Leeham News and Analysis
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Leeham News and Analysis
- Bjorn’s Corner: New engine development. Part 4. Propulsive efficiency April 19, 2024
- Boeing unlikely to meet FAA’s 90-day deadline for new safety program April 18, 2024
- Focus on quality not slowing innovation, says GKN April 18, 2024
- Boeing defends 787, 777 against whistleblower charges April 17, 2024
- Dissecting Boeing CEO’s statement next new airplane will cost $50bn April 15, 2024
Pontifications: Selling engines for profit, not as loss leaders
By Scott Hamilton
May 9, 2023, © Leeham News: Last week, I provided an overarching view of the business model the engine makers used for decades to sell their engines and services to the airlines and leasing companies. Today, we discuss this in more detail and move to other issues facing engine makers as well.
Aviation Week’s MRO Americas last month was the venue for the engine panel.
Related article
The panelists include two from the manufacturers, Becky Johnson, I’m the Director of Marketing for CFM commercial programs at GE Aerospace, and Sam Raby, who is Associate Director at Pratt & Whitney for aftermarket marketing and strategy. Two other panelists were from the MRO sector: Russ Shelton, president of GA Telesis Engine Services, and Sebastian Torhorst, Head of Sales for Energy Services for the Americas for Lufthansa Technik.
As LNA wrote last week, the business model relies on selling engines at a steep, steep discount—sometimes up to 80%, and in rare instances, the engine maker gave (as in free) engines to customers. In either case, the quid pro quo was to enter into long-term service contracts for parts and maintenance, repair and overhaul (MRO). Deeply discounted sales meant it could take 10-15 years for the engine makers to recover development costs.
Upside-down business model
But MRO services were turned upside down in recent years. New generation engines proved to be troublesome with technical issues. Warranty work on these engines filled the MRO facilities, displacing profit-making MRO work and depressing profits. CFM, PW and Rolls-Royce each suffered from technical fix-it issues.
Revamping service contract terms and conditions now is a necessity. But this doesn’t attack the underlying business model flaw: selling the engines for a song.
Are the OEMs going to begin to actually sell the engines at compensatory levels? That’s question number one.
“I think we’re going to drive in towards that,” Raby said. “It’s always a trade-off in the market. You have the front payment and the tail in terms of power by the hour, the long-term agreement, and then the life cycle value of the airplane. If you ask me if we’d love to get more money upfront, the answer is yes. I think we work very hard to leverage our aftermarket product along with the new engine purchase decision to create the highest value for both us and the customer, but markets move slowly sometimes and this one is.”
“I would agree completely,” Johnson said. “We’re going to work with our customers to make sure that they recognize the value the product delivers in terms of durability and reliability, safety, time-on-wing, everything we’ve talked about, fuel efficiency. Hopefully, that means we get more price as the market evolves.”
The next engine
We’ve seen technological challenges on the Trent 1000, the GTF, the LEAP, and the forthcoming GE9X, warranty costs are impacting MRO shop availability and certainly the profit and loss lines. Tim Clark, the president of Emirates Airline, said that he doesn’t want to take delivery of the 777X until there’s engine maturity on that airplane because of all these issues.
So, what do the OEMs do about having engine maturity for that next round of new technology engines so that everybody doesn’t suffer from these technological issues we’ve seen from these four engines?
Johnson said that If you look at GE and CFM, “we have a decades-long history of introducing new engine programs. We’ve introduced more than any other OEMs out there in the market. Looking at LEAP, we have removal rates that are far better than we saw on CFM56 engines at the same time in the product lifecycle. That’s because we have learned from every engine program that we’ve introduced over the years, and we’ll continue to do so. On the Boeing 777-9X, we’re incorporating new testing that’s not done on other programs.”
Johnson said that GE is making more improvements to the product before another entry into service. “We expect to see that trend of improving the global rates for a new engine entering service to continue.”
“I think from the craft perspective, there is always learning not only from previous engine programs but throughout the new engine program. To the extent possible, we’re testing that ability to try to increase that learning speed so that we remove some of the issues as quickly as possible. I think the other part of that question is how we work with our customers to solve issues as they move forward, how quickly we can respond to the challenges, but also how we take care of them as challenges occur. I think those are the things that we’re focused on,” he said.
