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kitplane01
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747-8 Currently Cash Positive?

Mon Feb 11, 2019 6:11 am

Is the current 747-8 program cash positive? In other words, is Boeing making any money at all on the program going forward? In other-other words, if I order a new 747-8, will Boeing expect to make money building it?

I'm not asking of the program as a whole is profitable (it's not, and there were write-offs to prove it).
 
RJMAZ
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Re: 747-8 Currently Cash Positive?

Mon Feb 11, 2019 9:16 am

kitplane01 wrote:
I'm not asking of the program as a whole is profitable (it's not, and there were write-offs to prove it).

First mistake. A write-off does not mean the program as a whole is not profitable.

Copied from another thread.

"These numbers are made up but are approximate to keep the math simple.

On each $200+ million 747-8 aircraft Boeing might make $40 million profit. $20 million of that profit will be allocated to pay off the development cost. The other $20 million goes to the end of year company profit. The remaining money from the sale covers the cost of construction.

That $20 million allocated for development is calculated by taking the development cost of $4 billion and dividing it by 200 aircraft. 200 aircraft is what boeing initially thought they would sell. If Boeing after a few years worked out that it will sell only 150 aircraft then it must take a one off hit of $1 billion. This is what Boeing has done.

Some members think that one off hit means the program has made a loss. That is not the case. Boeing has still been making $40 million profit per frame, they simple did not allocate enough of that profit towards paying off develooment. With 150 frames sold that would be $6 billion of profit which is well over the $4 billion development cost. As Boeing is still making profit on every frame it will or already has broken even and will continue to slowly make a profit."
 
Strato2
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Re: 747-8 Currently Cash Positive?

Mon Feb 11, 2019 9:39 am

Snowballs chance of making money at 6/year production. Then there are the write offs and the utter failure of pax version. The 747 has been a financial disaster for Boeing.
 
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LAX772LR
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Re: 747-8 Currently Cash Positive?

Mon Feb 11, 2019 10:38 am

Would be shocked if the pax version broke even, considering how clearly rejected it was by the market.

But who knows with the freighter. Sorta surprised that the opportunity cost on even the -F isn't so high that Boeing sees it as unjustifiable (i.e. use that space for MOM/NSA production), but apparently that's not currently the case.
I myself, suspect a more prosaic motive... ~Thranduil
 
2175301
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Re: 747-8 Currently Cash Positive?

Mon Feb 11, 2019 10:39 am

Boeing has indicated in the past that it has turned down offers to sell 748 aircraft at a production cost loss. That they only accept orders they believe will be profitable to produce.

It is my belief that Boeing is making a small production profit on each 748 produced.

I also understand that at this point that the entire 748 program is at a "loss" stage; but, if they continue to sell freighters to sustain 6 per year production rates for another 5+ years they may actually achieve break-even on the program. The write-off was because they could no longer predict enough sales to meet the "then current" production block; and had to write off the expected cost recover on "x" amount of frames that represented the difference between the older production block estimate and the new estimate. Continued sales of the freighters would push the production block size back to the original number - and perhaps higher (which would recover the written of money - assuming the average profit per aircraft produced is the same).

Have a great day,
 
travelhound
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Re: 747-8 Currently Cash Positive?

Mon Feb 11, 2019 11:36 am

I think there were a combination of factors that killed off the 747-8i

I suspect the original version (a single stretch instead of a double stretch) would have been a better seller. It would have had lower trip costs and higher revenue opportunity than the aircraft it was designed to replace (747-400). The current 747-8i has similar trip costs to a 747-400, but with the market fragmenting would find it hard to exercise a reasonable yield for the additional capacity.

For instance, in hindsight, a 747-8i would have probably been a better choice for QF over the A380. On long distance flights it would of had 20% lower trip costs. A smaller version would if had 25% lower trip costs and be in a size bracket that better suited QF's market and route network.

I have always said if a (than) current 747 operator had a market for a 747 size aircraft, but also had a market for a smaller aircraft (i.e. 777-300ER) not served by its current fleet, with all things being equal the smaller aircraft would represent the better choice of aircraft. A slightly smaller 747-8i could have turned the tables just enough that it won a few of those RFQ's that were ultimately won by other aircraft.
 
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Re: 747-8 Currently Cash Positive?

Mon Feb 11, 2019 12:03 pm

LAX772LR wrote:
Would be shocked if the pax version broke even, considering how clearly rejected it was by the market.

But who knows with the freighter. Sorta surprised that the opportunity cost on even the -F isn't so high that Boeing sees it as unjustifiable (i.e. use that space for MOM/NSA production), but apparently that's not currently the case.


It's all one programme, you know. They don't split the development out separately.

RJMAZ wrote:
Copied from another thread.

"These numbers are made up but are approximate to keep the math simple.

On each $200+ million 747-8 aircraft Boeing might make $40 million profit. $20 million of that profit will be allocated to pay off the development cost. The other $20 million goes to the end of year company profit. The remaining money from the sale covers the cost of construction.

That $20 million allocated for development is calculated by taking the development cost of $4 billion and dividing it by 200 aircraft. 200 aircraft is what boeing initially thought they would sell. If Boeing after a few years worked out that it will sell only 150 aircraft then it must take a one off hit of $1 billion. This is what Boeing has done.

Some members think that one off hit means the program has made a loss. That is not the case. Boeing has still been making $40 million profit per frame, they simple did not allocate enough of that profit towards paying off develooment. With 150 frames sold that would be $6 billion of profit which is well over the $4 billion development cost. As Boeing is still making profit on every frame it will or already has broken even and will continue to slowly make a profit."


Thanks for posting that, it's an interesting way to put it.

travelhound wrote:
For instance, in hindsight, a 747-8i would have probably been a better choice for QF over the A380. On long distance flights it would of had 20% lower trip costs. A smaller version would if had 25% lower trip costs and be in a size bracket that better suited QF's market and route network.


The thing is, the Boeing 747-8i did not exist when airlines were placing orders for the Airbus A380. Qantas ordered six Boeing 747-400ERs (the only customer for the passenger version) at the same time as their A380 order. So it's really a moot point due to the timing of the launch.
I do enjoy a spot of flying, especially when it's not in economy!
 
