:

mjoelnir wrote:

by selling of inventories, parts of the company or assets.

reducing aka "selling off" some "deferred cost" asset works in the same way, doesn't it?

Planes being build and/or parts sold are considered inventory.

Bradin wrote:

Planes being build and/or parts sold are considered inventory.

"deferred cost" is not tangible inventory. That is more like "condensed learning" fiction.

WIederling wrote:

mjoelnir wrote:

by selling of inventories, parts of the company or assets.

reducing aka "selling off" some "deferred cost" asset works in the same way, doesn't it?

You can not sell off deferred cost. You can book them on cost and produce a loss or lower your profits. As long as you have deferred cost on your books, you show higher accumulated profits than you have in reality.

Most people here do claim that deferred cost have no influence on the cash flow calculation. You will not find this discussed anywhere in regards to accounting, because deferring cost is usually not aloud and limited to very few or only one company.

Deferring cost gives you higher profits, so you start your cash flow calculation with a higher number. But deferring costs gives you higher inventories, so I assume that will even out the higher calculated cash flow due to higher profits. You also have to look at the influence of accumulation, the starting number of this year are the end numbers of last year. The most significant number in cash flow calculation is IMO not cash from operations, but cash reserves. If you have sufficient cash reserves, you do not need cash out of your operation, when for example you are investing heavily and all your new cash goes there, but you still have enough reserves.

mjoelnir wrote:

WIederling wrote:

mjoelnir wrote:

by selling of inventories, parts of the company or assets.

reducing aka "selling off" some "deferred cost" asset works in the same way, doesn't it?

The most significant number in cash flow calculation is IMO not cash from operations, but cash reserves. If you have sufficient cash reserves, you do not need cash out of your operation, when for example you are investing heavily and all your new cash goes there, but you still have enough reserves.

In your opinion indeed...

A mature business that cannot generate positive cash flow through its business operations consistently could have the most ironclad cash reserves in the world but it'd still raise a lot of red flags as an investment. It may or may not decide to spend that cash flow on further CapEx but that's an entirely separate matter.