“I think as we move into the Advantage program a lot of the learnings that we’ve had on the GTF will be applied to that and have a more robust extension of the program rather than a new program going forward,” Raby said.
Not very enlightening management speak.
777x,this translates to “we’ve got years of unexpected development time on our hands”
Is P&W paying huge compensation to airlines who didn’t even pay for the engines?
“Is P&W paying huge compensation to airlines who didn’t even pay for the engines?”
New tactic: ignore mediation and just bankrupt the airline, in the hope of circumventing compensation 😉
That was my first thought. Perhaps they picked on a weaker airline with lots of aircraft in order to free up engines for the airlines that pose more of a threat from litigation.
On the other hand:
“Go First will Sue Pratt & Whitney in Multiple Jurisdictions”
https://economictimes.indiatimes.com/epaper/delhicapital/2023/may/07/sunet-front/go-first-will-sue-pratt-whitney-in-multiple-jurisdictions/articleshow/100042834.cms
GO did sue P&W and got a ruling to supply X engines. P&W does not have X engines and GO is both bankrupt and a bad customer.
Spare engines will go first to good customers.
There are some interesting aspects to this as Delta and Air Canada are not suffering the issues others are.
New engine always have problems and no matter how much testing you do, only in service experience starts to show issues.
The GTF seal that was replaced and turned into a much worse seal.
P&W wanted to get the new seal out to solve a problem and in service showed it was worse.
I saw that on a brand new Suburban that developed a major rear differential leak. Yep, new seal, so many failed they could not find replacement seal. It took them 10 days.
Seals are well established tech, but yes you can get it wrong even on something as simple as in input shaft on a differential.
Risk premium would go even higher.
https://www.reuters.com/business/aerospace-defense/risky-jurisdiction-aircraft-lessors-raise-alarm-over-go-first-crisis-india-2023-05-11/
https://twitter.com/shukla_tarun/status/1656898028790513670
@TW
ANZ has to ground two aircraft due to P&W snafu.
You think ANZ is a “bad” customer??https://aviationsourcenews.com/airline/air-new-zealand-grounds-a320neo-and-a321neo-due-engine-supply-problems/
“Looking at LEAP, we have removal rates that are far better than we saw on CFM56 engines at the same time in the product lifecycle.”
I’m confused. Is the LEAP the big exception here and doing better than the previous one? Or is this just the usual nice Marketing blabla based on some totally irrelevant KPI?
And why is it so difficult to increase the initial price? Do the OEM have a contractual clause that sets the maximum sales price with the engine manufacturer? Or what if GE just sells their new GE9X at a high price, or don’t get any engine at all? It’s not that the customer has a choice.
“It’s not that the customer has a choice.”
In the case of the 777X, the customer does have a choice: just cancel the order and jump ship to either the A350-1000 or 787-10.
777Xs can be cancelled without penalty because of the ongoing delivery delay.
One can be sure that Tim Clark is carefully looking at engine performance data for the A350 and 787. Other airlines that ordered the 777X — like Qatar, Cathay and Singapore — have such data from their own fleets.
I still wonder if they do have that much of a choice. Even for an A320, where there are two engines available, and the line being sold out till 2029 or so.
If CFM raises their prices considerably, what will clients do? Go for a PW that is having a lot of issues and most likely can’t supply (enough) engines for the next few years. And how quickly would PW follow suit (and possibly RR) when one starts changing? No need to provide overly steep discounts, when the competition is not, no?
To me it seems more a game of who moves first, but all of them are scared to even blink.
IIRC the airline specifies the engine AND contracts for it separately with RR/PW/CFM etc, not the aircraft OEM.
Increasing the initial payment then requires multiple negotiations with a variety of discount addicted counterparties.
A sea change is required…
Not sure why this is coming up like its a new issue. Its been around for some time now, goes back 5-10 years.
That they are nattering about it indicates they have made no progress in getting a price that provides profits.
I understand that airlines order engines separately.
What I meant is the contract an OEM engages in with engine suppliers. This must be a lengthy and detailed piece of work defining all sorts of parameters. As the engine is a major component of the aircraft, and especially when there’s an exclusive engine supplier, I would assume that the OEM wants to make sure that the sale is not hampered by too expensive engines. Do the OEM leave complete contractual freedom to the engine suppliers and their clients, or are there some restrictions defined?
