787: Breaking Even, Operating Costs and Worldwide tour

The Everett Herald Nov. 27 had an interesting article assessing the break-even of the Boeing 787. The article neatly summarizes what Boeing CFO James Bell described on the 3Q earnings call. The Herald’s article is slightly out of date, not accounting for the cancellation of 24 airplanes by China Eastern and dropping the firm orders to just under 800.

Graphic (would not load in our Firefox but did load in Chrome).

Separately, the company that created PIANO–the cost-analysis tool to determine aircraft operating costs–published an assessment of the 787’s operating costs and related CO2 emissions reduction. The results were surprising.

Boeing found a way to utilize one of the first three test airplanes longer-term. These airplanes won’t be sold and have been written off. The company took #3, painted it up in the Boeing colors, outfitted it with the full interior and embarked on a world tour as a marketing and sales tool. It’s a highly creative solution to what to do with the test airplane now that testing is over. It’s only a six month tour but it’s a good move.

35 Comments on “787: Breaking Even, Operating Costs and Worldwide tour

  1. Well, Boeing still has just under 800 firm orders on the books, and production slots are filled until at least 2018. For Boeing to reach the magic break even point they must sell about 300 more B-787s for production between 2018 and 2021 to reach the 1100 airplane sales/produced/delivered 10 years from now. That is not an unheard of possibility. Both Airbus and Boeing have repeatedly done that (sold 300 + airplanes of one type in a 3 year period).

    Even after the B-787-9 is in airline service, I doubt Boeing will just sit on their hands for the B-787. They will have continued PIPs and other improvements over the next decade, and beyond that will help them sell more airplanes.

    • AA’s order hasn’t been finalized yet and there are a lot of options/rights not taken up (yet). Over all, I think the program will be beneficial to Boeing.

  2. Jet another example of people not understanding project accounting. The accounting block does not include development costs and thus fall way short of providing break even point.

    It is the equivalent of saying I’m checking how much is on my bank account to know how much profit I make.

    • The costs have been sunk in anyway. The most important for Boeing on the B787 program (the same for Airbus on the A380 program) is to start generating revenue and net positive income. For both programs, getting efficient/optimized manufacturing and deliveries are the most important now.

      • It has and I agree that is what is important.

        I’m glad you have come around on this as I remember you arguing against me when I made those claims about the A380 back at fleetbuzz.com.

    • The total cost of the program developement cost is $9.7B to this point in time. By the time the B-787-9 developement is programmed in, I expect the total costs to be in the neighborhood of $12B. That costs does not include the 6 flight test B-788s, 4 with RR Trent-1000s and 2 with GEnx-1Bs, which were all written off. But it does include the cost of the flight test program for the B-787-8 (not the airplanes themselves).

      The artical does say the current developement costs should be completely recovered at airplane # 1100, which is a combination of -8s and -9s. If you look at the chart (which was made before China canceled some 28 B-787s), you see that the final 32 airplanes delivered in 2021 should show a profit for the program (based on 821 airplane sold through 2019, and not including another $2.3B {my estimate} to finish developing the B-787-9).

      http://heraldnet.com/assets/pdf/DH1007911125.PDF

      No, it is not the same as checking your bank to see how much your profit will be. All major manufactures make sales predictions of their products. That is just good business. Even your Airbus does it. But they have yet to release the break-even point for the A-380, and I doubt they ever will. They are not spending a lot of engineering resourses on a second model, but are working on an A-388IGW.

      • KC135TopBoom :
        The total cost of the program developement cost is $9.7B to this point in time.

        No, It is the Deferred Production Cost that is 9.7 BUSD. The development cost has not been disclosed. And the development cost is not part of the accounting block.

        On top of the 9.7 BUSD there is additional 1.8 BUSD for tooling.

        http://www.boeing.com/companyoffices/financial/balsheet.html

        You can also learn about program accounting by following the above link and selecting “Notes to Consolidated Financial Statement”

        After that it should be clear that claiming the accounting quantity equals break even is as stupid as looking at the bank account to know profitability.

        And don’t try to make it A vs B by calling it my Airbus. I care about stupid statements, not about OEM.

  3. Perhaps after all the test aircraft have served out their purposes, they can be donated to museums, enabling Boeing to deduct the residual value of each as a charitable donation.

  4. Surprised the main point in this post is being missed :
    The piece on 787 fuel savings vs 767 from what i assume is an objective and knowledgeable source seems pretty explosive to me..
    12BN$ of development cost and no material fuel savings ?