RJMAZ
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Re: 747-8 Currently Cash Positive?

Mon Feb 11, 2019 12:08 pm

2175301 wrote:
I also understand that at this point that the entire 748 program is at a "loss" stage; but, if they continue to sell freighters to sustain 6 per year production rates for another 5+ years they may actually achieve break-even on the program. The write-off was because they could no longer predict enough sales to meet the "then current" production block; and had to write off the expected cost recover on "x" amount of frames that represented the difference between the older production block estimate and the new estimate. Continued sales of the freighters would push the production block size back to the original number - and perhaps higher (which would recover the written of money - assuming the average profit per aircraft produced is the same).

Spot on.

Also the write-off was most likely for tax reduction purposes.

As Boeing has had two years of massive company profits they can write-off the 747-8 development costs to reduce the tax bill.

The 797 will most likely have massive costs during ramp up which will keep the tax bill low for quite some years. So with the 787 bringing in massive profits it was the perfect opportunity to write-off the 747-8 development costs.

This also means any future 747-8 sale now has a larger profit in that financial year.

Strato2 wrote:
The 747 has been a financial disaster for Boeing.

You mean the 747-8 has been a financial disaster for Airbus.

The 747-8 program will most likely just break even for Boeing as the freighters keep coming down the line at a profit.

The 747-8 successfully prevented Airbus from charging high prices for the A380. That low profit then caused the A380 to be a financial disaster for Airbus.

One could say the 747-8 helped kill the A380. That in my mind makes the 747-8 a raging success.
 
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Re: 747-8 Currently Cash Positive?

Mon Feb 11, 2019 1:43 pm

RJMAZ wrote:
2175301 wrote:
I also understand that at this point that the entire 748 program is at a "loss" stage; but, if they continue to sell freighters to sustain 6 per year production rates for another 5+ years they may actually achieve break-even on the program. The write-off was because they could no longer predict enough sales to meet the "then current" production block; and had to write off the expected cost recover on "x" amount of frames that represented the difference between the older production block estimate and the new estimate. Continued sales of the freighters would push the production block size back to the original number - and perhaps higher (which would recover the written of money - assuming the average profit per aircraft produced is the same).

Spot on.

Also the write-off was most likely for tax reduction purposes.

As Boeing has had two years of massive company profits they can write-off the 747-8 development costs to reduce the tax bill.

The 797 will most likely have massive costs during ramp up which will keep the tax bill low for quite some years. So with the 787 bringing in massive profits it was the perfect opportunity to write-off the 747-8 development costs.

This also means any future 747-8 sale now has a larger profit in that financial year.

Strato2 wrote:
The 747 has been a financial disaster for Boeing.

You mean the 747-8 has been a financial disaster for Airbus.

The 747-8 program will most likely just break even for Boeing as the freighters keep coming down the line at a profit.

The 747-8 successfully prevented Airbus from charging high prices for the A380. That low profit then caused the A380 to be a financial disaster for Airbus.

One could say the 747-8 helped kill the A380. That in my mind makes the 747-8 a raging success.


Boeing’s required to present accurate financial statements, which means its estimates have to be accurate. The write off is resulting from a change in estimate, it has nothing to do with tax write offs nor does it by itself say anything about the profitability of the program.
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rrlopes
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Re: 747-8 Currently Cash Positive?

Mon Feb 11, 2019 2:24 pm

compensateme wrote:

Boeing’s required to present accurate financial statements, which means its estimates have to be accurate. The write off is resulting from a change in estimate, it has nothing to do with tax write offs nor does it by itself say anything about the profitability of the program.


While that's technically true, there is a lot of room for companies to maneuver when filing their results. You can rest assured that the timing of the write off, whenever that happens, is carefully chosen by the company in order to best fit their interests. They "realize" they need to revise the estimates when it's convenient to do so.
 
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Re: 747-8 Currently Cash Positive?

Mon Feb 11, 2019 2:56 pm

rrlopes wrote:
While that's technically true, there is a lot of room for companies to maneuver when filing their results. You can rest assured that the timing of the write off, whenever that happens, is carefully chosen by the company in order to best fit their interests. They "realize" they need to revise the estimates when it's convenient to do so.


Actually, not true. Despite those on this forum that do not like program accounting... It has actual rules. Once it became obvious that the 748 sales projections and the accounting block were wrong; Boeing had to adjust the accounting block at that time; and take whatever write-off would be required. The 748 is a rare case where Boeing has had to reduce an accounting block in their history. The accounting blocks on the other commercial aircraft has done nothing but keep going up as realistic projections of future sales indicates a need for a larger accounting block for the next "y" years.

Another point: Boeing was accused of using an improper accounting block for the 787 and not taking a write-down on the differed production cost some years ago. The Securities and Exchange Commission (SEC) investigated Boeing for this in 2016 - perhaps extending into 2017; and did not find any wrongdoing or improper procedures. My understanding is that the 748 accounting block adjustment and write-off was prior to this investigation and that this SEC investigation also looked at the 748 program accounting and accounting block estimates.

Have a great day,
 
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compensateme
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Re: 747-8 Currently Cash Positive?

Mon Feb 11, 2019 3:06 pm

rrlopes wrote:
compensateme wrote:

Boeing’s required to present accurate financial statements, which means its estimates have to be accurate. The write off is resulting from a change in estimate, it has nothing to do with tax write offs nor does it by itself say anything about the profitability of the program.


While that's technically true, there is a lot of room for companies to maneuver when filing their results. You can rest assured that the timing of the write off, whenever that happens, is carefully chosen by the company in order to best fit their interests. They "realize" they need to revise the estimates when it's convenient to do so.


That generally works on stuff that’s easy to hide (inventory that’s now obsoleted). Manipulating the performance of a jetliner program, regardless of the intentions (e.g. taxes), would undermine confidence and is a pretty big no-no. It will also lead to lots of lawsuits and additional Big Brother scrutiny, if not scantions.
Nobody cares what your next flight is...
 
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Re: 747-8 Currently Cash Positive?