“Looking at LEAP, we have removal rates that are far better than we saw on CFM56 engines at the same time in the product lifecycle.”
Allthat is saying is that in their marketing speak the LEAP is less unreliable than the CFM56 was early in its life cycle – not that the LEAP spends as much time on wing as the “mature” CFM56 engines.
And there in lies the rub. By the time sales took off in a huge way for single aisle, the CFM-56 had matured and the airlines got spoilered (pun intended) .
Flip forward and add in sudden increases of product, supply chain issues, possibly MRO staffing issues and spare parts are always a ???? as you have to base how many spares on making engines + the extra needed.
Easy to make errors on the low side when your engineers are telling you we will get XXXX hours out of the burner section and that proves wrong.
Hugely frustrating for Airlines but then clearly you have all sorts of startup and airlines in poor service areas and it cascades.
Successful engine models has a long life and keep the revenue from spares flowing that pays for later engine models. Hence both P&W and especially GE live well on engine spare parts for engines developed in the 1900’s. That is why they can discount new engines as they know if they keep flying 30 years down the line they will generate a good stream of revenue from spare parts sales and other services over decades. Also spare parts prices kept increasing for decades at higher than inflation numbers increasing the flood of money to the engine manufacturers.
I’m posting this here because it (ultimately) relates to engines:
“The COMAC C919 Flies For The 1st Time In 3 Months”
https://simpleflying.com/the-comac-c919-flies-for-the-1st-time-in-3-months/
The lack of activity in the past 3 months was caused by a reverse thruster problem on an earlier proving flight. That issue now seems to have been resolved.
Interestingly:
“Despite earlier estimates of 25 C919s per year by 2030, COMAC Deputy General Manager, Zhang Yujin, said its C919 production rate plans to reach 150 annually within five years in January.”
I don’t think that the Chinese are deluding themselves into thinking that they’re going to be receiving 300 LEAP 1Cs per year, so they’re evidently contemplating a switch to their own CJ-1000 engine, which is currently undergoing flight testing.
That goes back to the old Gods mantra. If we kill the Oxen and offer it to the God then we will be rewarded (more rain say)
And darn if it does not rain, life is good and you just have created a false equivalent.
China has always intended to use their own engines when they got them to a point they are at least reliable (they can wear out fast, as long as they don’t fail and create a disaster)
So, CFM is making something around 60 engines a month for Boeing, another 40 or so for Airbus and they can’t supply 2 engines a month for C919 contract? Right Mel.
What the original plan was may have been moved up due to the current situation with China but they always were going to go there.
Anyone heard a peep about the 929 lately?
Lol
‘As LNA wrote last week, the business model relies on selling engines at a steep, steep discount—sometimes up to 80%, and in rare instances, the engine maker gave (as in free) engines to customers. ‘
It’s all very cozy between those 4 (GE, PW, RR & Safran).
But there is a way to upset the applecart and get a paradigm shift.
Isn’t that, by it’s very definition – dumping?
So, a small guy (let’s say Honeywell) files a dumping complaint against RR & Safran (and by that extension GE, who is 50% in CFM) alleging that engine OEM’s are selling below cost into the US.
You wouldn’t make any friends, but I would think that the whole game would have to change.
AB could just as easily file a dumping suit against BA, e.g. citing the 69% discount on the last Ryanair order…
“Never interrupt the enemy while they’re making a mistake.”
Funny how you Boeing into every discussion when no one is talking about them. Unnnnnnnnsettling.
Funny how you try to keep Boeing out of every discussion when everyone is talking about them. Unnnnnnnnsettling.
Selling for cheap, or even at a loss, is not dumping. Dumping is if you sell cheaper outside your home market than you do within it. So as long as Ryanair did not get a better deal than any airline in the US there is no dumping. I suspect Southwest is getting a very good deal on the Max and hence there is no dumping charge possible.
Well, as Scott cited above, there is an example out there of an engine maker GIVING engines away to an airline.
Depending on which airline got those engines and where the OEM is, still could qualify as dumping.
Dumping is a US market issue. An example would be the Japanese motorcycle back in the 80s. That requires someone to be hurt and Harley Davidson said they were (a bit hard to be serious as their marines were 883cc minimum and the majority of the Japanese machines were 750 cc in those days let alone not cruiser style).