    • The PIANO-X comparison of the 787-8 and 767-300ER makes for an “explosive” soundbite, but it’s a bit of a dud when the comparison is evaluated in detail. PIANO-X is just a number crunching tool. It has dozens of variables which influence airplane performance within the model and which are set by the user of the tool. These variables include OEW and MEW, both of which are guesses for the 787, as nobody outside of Boeing and ANA knows the weight of the airplane. It also includes assumptions about the aero-efficiency of the wing, the drag of the airframe, and the TSFC of the engines, all of which are also estimates on the part of Lissys. At this point, I would say the veracity of any PIANO-X analysis of the 787 has to be looked at with a great deal of suspicion, given the huge amount of unknowns which must be guessed at in order for the model to produce an output. Some OEM’s provide the above data to Lissys to feed to tool. At one time (many years ago) Boeing was counted among those who fed the tool. For whatever reason, that is no longer the case and as a result PIANO-X data for Boeing products involves a great deal of guesswork.

      • Let me guess:
        Piano-X results didn’t match up with “Boeing Reality”
        so that didn’t provide value anymore ;-?

      • I don’t know the exact reasons, but I have heard it came down to a dispute over how Lissys presented OEM “participation” in the development of their models. The rumor went something like this: Lissys had a tendency to promote OEM participation as an “endorsement”, and Boeing strongly objected to Lissys using Boeing’s participation in this way, particularly when Lissys was not willing to share the proceeds from the tool (the full up PIANO software and the aircraft modules are very expensive). At least the way it was explained to me, Boeing’s withdrawal had nothing to do with the output of the tool.

      • Regarding “Boeing’s reality”; I know I’ve talked about this before, but here goes one more time: Airlines don’t buy airplanes after looking at the marketing numbers. In a campaign, both OEM’s provide data to the airlines which is tailored precisely to the airlines configuration and mission rules. On raw performance (payload, range, fuel burn, etc), the tailored data provided to the airlines is exceptionally accurate to real life. The tolerance between nominal and guarantee performance can be larger on a product which has not yet flown (e.g. A350 or 737 MAX), but for a mature product, (e.g. 777 or A330) the performance data provided from the OEM’s is very good and guaranteed performance will be very close to the performance shown to the airline.

        Neither OEM’s “marketing numbers” reflect real-world configurations, passenger weights or operating rules. This is done deliberately in order to keep the actual performance of the products somewhat obscured from the competition. Bottom line: The OEM’s know the airlines aren’t paying attention to the marketing numbers and they aren’t really worried if the industry enthusiast gets real data or not.

    • Psssst!

      40t @ 4000nm takes ~44/45t fuel for both.
      The 787 has enough structure to take on another 12t fuel
      for another 1000nm range @40t payload.
      ( over at a.net there is an overlay of 787 and 330 around that explains
      why new buyers go for the A330 : available now providing adequate performance )

      So there is nonetheless some advance visible. It should look even better
      with all that baby fat shaved off.

  5. Uwe;

    “( over at a.net there is an overlay of 787 and 330 around that explains
    why new buyers go for the A330 : available now providing adequate performance )”

    airliners.net? Now there’s a true group of avaition professionals. ROTFLMAO

    There is probibly no more biased, and factually inept, site on the net. The moderators are all Airbus cheerleader stooges. Say one bad fact about Airbus and they delete it and ban you. But make up something about Boeing and you are a hero of the day.

  6. CM :Regarding “Boeing’s reality”; I know I’ve talked about this before, but here goes one more time: Airlines don’t buy airplanes after looking at the marketing numbers. In a campaign, both OEM’s provide data to the airlines which is tailored precisely to the airlines configuration and mission rules. On raw performance (payload, range, fuel burn, etc), the tailored data provided to the airlines is exceptionally accurate to real life. The tolerance between nominal and guarantee performance can be larger on a product which has not yet flown (e.g. A350 or 737 MAX), but for a mature product, (e.g. 777 or A330) the performance data provided from the OEM’s is very good and guaranteed performance will be very close to the performance shown to the airline.
    Neither OEM’s “marketing numbers” reflect real-world configurations, passenger weights or operating rules. This is done deliberately in order to keep the actual performance of the products somewhat obscured from the competition. Bottom line: The OEM’s know the airlines aren’t paying attention to the marketing numbers and they aren’t really worried if the industry enthusiast gets real data or not.

    I agree.

  7. I assume that at least one of the other planes will be kept around for another few years in order to test items for improvements on the -8 and for further development for the -9. It seems to be a common thing.

    Using another airframe for the PR tour seems to be a logical no-brainer, although I wonder if this gives the customers who are waiting for their aircraft a chance to sound off on their displeasure with Boeing when the “show” comes to town.

  8. CM :
    …: Airlines don’t buy airplanes after looking at the marketing numbers. …

    Here it goes again, ( no hard feeling please 😉

    IMHO the Dreamliner is the perfect example that trashes your statement, right?

    On Piano-X:
    So Boeing wanted to collect a “microsoft tax” ?

    With such tools it is in the interest of the better performing market
    participant to aid with input and the reverse is true for the second raters.
    So, just watch were the lawyer ants are let loose 😉

    Behaviour certainly is indicative here.