Mon Feb 11, 2019 3:16 pm

2175301 wrote:
Once it became obvious that the 748 sales projections and the accounting block were wrong; Boeing had to adjust the accounting block at that time; and take whatever write-off would be required. The 748 is a rare case where Boeing has had to reduce an accounting block in their history. The accounting blocks on the other commercial aircraft has done nothing but keep going up as realistic projections of future sales indicates a need for a larger accounting block for the next "y" years.



Does it also then free the company to offer signficant discounts to future buyers, or is this not a part of that decision?
 
DL757NYC
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Re: 747-8 Currently Cash Positive?

Mon Feb 11, 2019 3:24 pm

I predict that the 747 will be manufactured for years to come as a freighter.!The range and size along with the nose loading capability put it in a class by itself. When operators that fly the 747F need to replace them they will order the 7478F. The UPS order gave it time to add additional orders.
 
2175301
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Re: 747-8 Currently Cash Positive?

Mon Feb 11, 2019 3:28 pm

NameOmitted wrote:
2175301 wrote:
Once it became obvious that the 748 sales projections and the accounting block were wrong; Boeing had to adjust the accounting block at that time; and take whatever write-off would be required. The 748 is a rare case where Boeing has had to reduce an accounting block in their history. The accounting blocks on the other commercial aircraft has done nothing but keep going up as realistic projections of future sales indicates a need for a larger accounting block for the next "y" years.



Does it also then free the company to offer signficant discounts to future buyers, or is this not a part of that decision?



Great Question: While future pricing is dependent on many factors; the amount of deferred production cost can affect it. How, or if, depends on the situation.

In the case of the 748: It had no effect as the assumption on the amount of money per remaining accounting block aircraft needed to pay off any backlog on differed production cost did not change.

In the case of the 737 & 767: Not likely significant as there is not a huge backlog deferred production cost to be paid off.

In the case of the 787: This could indeed be a factor as an increase in accounting block size lowers the average recovery needed per aircraft estimated to be produced. However, I personally believe what is more likely happening with the 787 - and a larger factor - is that due to production cost decreases that Boeing actually feels that the backlog of deferred program accounting cost are likely to be paid off well before the end of the current accounting block - and thus they can offer new 787's based on just estimated production cost + normal profit, without having to add any money to pay off deferred program accounting backlog cost.

I trust that helps.
 
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Re: 747-8 Currently Cash Positive?

Mon Feb 11, 2019 4:07 pm

RJMAZ wrote:
kitplane01 wrote:
I'm not asking of the program as a whole is profitable (it's not, and there were write-offs to prove it).

First mistake. A write-off does not mean the program as a whole is not profitable.

Copied from another thread.

"These numbers are made up but are approximate to keep the math simple.

On each $200+ million 747-8 aircraft Boeing might make $40 million profit. $20 million of that profit will be allocated to pay off the development cost. The other $20 million goes to the end of year company profit. The remaining money from the sale covers the cost of construction.

That $20 million allocated for development is calculated by taking the development cost of $4 billion and dividing it by 200 aircraft. 200 aircraft is what boeing initially thought they would sell. If Boeing after a few years worked out that it will sell only 150 aircraft then it must take a one off hit of $1 billion. This is what Boeing has done.

Some members think that one off hit means the program has made a loss. That is not the case. Boeing has still been making $40 million profit per frame, they simple did not allocate enough of that profit towards paying off develooment. With 150 frames sold that would be $6 billion of profit which is well over the $4 billion development cost. As Boeing is still making profit on every frame it will or already has broken even and will continue to slowly make a profit."


Your understanding of write-offs is flawed. If previous allocations didn't cover enough of development costs then profits in prior periods were overstated. If the write off is big enough there's a cumulative loss over the entire development and sale period. That's true of airplanes under U.S. accounting rules - or anything else.
 
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Re: 747-8 Currently Cash Positive?

Mon Feb 11, 2019 4:31 pm

RJMAZ wrote:
2175301 wrote:
I also understand that at this point that the entire 748 program is at a "loss" stage; but, if they continue to sell freighters to sustain 6 per year production rates for another 5+ years they may actually achieve break-even on the program. The write-off was because they could no longer predict enough sales to meet the "then current" production block; and had to write off the expected cost recover on "x" amount of frames that represented the difference between the older production block estimate and the new estimate. Continued sales of the freighters would push the production block size back to the original number - and perhaps higher (which would recover the written of money - assuming the average profit per aircraft produced is the same).

Spot on.

Also the write-off was most likely for tax reduction purposes.

As Boeing has had two years of massive company profits they can write-off the 747-8 development costs to reduce the tax bill.

The 797 will most likely have massive costs during ramp up which will keep the tax bill low for quite some years. So with the 787 bringing in massive profits it was the perfect opportunity to write-off the 747-8 development costs.

This also means any future 747-8 sale now has a larger profit in that financial year.

Strato2 wrote:
The 747 has been a financial disaster for Boeing.

You mean the 747-8 has been a financial disaster for Airbus.

The 747-8 program will most likely just break even for Boeing as the freighters keep coming down the line at a profit.

The 747-8 successfully prevented Airbus from charging high prices for the A380. That low profit then caused the A380 to be a financial disaster for Airbus.

One could say the 747-8 helped kill the A380. That in my mind makes the 747-8 a raging success.


The 747-8 cost Boeing more money than you can imagine and at the end of the day the A380 vastly outpaced the 748I in sales... it was a pride thing for Boeing to build this plane and its costing them dearly in the long run.
 
2175301
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Re: 747-8 Currently Cash Positive?

Mon Feb 11, 2019 5:10 pm

sargester wrote:
The 747-8 cost Boeing more money than you can imagine and at the end of the day the A380 vastly outpaced the 748I in sales... it was a pride thing for Boeing to build this plane and its costing them dearly in the long run.


The topic of this thread relates the 748 being currently cash positive. All indications is that it is. By exactly how much per aircraft is unknown.

Two related topics would be would all the initial deferred production cost be paid off; and was the 748 overall profitable for Boeing.

As I have explained above; Boeing took a write off on deferred production cost when it was clear that their anticipated sales for the next "y" years did not match their planned accounting block at the time and the recovery of those deferred production cost (a form of amortization: actual cash cost had been paid). The write-off was for the value related to the change in accounting block size. However, it now appears possible that Boeing will recover that with continued freighter sales (even though that profit will not be written off against deferred production cost).