That said you can do short term promotions.
Airbus and Boeing dump aircraft as they cost more to make initially than they sell for. That was why it was absurd for Boeing to jump into the BBD situation.
That is normally “bare” spare engines right out of the engine manufacturers test cell. To make it a QEC’d spare engine there is another 1-3 MUSD + work to get it finished. Hence they normally sit in the hangars getting robbed of spares for a few years before being sold to a parts broker.
“Selling for cheap, or even at a loss, is not dumping. Dumping is if you sell cheaper outside your home market than you do within it.”
Ryanair (Europe) got 69% discount, Southwest (US) got 65%.
Therefore, according to your definition, BA dumped in Europe.
Wonder why Airbus doesn’t complain to the WTO about the RyanAir discounts?
Probably because Mr. Leahy was doing the same and more back in the day.
@ williams
Maybe AB likes the fact that BA is discounting itself into oblivion.
Maybe the EC is preparing a dumping suit as we speak.
Who can tell?
They buy different models, Ryanair 737-10, SWA 737-7/-8. Still interesting how the average seat count on narrowbodies keep increasing. It used to be 125 – 150 pax, now they are ordering 200-240 pax aircrafts. So maybe Bjorn gets it right, that next time around it will be 240-300 seats in an oval widebody?
I read that AI tried to drive a hard bargain from engine suppliers. No airlines want to pay more upfront (FCF fallacy). How can an airline know with 100% confidence that they are not paying more upfront *and* during MRO?
Wasn’t BA caught out trying to screw the Japanese Air Force on pricing for spares for the 767 tanker?
“Boeing Charged Japan 1,500% Markup on Part, Air Force Says”
https://www.bloomberg.com/news/articles/2021-06-08/boeing-charged-japan-1-500-markup-on-plane-part-air-force-says
And, on the subject of Ryanair:
It’s just ordered 150 MAX-10s, with options for another 150 MAXs. Delivery 2027-2030.
Care to bet on the discount that it got? 😏
Let’s see: $135M list price x 150 = $20.25B. Applying the recent BA “minimal discount” of 60.8%, this yields $7.94B. Assuming a 10% order deposit, that will yield $800M in illusory cashflow for Q2. Nice — but only equivalent to 16 weeks loan interest.
I think a 65% discount is nearer the mark.
OMG. With headlines like: “… purchasing up to 300 737 Max 10 aircraft.” And most would take an order of 300 Boeing MAX 10 at face value.
-> A 767-200ER in all-economy configuration seats about 250.
https://twitter.com/petchmo/status/1655927102628143106
-> At EasyJet we have a 235 capacity on the A321. [Shrugged.]
@Bryce
How does slim to none sound to you on discounts.
Ryanair played there little games with Boeing and AB to secure orders.
AB was thru with O’Leary years ago.. leaving them with little options ..
One of few times Boeing can name their price.., reports were they did have to pay more in recent negotiations..
Can you point us to these reports you mention? Thanks.
O’Leary a few weeks ago:
“If they give us a good discount on the extra 30 seats, we’re more likely to take MAX 10s. If they don’t give us a good discount on the extra seats, we’re more likely to go with additional MAX 200s.”
https://simpleflying.com/sources-report-ryanair-near-major-boeing-737-max-order/
Today’s deal is for MAX-10s, so the discount was evidently good.
***
This is a very relevant discussion, because it seems that BA is following the same MO as the engine makers, i.e. make little-to-nothing on the original sale, and then hope to generate later revenue from MRO.
@Bryce
Do suggest you check out “Flight Global “and see their report stating Ryanair had to pay more than originally planned due to shortage on early max 10 delivery slots…
Still disagree with all your mega-discounted claims Boeing handed out to seal the deal..
The syntax “…more than originally planned…” doesn’t rule out a juicy discount.
For example, 65% is less than 69% — but it’s still stellar.
CNBC video on the deal:
“…significant discounts were agreed to…”
https://www.youtube.com/watch?v=6XLZH_WaGZE
The Simple Flying link says that the MAX-10 “is likely to be certified by the end of 2023”.
Mmm, we’ll see.
Calhoun said “tentatively” sometime in 2024.
End of 2024 for MAX-10. TIA is expected around the end of 2023, about the same time as MAX-7 certification
The two are related since they both depend on the same SSA’s.