  9. CM: “At least the way it was explained to me, Boeing’s withdrawal had nothing to do with the output of the tool.”

    “The OEM’s know the airlines aren’t paying attention to the marketing numbers and they aren’t really worried if the industry enthusiast gets real data or not.”

    I think Airbus and Boeing are not underestimating the implications of publicly being discussed, exposed or questioned by “industry enthusiasts”.

    The 787 program was a turning point in this respect IMO. Investors / stake holders / customers found out uncontrollable social media (e.g. Flightblogger) proved way better informed of what was really happening to program then people relying on officilal communication channels. Launch customers like ANA an ANZ started adjusting their planning regardless of Boeing sticking to contracted milestones.

  10. Uwe, your need to twist everything into “Boeing is evil, inept, & inferior”, casts a shadow on everything you post. You have become to Airbus what KC has become to Boeing. Stop cheerleading and we’ll be able to have an intelligent conversation. Otherwise, here is what we are left with:

    1. Airlines only bought the 787 because Boeing said it had merit, not because they decided it did.
    2. Boeing is just like other evil US mega-corporations – how dare they want to be compensated for their own intellectual property
    3. Of course, the real reason Boeing no longer provides input to the PIANO models is because it was revealing the truth about their inferior products

    If that’s really the framework within which we need to have a conversation, I’m afraid the conversation is already over. You will need to move back toward something reality-based before it can be a conversation worth having.

    Keesje, I don’t mean to diminish the importance of the online discussions. There are often insights on these boards which I had not heard from the airlines nor the OEMs. That is why I troll these sites. However, I am a minority in my part of the business. It always surprises me how few people working at decision making levels in this industry pay attention to these sites. Generally when I mention hot topics on this site, pprune.org, flightblogger, airliners.net, or elsewhere, few are aware of the topic and many are unaware of the sites. It seems odd to me, but perhaps some truly do leave their work at work! 🙂

  11. PIANO-X creates a performance model of an aircraft using basic geometric data. These models are calibrated using aircraft data like flight manuals. Guessing the OEW is the easier part, and the sensitivity if you are a few tons wrong are limited. Aerodynamics are not that difficult either, the differences in performance between 1980ies designs and 2000s designs are limited.
    TSFC (thrust specific fuel consumption) is a tougher guess.
    In the end tools like PIANO-X can be considered +/-3-5%.

    • Agreed. Many competing aircraft are within 3%-5% (BF/S) of each other, which makes PIANO a good tool for a sanity check, but leaves operators dependent on the OEM to provide performance accurate to within .5%-1%, which is frequently the tolerance from nominal for guarantees.

  12. What I found interesting is that they say there is no need to adjust the model’s structural weight factors for the change from metal to composites. I read this to mean that there is no weight advantage of composites. Is that a correct understanding?

  13. Comments regarding Lissys and Boeing made by the person that identifies himself as CM are complete fabrications. There is and never has been any arrangement of any kind between the two companies. The alleged situations and conflicts are imaginary. Lissys can be contacted directly, not through a forum.

    • Without revealing anything confidential, could you please put the record straight and tell us a bit more about the way Lissys is dealing with the OEMs.

      Regards.

      Normand Hamel

      • That’s easy to do, Normand: Lissys is completely independent and has no relationship or arrangement of any kind with any OEM anywhere. A list of customers (and they are just that, customers and nothing more) who have purchased Piano over its 20-year+ history is available in piano.aero. Lissys has good professional contacts worldwide and stands by all its releases, including the latest.

    • Dimitri,

      I can’t and won’t dispute what you state here. I thought I was clear I was not reporting a fact by including the following qualifying language in my post: “I don’t know the exact reasons” and it was something “I have heard”, and that what I was reporting was a “rumor” which “went something like this”.

      The business is yours, so you are able to report the truth about the conflict with Boeing better than the rest of us. Please explain it to us.

      Cheers!

      CM

      • There exists no conflict. The Piano-X 787 update gives a public model of the aircraft and explicit fuel burn numbers. The OEM publishes no fuel burn information other than the credo “20% more fuel efficient than similarly sized airplanes”, devoid of baseline.

        The release includes the statement: “Comprehensive performance tabulations … can be generated as necessary by running the Piano-X files. Any comments on the accuracy of the model by manufacturer or operators if supplied with all assumptions relevant to comparisons will be appended to Piano-X releases on request.” Lissys stands by the release.

  14. I’ve checked the assumptions of the Lissy analysis again in a brighter minute.
    The B787 actually comes out at 15-17% more fuel efficient on a per-seat basis using current ANA-layouts from seatguru.com.
    Considering the SFC shortfall (which isn’t Boeing’s fault in the first place), the airframe performs largely to spec, at least to the rather generic “20% claim”.
    All of course assuming Lissy did model the B787-8 (and the B767-300ERW) with sufficient accuracy.

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