Overall profitability includes R&D. If I recall correctly Boeing has indicated in the past what the R&D cost was - and you are correct that Boeing is unlikely to every recover that. I understand that the overall losses due to R&D and deferred production write-down in the 2015/2016 timeframe are in the $3-$5 Billion range for the 748.

I'd be very careful with comparing the A380 and the 748; and making claims about "pride" driving decision to proceed with a project. It is my understanding that the A380 has never been cash positive on production (I understand that they were at break even for about 1.5 years) and the R&D cost were far more. Boeing may have lost $3-5 Billion on the 748 (or so). It has been estimated by others who are considered reliable that Airbus has lost between $25-30 Billion on the A380, and Airbus admits that they continues to loose money producing A380's (and Airbus has not and is not saying anything about the cost of the A380).

Please research the issue before you say anything more about it. Lots of information out there - and discussed on many previous A-net threads.

We need to keep this thread on topic - and that is the 748 and its financial performance.

Have a great day,
 
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kitplane01
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Re: 747-8 Currently Cash Positive?

Mon Feb 11, 2019 5:40 pm

2175301 wrote:
The topic of this thread relates the 748 being currently cash positive. All indications is that it is. By exactly how much per aircraft is unknown.
Please research the issue before you say anything more about it. Lots of information out there - and discussed on many previous A-net threads.

We need to keep this thread on topic - and that is the 748 and its financial performance.

Have a great day,


What indications?

I did research and cannot find anything clear. I'm hoping to be educated.
 
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kitplane01
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Re: 747-8 Currently Cash Positive?

Mon Feb 11, 2019 5:43 pm

RJMAZ wrote:
kitplane01 wrote:
I'm not asking of the program as a whole is profitable (it's not, and there were write-offs to prove it).

First mistake. A write-off does not mean the program as a whole is not profitable.


Mathematically true. But it does give a clue.

RJMAZ wrote:
Copied from another thread.

"These numbers are made up but are approximate to keep the math simple.

On each $200+ million 747-8 aircraft Boeing might make $40 million profit. $20 million of that profit will be allocated to pay off the development cost. The other $20 million goes to the end of year company profit. The remaining money from the sale covers the cost of construction.


This is begging the question.

If Boeing is really making a $40 million profit per plane produced, that's my answer. But you wrote that is a made up number. Does anyone know the right number?
 
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PW100
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Re: 747-8 Currently Cash Positive?

Mon Feb 11, 2019 5:55 pm

RJMAZ wrote:
Strato2 wrote:
The 747 has been a financial disaster for Boeing.

You mean the 747-8 has been a financial disaster for Airbus.

One does not exclude the other . . . .


sargester wrote:
The 747-8 cost Boeing more money than you can imagine and at the end of the day the A380 vastly outpaced the 748I in sales... it was a pride thing for Boeing to build this plane and its costing them dearly in the long run.

I think you could not be further from the truth . . . .
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Re: 747-8 Currently Cash Positive?

Mon Feb 11, 2019 6:07 pm

I think we have the answer on a current basis in the fact that Boeing hasn't already stopped selling and planned for program shutdown. If cash flow from sales wasn't covering the cost of producing each incremental frame, Boeing would not have bothered to go out and pound the pavement and get the UPS order, or firm up Volga-Dnepr orders.

To address a couple of other speculative points in the thread...

1) Boeing chose to produce the double-stretch 747-8 passenger frame because LH wrote a check. Emirates and Qantas danced around the single-stretch 8000+ nm version but never actually committed, but LH jumped with both feet into the water, and the result was that LH's preferred plane was built. I think it became clear in hindsight that Emirates had no real interest, and any Qantas order would have been small. Had the double-stretch version made weight and SFC spec, on the other hand, it would have been attractive to a number of European and Far Eastern operators. Instead, those operators all ordered more 77W.

2) The 747-8 program was driven more by inflated expectations than pride IMO, both about how much high-volume hub-to-hub service would be needed and about how well the airplane would perform. The final nail in the coffin was when Boeing had to throw all its resources at saving the 787, resulting in an overweight, aerodynamically underrefined 747-8 being rushed into production without sufficient engineering support. Of course, given the importance of the 787 to Boeing's future that was a necessary decision, but it did sacrifice any prospects for the 747-8 passenger version.
 
2175301
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Re: 747-8 Currently Cash Positive?

Mon Feb 11, 2019 6:45 pm

kitplane01 wrote:
2175301 wrote:
The topic of this thread relates the 748 being currently cash positive. All indications is that it is. By exactly how much per aircraft is unknown.
Please research the issue before you say anything more about it. Lots of information out there - and discussed on many previous A-net threads.

We need to keep this thread on topic - and that is the 748 and its financial performance.

Have a great day,


What indications?

I did research and cannot find anything clear. I'm hoping to be educated.


My 2nd line (that you selected out of my post) about "Please research the issue before you say anything more..." related to the paragraph above it on comparison to A380 and its financial performance. There have been many discussions about the A380 program finances complete with references on A-net. No need to bring that stuff into this thread.

Information on Boeing and the 748 program is mainly buried in various press releases, CEO statements, and financial statements. Be assured though, that in my opinion Boeing would be shutting down the 748 line if it was not profitable and if they did not expect more sales. You might wish to look at their projection of the market for the next 20 years... and focus on the Freighter portion... Historically, Boeing's future market estimates have been fairly accurate. I once looked back over 15 years and tracked their predictions against what developed.

Have a great day.
 
smartplane
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Re: 747-8 Currently Cash Positive?

Mon Feb 11, 2019 7:39 pm

2175301 wrote:
The topic of this thread relates the 748 being currently cash positive. All indications is that it is. By exactly how much per aircraft is unknown.

Two related topics would be would all the initial deferred production cost be paid off; and was the 748 overall profitable for Boeing.

We need to keep this thread on topic - and that is the 748 and its financial performance.

No-one with a clue would or should be posting, unless a retired or disenchanted employee.

A & B operate multiple books, by customer, by model, by function, by....................

When LH purchased the 19x 748i they may have received an upfront discount, plus definitely a retrospective credit, which based on industry practice, would have far exceeded any discount.

Retrospective credits usually appear in the OEM books as market-related expenses, or training, or parts, or upfront discounts on another purchase, or....