@Rob
“TIA is expected around the end of 2023”
Got a link for that?
Boeing statements over the last 6 months or so.
Believe it not, Bryce, not all knowledge is contained in links. Especially if they are not authoritative.
@ Rob
And yet, you can’t provide any links to these “Boeing statements”?
Then again, it’s hard to provide a link to something that doesn’t exist 😉
We saw that recently with your extensive fantasy regarding the KC-46A program profit.
Whatever, Bryce. There’s no point in arguing with you because you won’t listen, and are not interested in facts or reasoned analysis.
Your allegiance is only to the narrative you attempt to weave here, and it doesn’t matter how many times you’ve been proven wrong. Reality is not your guide.
The evidence for my statements exists. It can be found in statements by Deal and Calhoun, and the earnings calls. But you summarily discard such evidence, as being inconsistent with your personal views.
Nothing will ever change that. So you just have to go on artificially sustaining your beliefs.
Alternatively:
Whatever, Rob. There’s no point in arguing with you because you won’t listen, and are not interested in facts or reasoned analysis.
Your allegiance is only to the narrative you attempt to weave here, and it doesn’t matter how many times you’ve been proven wrong. Reality is not your guide.
The evidence for your statements does not exist. It can be found only in your personal fantasy. Naturally, we summarily discard such “evidence”, as being inconsistent with real-world views.
Nothing will ever change that. So you just have to go on artificially sustaining your beliefs.
Thank you for confirming again your allegiance to your narrative, and your debating & reasoning skills. You are perfectly reliable and predictable in that regard. You will never change.
As always, I take it this response is because you have no other. Which again, is predictable.
And now you will do the same thing again in response to this post. So I will end it here for you, since you are unable to do so.
Poor Rob — peeved by the fact that the air was let out of another one of his fantasies…😏
Well written Rob.
Yes the waiver expires at the end of 2023 and Boeing will require another one to get the MAX-10 certified.
You just have to read the tech details as you clearly have done and you know who is caught flat footed once again and starts the chaffing and flaring.
Hello Transworld,
Re: “Yes the waiver expires at the end of 2023 and Boeing will require another one to get the MAX-10 certified.”
This is not true. Congress permanently exempted all aircraft for which an original or amended type certificate application was submitted to the FAA prior to 12-27-20 from the crew alerting requirements that were scheduled to take place on 12-27-22, and the type certification applications for both the 737-7 and 737-10 were both submitted before 12-27-20. For the special case of 737 MAX models, the bill does require the dual AOA sensors of current MAX models to be supplemented with a third synthetic AOA sensor no later than 3 years after the date on which 737-10 certification occurs.*
See the test below from page 1926 (of 4158!) of the 2022 Omnibus spending bill. If suffering from insomnia, see the link after this excerpt for the full text of the bill.
“SEC. 501. AMENDMENTS TO THE FLIGHT CREW ALERTING REQUIREMENTS.
(a) IN GENERAL.—Chapter 447 of title 49, United
States Code, is amended by inserting after section 44743
the following:
§ 44744. Flight crew alerting
(a) IN GENERAL.—Beginning on December 27, 2022, the Administrator may not issue a type certificate for a transport category airplane unless such airplane incorporates a flight crew alerting system that, at a minimum—
(1) displays and differentiates among warnings, cautions, and advisories; and
(2) includes functions to assist the flight crew
in prioritizing corrective actions and responding to systems failures.
(b) LIMITATION.—The prohibition in subsection (a)
shall not apply to any application for an original or
amended type certificate that was submitted to the Administrator prior to December 27, 2020.”
https://www.appropriations.senate.gov/imo/media/doc/JRQ121922.PDF
*See pages 1927 and 1928 for Synthetic AOA requirements.
From Reuters – “”I was expecting we would get the same pricing as we had the last time. I’ve had to eat some humble pie on that,” O’Leary told Reuters, adding he was still pleased with the final price, which neither side disclosed.
Industry sources said Ryanair may have paid more than it initially bargained for after holding out for a better deal, but one noted O’Leary took pains to avoid bashing Boeing, which had been anxious for the deal not to be painted as over-generous.”
Shocking, I thought it was a forgone conclusion that some in this comment section knew what the amount of discount was.
