Bernstein assess 787 profitability

Bernstein Research issued a report today assessing the Boeing 787 program profitability.

Highlights:

  • It appears unlikely to us that Boeing will deliver a positive program gross margin over an initial accounting block of 1000 airplanes, if production inventory results so far can serve as a guide.
  • We have evaluated scenarios varying price, baseline cost (cost of 45th airplane), and learning curve rates. We apply parameters that we see as optimistic, including average pre-escalated pricing of $120 million (50/50 787-8 /787-9 mix) and an 82.5% learning curve.
  • We assume a slower production ramp than Boeing’s plan (10/month rate reached in late 2014, rather than late 2013).
  • If the initial accounting block were set higher than 1,000, we believe the challenge for profitability would be less, but still significant. Boeing management maintains that it is not in a forward loss position on the program. This means that Boeing is making more positive assumptions about the program, which could include some significant sources of cost savings in the future (e.g. redesign of structure or components, manufacturing process changes).
  • On the positive side, by the 1,000th unit, Boeing should be delivering unit gross margins that are reasonably close to those on the 777 today (20%). From a unit margin or annual cash flow standpoint, we expect the program to turn positive around the 2015-16 timeframe
  • There are also events later in the decade that could add to margins. Production rates could be taken up above 11.5/month (our model), which we see as eventually likely – but, dependent on economic conditions. Boeing may introduce the 787-10, which, depending on level of performance (particularly range) could add to pricing, but also require investment.
  • We now assume zero gross margins for the 787 through 2015 on a program basis. This means that BCA margins are slightly more diluted due to the 787.
  • Cash flows should benefit as pre-built 787 deliveries are delivered in 2012 and 2013, but we expect cash flows to decline in 2014 as a steeper production ramp takes place (consistent with our nine month assumed delay in going to 10/month).

11 comments on “Bernstein assess 787 profitability

  1. Then the faster Boeing climbs the learning curve and gets production to at least 10 B-787s per month, the faster that program will become profitable.

  2. I would think that the N. Charleston 787 production line is the sleeper. Boeing publicly says that the maximum rate is 3 aircraft per month but I think the N, Charleston line would ultimately be capable of producing 6 or 7 aircraft per month. N. Charleston is a sensitive issue with the unions in Puget Sound and the NLRB, so I think Boeing is downplaying its ultimate production capability.

  3. Actually- The power point rangers have discovered the new financial model to assure adequate bonus and platinum parachutes. ” we lose money on every unit, but make up for it in volume “

  4. The Charlston plant will play a big role in getting the B-787 to profitability. But, for now it is wise Boeing not bring any more headlines to the Charleston Plant, or the IAM and NLRB will be all over it like unions on democrats.

  5. Well so much for that analyst who was raving about all the hidden profit stacked up in the undelivered airframes… Where was that rolleyes smiley again?

  6. KC135TopBoom :
    Then the faster Boeing climbs the learning curve and gets production to at least 10 B-787s per month, the faster that program will become profitable.

    I think what Boeing is currently does is i) trying to get down the cost learning curve at low production volumes to limit (further) excessive accumulation of deferred production cost and ii) wait for 787-9 design changes that are essential to get production cost down to bearable levels.

    • As I understand it, Boeing is hoping to do that by B-787-8 #45. That may be a little to optomistic. To me it may be more likely they get their production costs down to where they think they can get it when the deliver B-787-9 #45.

  7. KC135TopBoom :
    As I understand it, Boeing is hoping to do that by B-787-8 #45. That may be a little to optomistic. To me it may be more likely they get their production costs down to where they think they can get it when the deliver B-787-9 #45.

    No way, the first 787-9 airframe is LN139 with a first flight in Q1/Q2 2013, so revised components are unlikely to show up much earlier than end of 2012.

    That said, I’d never expect recurring cost of an airplane to reach the nominal program average level before LN100. Nowadays, with all the complexity added into aircraft and programs, it may even be LN200.

  8. Pingback: Bernstein assess 787 profitability | Boeing Commercial Airplanes | Scoop.it

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