Very much doubt any 6 frames a year model, after discounts and credits, is making a profit in true unit terms. But there are so many versions of profit.
 
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Stitch
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Re: 747-8 Currently Cash Positive?

Mon Feb 11, 2019 7:58 pm

Boeing has taken multiple write-downs on the 747-8 program to reflect production and sales slowdowns, the most recent one being $814 million in June 2016 to reflect the program being in a Forward-Loss position per Program Accounting rules.

Since then, they have secured 42 orders (including the two Transaero NTUs taken up by the USAF for the VC-26B PAR) with the two major purchases being 14 747-8Fs ordered by UPS in October 2016 and February 2018. All of these frames should be profitable as they do not need to cover any remaining Deferred Production Costs beyond their own.
 
RJMAZ
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Re: 747-8 Currently Cash Positive?

Mon Feb 11, 2019 8:42 pm

kitplane01 wrote:
This is begging the question.

If Boeing is really making a $40 million profit per plane produced, that's my answer. But you wrote that is a made up number. Does anyone know the right number?

That is less than 10% profit margin based on the list price.

We can actually estimate the profit margin from the company tax bill.

Out of that $40 million profit I estimated, half of that profit goes to pay development cost. $20 million profit is what goes towards the year company profit.

Boeing made $10.5 billion profit last finacial year with 806 commercial aircraft delivered. Those included 580 737s and 145 787s. That works out to be $13 million per aircraft. If we assume the widebodies have twice the profit of the 737 due to size then the 737's have a $10 million profit margin and the widebodies a $20 million profit margin.

If the 747-8 has been maintaining this average profit the program will definitely break even with the current order book.
 
mxaxai
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Re: 747-8 Currently Cash Positive?

Mon Feb 11, 2019 8:57 pm

kitplane01 wrote:
2175301 wrote:
The topic of this thread relates the 748 being currently cash positive. All indications is that it is. By exactly how much per aircraft is unknown.
Please research the issue before you say anything more about it. Lots of information out there - and discussed on many previous A-net threads.

We need to keep this thread on topic - and that is the 748 and its financial performance.

Have a great day,


What indications?

I did research and cannot find anything clear. I'm hoping to be educated.

The simple indication that it is still in production and that Boeing is still accepting orders. The 747 has no future; there is no '747-8max' or '747-9x' waiting out there. Neither is there an Emirates just waiting to place an order for 100 frames. So Boeing has no interest to stretch the production at a loss until some new technology or order comes along. They can choose to only accept profitable orders or alternatively end production and use the resources on something more worthwhile.

Now, the profits are likely small. 6 per year is an incredibly slow rate. What gives Boeing some pricing power is that Airbus has no real long-haul freighter on the market. The A330-200F is a completely different market. But it's not like the narrowbody market where airlines are willing to pay a premium for faster delivery.
 
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FlightLevel360
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Re: 747-8 Currently Cash Positive?

Mon Feb 11, 2019 9:01 pm

I certainly hope its financials are improving due to the cargo 8F orders.
It's not the A220. It's the Bombardier CSeries. Period.
Long live the A380 and 747!
 
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Slug71
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Re: 747-8 Currently Cash Positive?

Mon Feb 11, 2019 9:08 pm

No. And probably never will be.
 
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Re: 747-8 Currently Cash Positive?

Mon Feb 11, 2019 9:48 pm

Even at a loss (since you are in), revenue to Boeing is still revenue to Boeing.
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boeingbus
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Re: 747-8 Currently Cash Positive?

Mon Feb 11, 2019 11:32 pm

People comment here like they know... lol -if Boeing doesn't release numbers than you don't know. Most Boeing employees don't know. So all these are guesses or assumptions based on the news, or facts like the backlog or deliveries.

One thing we do know is that Boeing would not leave a line open if it wasn't profitable or lacked a profitable business case. The 747 is a complicated program and they would love to cancel it. So, I personally think the 747 makes money and there is interest for freighters. This makes it a worthwhile and profitable venture. That's my hunch.
Airbus or Boeing - it's all good to me!
 
jetblueguy22
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Re: 747-8 Currently Cash Positive?

Mon Feb 11, 2019 11:57 pm

sargester wrote:
RJMAZ wrote:
2175301 wrote:
I also understand that at this point that the entire 748 program is at a "loss" stage; but, if they continue to sell freighters to sustain 6 per year production rates for another 5+ years they may actually achieve break-even on the program. The write-off was because they could no longer predict enough sales to meet the "then current" production block; and had to write off the expected cost recover on "x" amount of frames that represented the difference between the older production block estimate and the new estimate. Continued sales of the freighters would push the production block size back to the original number - and perhaps higher (which would recover the written of money - assuming the average profit per aircraft produced is the same).

Spot on.

Also the write-off was most likely for tax reduction purposes.

As Boeing has had two years of massive company profits they can write-off the 747-8 development costs to reduce the tax bill.

The 797 will most likely have massive costs during ramp up which will keep the tax bill low for quite some years. So with the 787 bringing in massive profits it was the perfect opportunity to write-off the 747-8 development costs.

This also means any future 747-8 sale now has a larger profit in that financial year.

Strato2 wrote:
The 747 has been a financial disaster for Boeing.

You mean the 747-8 has been a financial disaster for Airbus.

The 747-8 program will most likely just break even for Boeing as the freighters keep coming down the line at a profit.

The 747-8 successfully prevented Airbus from charging high prices for the A380. That low profit then caused the A380 to be a financial disaster for Airbus.

One could say the 747-8 helped kill the A380. That in my mind makes the 747-8 a raging success.


The 747-8 cost Boeing more money than you can imagine and at the end of the day the A380 vastly outpaced the 748I in sales... it was a pride thing for Boeing to build this plane and its costing them dearly in the long run.

Yeah, Airbus just printed money with the A380, and never waived the European pride flag....

Saying the 747-8 was more of a pride thing than the A380 is bizarre. Yeah Boeing wanted it to go up against the A380, but it had nothing to do with pride. Airbus proved any plane you build on national pride is going to be a white elephant (or in this case, whale, if you will). And now they’re paying for it. While -8 orders have trickled in, albeit at a snails pace.
Look at sweatpants guy. This is a 90 million dollar aircraft, not a Tallahassee strip club
 
acjbbj
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Re: 747-8 Currently Cash Positive?

