787 certification expected this week

Bloomberg News writes that 787 certification may come August 26. In a superb article giving a current assessment of the program, Bloomberg cites Bernstein Research as estimating the first 1,000 airplanes will cost an average of $116m each. The program accounting block–the point at which the 787 will break even–is expected to be at least 1,000 airplanes, according to most forecasts by Wall Street analysts. Boeing’s accounting block historically has been around 400. Boeing should give the accounting block on this program with the third quarter earnings call in October, assuming first delivery in September.

18 Comments on “787 certification expected this week

  1. It will be good news for Boeing and the B-787 program if the FAA and EASA certify the B-787-8 RR Trent-1000 powered version this Friday, 26 August 2011.

    About the Wall Street predicted break even point for the B-787 program being at the 1,000th airplane, look at their own record. Did they predict the housing crash and global economy crash of 2008? No. They have predicted the global and US economies would recover by 2010. They were wrong about that, too. Boeing says the break even point is airplane #400. I think that is wrong, two. It may be somewhere between airplane #650 and #750, but within the current order book for all versions of the B-787.

    • So Wallstreet tends to be overly optimistic?
      Breakeven at #4000 then you think?

      Actually the first articles I read warning about the housing crisis
      ( in reality a credit market leveraged from nonexisting value )
      were from 2000/2001 getting more intense in the years to come.
      Only not from Wallstreet but from people in good old Europe.
      ( OK, we don’t know s*t about the economy 😉

  2. From the article:
    “Boeing amassed $16.2 billion worth of inventory related to the 787 through June 30, with so many almost-finished jets the company ran out of room to park them.”

    $16.9b / 40 ~= $422.5m per currently (partly) finished frame
    alternative view:
    $16.9b / $116m ~= 146 complete frames at block cost.
    The actual accumulated value of the 35 mostly finished frames should be below $2.45b.
    (That is the amount the customers will pay for.)

    • Problem is you don’t know what that inventory consists of, so using you analysis may not be one-to-one comparison. It may be both usable and unusable inventory, and may include testing equipment and inventory for various stages of assembly. So just saying $16.2 B is incomplete a/c might be a stretch.

      • Certainly.

        The tag here is “inventory” : that represents sellable items and accessories like tooling.
        So would it be better to replace the comma with a fullstop in the sentence above delinking the statement about inventory and lack of room for storage?

        Squishing the billions out on 1500 samples ( potential break even) is still more than $10m per.
        I am not a bookkeeper but US style valuations always seems
        to be so far over to the bright side that it charrs your fingers 😉

  3. Steven Udvar-Hazy said it would take at least 1,500 deliveries before Boeing could expect to brake even. And things have only gotten worst since he said that.

    It starts with the selling price of $116M. We know that more than 800 aircraft were sold at that low price and possibly even less than that when all the discounts are factored in. What about the options? If exercised at the agreed price we can almost double the 800 figure, which would take us closer to the Udvar-Hazy figure.

    Add to that 3 1/2 years of delays. That means an additional 3 1/2 years of negative cash flow. And we also have to take into consideration the penalties associated with those delays.

    Boeing also had to buy back Global Aeronautica and restructure it. That was not part of the initial business plan. It will have to be factored in eventually, along with the discrepancies between the projected manufacturing costs and the actual production costs.

    Boeing then decided to build a brand new factory in South Carolina to increase production rates. But how long will it take before they go over the learning curve over there and start to make a profit? They are not even there yet in Washington State!

    One day, very far in the future, Boeing will start to produce a 787 at a lower price than the one it was sold at. They will also eventually make money on parts and services. But until then they will have have to absorb a huge deficit.

    Take the above 1000-1500 figure and divide it by the slowly but steadily increasing number of aircraft that will be delivered every month. The figure you will obtain represents roughly the number of years Boeing will run a deficit on the Dreamliner.

    That’s just a minimum.

  4. I agree with Steve Hazy and Norman, especially with his detailed breakdown,
    while all the other comments are just wishful thinking and blaming other
    parties like Wall Street for bad forecasting re. totally unrelated issues!

  5. The “break even” is a quite virtual number. Interesting is when:
    > the B787 (as program) generates positive cash flow
    > the resources required to generate the aircraft (including R&D) are freed for other programs
    While the first correlates to the improvement in the production process, the latter is mainly a technical question.