War is inflationary. Sigh. What we don’t know is how much price increase would actually *stay* in BA’s pocket.
According to Bloomberg, Calhoun initiated and gave MOL a call in January.
Oh forgot to add:
Reuters
-> Industry sources said any price bump could at least partially be offset by compensation for delays, making it hard to measure who conceded most.
Looks like someone didn’t read the other quote above from O’Leary — or from the CNBC video link.
Any guess of what’s the range of Ryanair’s MAX 10?
Can’t wait till the RR Ultrafan debuts. That should be smoooooooooth sailing.
Whatever happens, it will be difficult for RR to match the momental screw-up at PW.
Never before has an airline gone bankrupt as a result of chaos at an engine maker.
Quite an impressive feat.
Perhaps Bryce could reveal all his sources to us for this mega-discounted order , considering how the exact terms are confidential between the two parties, and yet you somehow have the inside track on exactly what they paid !?
What does the Ryanair discount have to do with the PW-induced bankruptcy at GoFirst…?
@Bryce.
Your right.. It has Absolutely nothing. to with the Go First
Proceedings….Considering you were the one who brought up the Ryanair order…
I suggest you look back , see your hugely discounted Ryanair order comment, ..and I’m patiently waiting for you to reveal your sources to all.!!
@ Robert L
I brought up the Ryanair deal as a separate item — not as a reply within a nested set of messages.
Do do understand how reply indentation works here, don’t you?
I’ve already cited 2 sources here for you — on top of various other sources in recent weeks.
And what are your sources, other than that non-descript syntax on FG?
Robert L:
I suggest a bottle of oxygen if you don’t want to asphyxiate yourself.
“Whatever happens, it will be difficult for RR to match the momental screw-up at PW.”
Oh you mean the one with the Trent 1000 and then the Trent 10, Trent 900 and now we are hearing about the 7000/XWB?
Oh yea, that one (well I count 5)
Did the Trent bankrupt any airlines?
Didn’t know about the 7000/XEB issue at RR. Can you let us know what is going on with it?
Sounds like they had lots of engines going off wing during warranty time, then P&W own and licensed shops were full of work and lacking spare parts. As they had to wait for spare engines and could not fly losses increased and they could not pay for the few lease spare engines available so P&W did not save them. Next time Airbus most likely will force P&W to run a test aircraft “Desert run” of 2500cycles at max thrust take-off + climb around Sahara and Arabian deserts before getting accepted.
Claes:
Dessert does not account for all of it and they all know you will have more wear in that environment with the sand in the air be it storms or blown up off the ground.
The issue is trying to do tests that have relevance as not two hours are the same let alone days. They test to verify thrust levels and temps both in hot and cold, but the base is done in test cells so the can compare apples to apples.
Real flying has its merits to determine engine reliability, flying in hot and sandy environment with good salt content will prove most of the engine reliability. Also Airbus enforcing full T-O and climb power out of desert airports for 2500 cycles on 2-3 test aircrafts with a few compressor washes followed with engine teardowns for parts inspection vs. engine manual limits will show how well they handle “The Desert Storm” before Airbus allows shipping to paying customers. Of cause will engine manufacturers later reduce turbine cooling flows thru PIP programs for “normal western” customers.
True, that is a high…………or………….low bar to meet.
Still cannot believe an airline when bankrupt because of its engine supply.
Not enough engines = not enough flights = not enough revenue.
Pretty simple.
-> Tata and IndiGo are negotiating to acquire Airbus SE planes from Go Airlines India Ltd.
https://twitter.com/HypeAviation/status/1655949165757865984
For those interested in delivery numbers, the April figures are out:
BA: 26, including 17 MAXs
AB: 54, including 42 A320/A321.
https://www.reuters.com/business/aerospace-defense/boeing-deliveries-fall-by-half-april-due-737-max-bracket-defect-2023-05-09/?rpc=401&
https://www.reuters.com/business/aerospace-defense/airbus-jan-april-deliveries-fall-5-regains-lead-over-boeing-2023-05-09/?rpc=401&
No worries. BA can magically push planes out the door in H2. Another learning curve to move up.
@Rob ..
Well said
If Scotts star pupil thinks he’s running the show… he’s seriously mistaken…
It’s sad, but the reality is, this site , was the one I looked forward to getting up to date , “factual ,”information from more than just a handful of misinformed, overly biased viewers ,who act like children if you have any contradicting opinions they don’t agree with.!!