Tue Feb 12, 2019 12:42 am

sargester wrote:
The 747-8 cost Boeing more money than you can imagine and at the end of the day the A380 vastly outpaced the 748I in sales... it was a pride thing for Boeing to build this plane and its costing them dearly in the long run.


No, the A380 was a pride thing. The 747 Dash 8 is a new generation of a tried-and-true plane that was designed for real demand, from real airlines.
Douglas Aircraft Company
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JayinKitsap
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Re: 747-8 Currently Cash Positive?

Tue Feb 12, 2019 1:06 am

They have a backlog of 24, so 4 years at 6/yr. If no new orders are booked by mid 2020, it will likely stop. Orders placed indicate Boeing is more ahead building more than not. Possibly they are aware of a 20 unit order out there, freighters do keep selling.
 
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cpd
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Re: 747-8 Currently Cash Positive?

Tue Feb 12, 2019 1:12 am

acjbbj wrote:
sargester wrote:
The 747-8 cost Boeing more money than you can imagine and at the end of the day the A380 vastly outpaced the 748I in sales... it was a pride thing for Boeing to build this plane and its costing them dearly in the long run.


No, the A380 was a pride thing. The 747 Dash 8 is a new generation of a tried-and-true plane that was designed for real demand, from real airlines.



That reads like marketing talk and clever wording to try and trip up people, but you aren't confusing me. The real demand is gone, that's why airlines have ditched 747-400s in large numbers. And the new generation of this tried and true plane is largely unwanted.

As for real airlines, does that include the likes of Oasis Hong Kong, Baltia Airlines, etc - both of whom had the 747.

Both types of plane are probably on the way out.
 
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flyingclrs727
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Re: 747-8 Currently Cash Positive?

Tue Feb 12, 2019 1:55 am

RJMAZ wrote:
2175301 wrote:
I also understand that at this point that the entire 748 program is at a "loss" stage; but, if they continue to sell freighters to sustain 6 per year production rates for another 5+ years they may actually achieve break-even on the program. The write-off was because they could no longer predict enough sales to meet the "then current" production block; and had to write off the expected cost recover on "x" amount of frames that represented the difference between the older production block estimate and the new estimate. Continued sales of the freighters would push the production block size back to the original number - and perhaps higher (which would recover the written of money - assuming the average profit per aircraft produced is the same).

Spot on.

Also the write-off was most likely for tax reduction purposes.

As Boeing has had two years of massive company profits they can write-off the 747-8 development costs to reduce the tax bill.

The 797 will most likely have massive costs during ramp up which will keep the tax bill low for quite some years. So with the 787 bringing in massive profits it was the perfect opportunity to write-off the 747-8 development costs.

This also means any future 747-8 sale now has a larger profit in that financial year.

Strato2 wrote:
The 747 has been a financial disaster for Boeing.

You mean the 747-8 has been a financial disaster for Airbus.

The 747-8 program will most likely just break even for Boeing as the freighters keep coming down the line at a profit.

The 747-8 successfully prevented Airbus from charging high prices for the A380. That low profit then caused the A380 to be a financial disaster for Airbus.

One could say the 747-8 helped kill the A380. That in my mind makes the 747-8 a raging success.


And the 748F kept the A380F program from ever being brought back after the wiring harness fiasco caused Airbus to cancel the A380F to concentrate engineering resources on getting the A380 passenger program back on track. The original business plan was to have the freighter to increase the number of aircraft built and be able to amortized the program costs over more units.
 
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flyingclrs727
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Re: 747-8 Currently Cash Positive?

Tue Feb 12, 2019 2:08 am

mxaxai wrote:
kitplane01 wrote:
2175301 wrote:
The topic of this thread relates the 748 being currently cash positive. All indications is that it is. By exactly how much per aircraft is unknown.
Please research the issue before you say anything more about it. Lots of information out there - and discussed on many previous A-net threads.

We need to keep this thread on topic - and that is the 748 and its financial performance.

Have a great day,


What indications?

I did research and cannot find anything clear. I'm hoping to be educated.

The simple indication that it is still in production and that Boeing is still accepting orders. The 747 has no future; there is no '747-8max' or '747-9x' waiting out there. Neither is there an Emirates just waiting to place an order for 100 frames. So Boeing has no interest to stretch the production at a loss until some new technology or order comes along. They can choose to only accept profitable orders or alternatively end production and use the resources on something more worthwhile.

Now, the profits are likely small. 6 per year is an incredibly slow rate. What gives Boeing some pricing power is that Airbus has no real long-haul freighter on the market. The A330-200F is a completely different market. But it's not like the narrowbody market where airlines are willing to pay a premium for faster delivery.


At 6 orders per year, Boeing can deter Airbus from developing a large long rang freighter based on the A350. Any order large enough to encourage Airbus to build a long range freighter based on the A350 could easily be undercut by Boeing offering 748F or 777F with short lead times. A big enough order of
748F could get Boeing to either increase 748F production rates or negotiatiate with UPS to defer some of its deliveries to free up earlier delivery slots.
 
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Slug71
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Re: 747-8 Currently Cash Positive?

Tue Feb 12, 2019 3:10 am

RJMAZ wrote:
kitplane01 wrote:
This is begging the question.

If Boeing is really making a $40 million profit per plane produced, that's my answer. But you wrote that is a made up number. Does anyone know the right number?

That is less than 10% profit margin based on the list price.

We can actually estimate the profit margin from the company tax bill.

Out of that $40 million profit I estimated, half of that profit goes to pay development cost. $20 million profit is what goes towards the year company profit.

Boeing made $10.5 billion profit last finacial year with 806 commercial aircraft delivered. Those included 580 737s and 145 787s. That works out to be $13 million per aircraft. If we assume the widebodies have twice the profit of the 737 due to size then the 737's have a $10 million profit margin and the widebodies a $20 million profit margin.

If the 747-8 has been maintaining this average profit the program will definitely break even with the current order book.


Maybe if you exclude the write-offs.

https://www.forbes.com/sites/scotthamil ... event/amp/
 
airzona11
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Re: 747-8 Currently Cash Positive?