    We have seen with the A380 how difficult and time consuming the fixing of a flawed production is. The A380 is more complex than the B787 in some respects, but the B787 is supposed to flow out of the factory in larger numbers.

    Although I have no doubt that the B787 will finally be successful (both in performance as well as product), I think we will see more bad news coming up. The bad news didn’t end for A380 on the day of first delivery. I think 2011 is the first year Airbus matches its own delivery (yearly revised!) forecasts.

    • The distribution of sunk value like workforce activity in late changes, tooling, junked materials .. to convertible assets is the interesting aspect.
      My examples tried to show that only a smaller part of the “inventory” is in sellable items, i.e. parts completed to various degrees.

    • The “break even” is indeed a virtual number. Nobody will know for sure until the actual number is reached.

      The same thing applies for many the projections that were put forward when Boeing launched the project in 2004.

      1- A predicted four month flight test schedule before certification. Simply ludicrous.

      2- Outsourcing of critical sub-assemblies to an inexperienced workforce at the other end of the country. Not brilliant either.

      3- Selling the aircraft for peanuts, expecting to keep away from the competition as many customers as possible. That’s one area they were successful. The problem is they are now victim of that success. For they sold far too many airplanes at a ridiculously low price.

      Those virtual projections were flawed. Some of them even laughable, even at the time. And I am not saying this with the benefit of hindsight. Right from the start I knew that they were indeed dreaming.

      • Exactly. And once again proving the old axiom, if it sounds too good to be true, it’s too good to be true.

      • Although all your points sound reasonable, how come comments like this were not written with so much reassurance when these schedules were first announced? After all, it was not the schedule per se that was wrong, but the execution. Would you be willing to bet that Airbus will not complete certification of its A350 in the time frame that they said? Is really easy to be an expert after the facts.

  6. Andrew, I wish I had made a written comment back then around 2004-2005. For at the time I was reading Aviation Week with renewed anticipation week after week and could not believe what the Boeing planners where saying about the flight test schedule and the production schedule. Intuitively it made no sense to me.

    They were speaking at the time like if they had just reinvented the world. The thought that occurred to me then was that it was all wishful thinking derived from data coming out of fancy computer programs that made impressive but virtual (out of this world) projections. The stuff of hotshot MBA kids.

    Yes the execution was flawed. But so was the planning. And these two operations have to be done in sequence. You must do the planning first. It’s only after you have evaluated all the consequences of your decisions that you can proceed with the execution.

    And you most never forget to apply Murphy’s law into your equations.

    • It is about what “the other professional” in the field said about the Dreamliner
      product, design and manufacturing methods 😉
      Fortunately for Boeing ( and by Boeing?) defanged by way of the jingoistic bashing
      spree kicked of just before the 787 project derailed from its feet of clay.

  7. Actually, I always trusted the schedules Boeing put in the media. Sure, a few month delay is always possible and nothing too hack on too much. I was quite surprised in 2007-2009 about the 6-month schedule slips.
    Today, with all hindsight, I don’t believe anything from Boeing any more. But maybe I am surprised positively in near future (for example with the B787-9).

    • Using new tech on a new design and manufacturing setup
      in a compressed/accellerated timeframe?

      Harumpf. That was never realistic to believe imho.

      Boeings published schedules were from lalaland from the outset.
      The only thing really coming off well was the marketing and pulling the
      wool around most everybodies head for quite some time.
      ( and it still seems to be irremovably glued onto some brains ).
      Was there ever a critical accessment over the time that Boeing hasn’t
      underrun sucessfully. ( Lets leave out over the top things like
      “will never fly” or “will not lift of due to turbulence from the home
      depot fasteners” 😉

      Blindness was created by that overlay from the “us better than them”

      • Right Uwe, and I bet you been saying the same thing all along about all the schedules and marketing stuff that Airbus just trows to the general public.

  8. Tom :
    Right Uwe, and I bet you been saying the same thing all along about all the schedules and marketing stuff that Airbus just trows to the general public.

    If you change from a black&white view to high resolution grays
    you will see a pronounced difference in performance between Airbus and Boeing.
    What people like TB see as big blocks of black and white actually is a finely composed
    tapestry of performance.

    My entry into the fray then was from interest in new planes ( the A380, later the 787 )
    and trying to understand the myopic bashing wave coming across from the US.
    It was so much a “BushII think thing” that it was a certainty that “somebody” pushes
    from behind for the home team.

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