Tue Feb 12, 2019 3:43 am

sargester wrote:
RJMAZ wrote:
2175301 wrote:
I also understand that at this point that the entire 748 program is at a "loss" stage; but, if they continue to sell freighters to sustain 6 per year production rates for another 5+ years they may actually achieve break-even on the program. The write-off was because they could no longer predict enough sales to meet the "then current" production block; and had to write off the expected cost recover on "x" amount of frames that represented the difference between the older production block estimate and the new estimate. Continued sales of the freighters would push the production block size back to the original number - and perhaps higher (which would recover the written of money - assuming the average profit per aircraft produced is the same).

Spot on.

Also the write-off was most likely for tax reduction purposes.

As Boeing has had two years of massive company profits they can write-off the 747-8 development costs to reduce the tax bill.

The 797 will most likely have massive costs during ramp up which will keep the tax bill low for quite some years. So with the 787 bringing in massive profits it was the perfect opportunity to write-off the 747-8 development costs.

This also means any future 747-8 sale now has a larger profit in that financial year.

Strato2 wrote:
The 747 has been a financial disaster for Boeing.

You mean the 747-8 has been a financial disaster for Airbus.

The 747-8 program will most likely just break even for Boeing as the freighters keep coming down the line at a profit.

The 747-8 successfully prevented Airbus from charging high prices for the A380. That low profit then caused the A380 to be a financial disaster for Airbus.

One could say the 747-8 helped kill the A380. That in my mind makes the 747-8 a raging success.


The 747-8 cost Boeing more money than you can imagine and at the end of the day the A380 vastly outpaced the 748I in sales... it was a pride thing for Boeing to build this plane and its costing them dearly in the long run.


What has cost Boeing dearly? This is utter nonsense. On top of what others have said above, there have been anecdotal accounts of Boeing not accepting offers to make the plane at cost or cost. Boeing doesn't break the models out, but with UPS orders amongst others trickling in, Cash Flow positive is well within the realm of possibility.
 
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LAX772LR
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Re: 747-8 Currently Cash Positive?

Tue Feb 12, 2019 5:20 am

RJMAZ wrote:
The 747-8 successfully prevented Airbus from charging high prices for the A380.

That's a pretty declarative statement, for something that has essentially nil public evidence to substantiate, relative to alternative explanations.
I myself, suspect a more prosaic motive... ~Thranduil
 
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gennadius
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Re: 747-8 Currently Cash Positive?

Tue Feb 12, 2019 5:43 am

JayinKitsap wrote:
They have a backlog of 24, so 4 years at 6/yr. If no new orders are booked by mid 2020, it will likely stop. Orders placed indicate Boeing is more ahead building more than not. Possibly they are aware of a 20 unit order out there, freighters do keep selling.


There is the Volga-Dnepr MoU for 20 that they expected deliveries for through 2022. Of that, there are 12 left to be firmed, and they have been doing so under the ABC name in ones and twos. Perhaps Boeing knows that they will be building these.

Beyond that, Silk Way expressed last year that they would like to eventually take up to 20 frames over 10 years.

The simplest answer is probably that there has been enough interest expressed, in whatever format, for them to see the line through into the main -400F replacement cycle.
Per ardua, ad astra
 
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kitplane01
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Re: 747-8 Currently Cash Positive?

Tue Feb 12, 2019 5:54 am

seabosdca wrote:
I think we have the answer on a current basis in the fact that Boeing hasn't already stopped selling and planned for program shutdown. If cash flow from sales wasn't covering the cost of producing each incremental frame, Boeing would not have bothered to go out and pound the pavement and get the UPS order, or firm up Volga-Dnepr orders.


mxaxai wrote:
The simple indication that it is still in production and that Boeing is still accepting orders. The 747 has no future; there is no '747-8max' or '747-9x' waiting out there. Neither is there an Emirates just waiting to place an order for 100 frames. So Boeing has no interest to stretch the production at a loss until some new technology or order comes along. They can choose to only accept profitable orders or alternatively end production and use the resources on something more worthwhile.



You both are assuming that Boeing would not build 748's without making a profit, but we already know Airbus is doing exactly that. Boeing's motive to produce loss making 748s cannot reasonably be to wait for a NEO, like the A380 hypothetically might get. But it could be other things ... (1) Damage Airbus's economics (2) Pride (3) Wanting to keep the line open for Air Force One (accomplished) (4) some internal Boeing reason.

Airbus has said out loud for all to hear that the A380 is loss making going forward.

Is it the case the Boeing just has not said? What has Boeing ever said about the profitability of the 748 going forward?

BTW, I think you're both probably right. But not for sure.
 
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kitplane01
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Re: 747-8 Currently Cash Positive?

Tue Feb 12, 2019 5:55 am

flyingclrs727 wrote:

At 6 orders per year, Boeing can deter Airbus from developing a large long rang freighter based on the A350. Any order large enough to encourage Airbus to build a long range freighter based on the A350 could easily be undercut by Boeing offering 748F or 777F with short lead times. A big enough order of
748F could get Boeing to either increase 748F production rates or negotiatiate with UPS to defer some of its deliveries to free up earlier delivery slots.


Actually, I would assume the A350F would have much better economics than the 748F.
 
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NameOmitted
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Re: 747-8 Currently Cash Positive?

Tue Feb 12, 2019 6:02 am

kitplane01 wrote:
flyingclrs727 wrote:

At 6 orders per year, Boeing can deter Airbus from developing a large long rang freighter based on the A350. Any order large enough to encourage Airbus to build a long range freighter based on the A350 could easily be undercut by Boeing offering 748F or 777F with short lead times. A big enough order of
748F could get Boeing to either increase 748F production rates or negotiatiate with UPS to defer some of its deliveries to free up earlier delivery slots.


Actually, I would assume the A350F would have much better economics than the 748F.


I don't think the point was about the merits of a possible A350F, simply the fact that at this point Boeing could sell the 747-8f without having to account for development costs. That would be a significant advantage in any sale, and as long as the line is open, that's part of the math for deciding to go ahead with an A350F.

Whatever else there is on the balance sheet for the program, it does serve as a "fleet in being" against any move for Airbus to develop a large freighter.
 
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seabosdca
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Re: 747-8 Currently Cash Positive?

Tue Feb 12, 2019 6:12 am

kitplane01 wrote:
You both are assuming that Boeing would not build 748's without making a profit, but we already know Airbus is doing exactly that. Boeing's motive to produce loss making 748s cannot reasonably be to wait for a NEO, like the A380 hypothetically might get. But it could be other things ... (1) Damage Airbus's economics (2) Pride (3) Wanting to keep the line open for Air Force One (accomplished) (4) some internal Boeing reason.


Sure, companies occasionally have reasons to continue a loss-making activity. But none of your suggested reasons is credible with respect to the 747-8 in 2019. (1) The A380's economics have been irrelevant to Boeing since 2012, when Airbus received the last non-Emirates A380 order. By then it was clear that no one was going to be evaluating a 747-8 against any Airbus product ever again, because non-Emirates passenger operators preferred the economics of the 77W or A350. (2) BCA has been managed in a very pride-free manner since the 787 debacle. The 777X adopted only the lowest-risk elements of the 787 program. The 797 appears to be technologically modest, while management is demanding a bulletproof business case. Boeing swiftly postponed its ambitious NSA concept when the need for an immediate response to the A320neo became clear in the marketplace. The Queen is the Queen, but Boeing hasn't been prideful about her either. It abandoned Project Ozark when airlines showed tepid interest and by all accounts was prepared to close the line until UPS came along. (3) Already done (as you noted) with white-tail aircraft -- no need to keep the line open. (4) Internal politics can cause things like the 787 being marketed as an 8-abreast aircraft when both Boeing and airlines knew perfectly well it was 9 abreast, but it's not going to permit losing hundreds of millions a year on a zombie airplane.

kitplane01 wrote:
Airbus has said out loud for all to hear that the A380 is loss making going forward.

Is it the case the Boeing just has not said? What has Boeing ever said about the profitability of the 748 going forward?


And Airbus is rumored to be closing the A380 program, and taking actions that point toward that outcome. Boeing has said nothing since it took the last 747-related writeoff, but I firmly believe that if it were losing money on a frame-by-frame basis it would not have taken either UPS order and the line would be closing right about now.
 
jeffrey0032j
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Re: 747-8 Currently Cash Positive?

Tue Feb 12, 2019 7:20 am

kitplane01 wrote:
flyingclrs727 wrote:

At 6 orders per year, Boeing can deter Airbus from developing a large long rang freighter based on the A350. Any order large enough to encourage Airbus to build a long range freighter based on the A350 could easily be undercut by Boeing offering 748F or 777F with short lead times. A big enough order of
748F could get Boeing to either increase 748F production rates or negotiatiate with UPS to defer some of its deliveries to free up earlier delivery slots.


Actually, I would assume the A350F would have much better economics than the 748F.

The 777F already has better economics than the 748F, but there is still a trickle of demand for the 748F due to unique configurations no other A or B planes can do commercially (ie not in house Beluga/Dreamlifter).
 
Max Q
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Re: 747-8 Currently Cash Positive?

Tue Feb 12, 2019 7:26 am

Boeing has made a fortune from most of the 747 versions for over fifty years now, a few subtypes like the -SP and 300 series were not runaway successes but they’re all part of the same program


The 8I falls into that same category but it’s way too early to count out the 8F, there’s nothing else that can do the same mission or even come close, I predict Boeing will sell a couple of hundred more to replace the -400F and I believe there’ll be a NG version



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smartplane
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Re: 747-8 Currently Cash Positive?

Tue Feb 12, 2019 8:37 am

boeingbus wrote:
One thing we do know is that Boeing would not leave a line open if it wasn't profitable or lacked a profitable business case. The 747 is a complicated program and they would love to cancel it. So, I personally think the 747 makes money and there is interest for freighters. This makes it a worthwhile and profitable venture. That's my hunch.

My hunch is LH negotiated a buyback on their 'i' purchases, triggered until a specific age, and / or by events. One of those events is likely keeping production open for a specific number of years. If production ceases then the buyback will apply, with either aircraft handed back for pre-agreed values, or additional credits issued (customer option).

As buyback values erode with age and cycles, presumably at some point a crossover is reached, and closing the line will be cost-effective.
 
smartplane
Posts: 500
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Re: 747-8 Currently Cash Positive?

Tue Feb 12, 2019 8:38 am

boeingbus wrote:
One thing we do know is that Boeing would not leave a line open if it wasn't profitable or lacked a profitable business case. The 747 is a complicated program and they would love to cancel it. So, I personally think the 747 makes money and there is interest for freighters. This makes it a worthwhile and profitable venture. That's my hunch.

My hunch is LH negotiated a buyback on their 'i' purchases, triggered until a specific age, and / or by events. One of those events is likely keeping production open for a specific number of years. If production ceases then the buyback will apply, with either aircraft handed back for pre-agreed values, or additional credits issued (customer option).

As buyback values erode with age and cycles, presumably at some point a crossover is reached, and closing the line will be cost-effective.
 
Bongodog49
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Re: 747-8 Currently Cash Positive?

Tue Feb 12, 2019 10:13 am

Does each sale cover the cost of materials and labour ? probably, though i recall that Boeing have taken some work back in house as suppliers have pulled out as the low production rate is not economic for them. have to bear in mind though that workers carrying out a task 6 times a year are far less efficient than ones doing the same task 36 times a year.
As to the development costs, the cost of the floor space which could probably be used for something more profitable, and the jigs and tooling, I can't see any way this is going to be paid off.

Some of the financial calculations and their reasoning on this thread make me gasp, you really can't take an overall profit figure from a company making 800 aircraft across 5 different families and just allocate a profit figure for each one.
As to the attitude towards development costs and write offs, just because you write a colossal figure off it doesn't disappear in to the wilderness and no longer have a value. Try this, put 200 beans in a jar, take out all 200 beans and spend them developing a product. As you make each example put 2 beans back in the jar expecting that the jar will be full again after 4 years. When its only half full after 4 years and you write off the missing 100 they don't just appear do they ? The write off is an accountancy term to admit that they will not be returning, yes as a result you get some tax credits, but you don't get all your beans back.

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