The truth is that this has been the case for years now. Going back to the MAX accidents, some of the things that were posted here were unbelievable. There was a huge battle, with post counts frequently running above 300 per article.
I thought at first, as the MAX situation was resolved in favor of the arguments I and others had made, that there would be recognition of error and alignment with reality. But I came to realize that will never happen here. Their investment in their beliefs is too great. So all they can do is continue to insist the MAX will fail, Boeing will fail, etc. That is their entire narrative.
The telltale sign is that they never conduct diligence, never ask a question, never try to learn or understand, never consider another point of view. It’s just about insisting they are right, in the face of overwhelming evidence that they are wrong.
Nothing to be done about that, I’m afraid. I try to inject rationality from time to time. But it’s for the benefit of others here, such as yourself. I’m under no illusions as to the rest.
Alternatively:
The truth is that this has been the case for years now. Going back to the MAX accidents, some of the things that were posted here were unbelievable. There was a huge battle, with post counts frequently running above 300 per article.
I thought at first, as the MAX situation deteriorated according to the arguments I and others had made, that there would be recognition of error and alignment with reality. But I came to realize that will never happen here. The BA Back Office’s investment in their beliefs is too great. So all they can do is continue to insist the MAX is a success, Boeing will wotk things out, etc. That is their entire narrative.
The telltale sign is that they never conduct diligence, never quote sources, never try to learn or understand, never consider another point of view. It’s just about insisting they are right, in the face of overwhelming evidence that they are wrong.
Nothing to be done about that, I’m afraid. I try to inject rationality from time to time. But it’s for the benefit of others here, such as the realists. I’m under no illusions as as to the rest.
Rob:
While I agree for the most part and certainly on the MAX (sadly my recent trip I did not get to fly one).
But clearly Boeing has severe issues and while I don’t see failure, I am equally uncertain on its future.
Pretty much they have killed the goose that was laying the golden eggs and what future management does is a wide open arena of possibilities.
On the other hand the MAX is sold out for a long time and what an all new aircraft would get you is a A320 me too that Airbus can raise the stakes with via a new wing.
But they also keep failing on getting their ducks in a row. MAX-10 is going to be 2024 assuming they get the extension (almost a given)
@Robert L
Have Calhoun and West backtracked their FCF forecast for the year??
For anyone here who is interested in the facts about the changes Boeing is facing in terms of the certification SSA’s for the MAX 7 & 10, here is the NPRM published by the FAA.
Note that the FAA acknowledges that though the rules are not yet in effect, they have already implemented the SSA changes via the mechanism of compliance issue papers. Which means that Boeing is already accountable to them, and has been for some time.
Note also that the FAA acknowledges they are still developing data on human factors, and are not yet ready to write those rule changes. But have again already begun to apply them to compliance issues.
https://www.govinfo.gov/content/pkg/FR-2022-12-08/pdf/2022-26369.pdf
Has BA come clean and admitted their pilot response time assumption is seriously flawed? How come BA wasn’t severely punished when it was found trying to pull off fraudulent trick?
https://www.flightglobal.com/safety/senate-probe-737-max-test-pilots-coached-to-fit-assumptions-on-mcas-reaction-time/141688.article
-> The Senate committee on commerce, science and transportation has found that Boeing “inappropriately coached” test pilots while conducting simulator tests during recertification of the Max, after two fatal accidents involving the type.
-> The Senate committee’s newly-published report states that Boeing assumes a 4s reaction time for a pilot to identify and begin correcting a runaway stabiliser, through memory.
But the committee adds that, according to a whistleblower serving as an FAA aviation safety inspector, this “long-assumed” reaction time is “not realistic”.
The whistleblower alleged that Boeing officials were present during 737 Max runaway stabiliser reaction tests last year involving an FAA Aircraft Certification Office test pilot and an Aircraft Evaluation Group test pilot.
-> The whistleblower claims the Aircraft Evaluation Group pilot – who participated only after a second Aircraft Certification Office pilot became unavailable – took 16s to react to the runaway stabiliser, some four times longer than the 4s assumption.
Such was their concern that the whistleblower, in July last year, carried out and shared the results of an ad hoc experiment to “spot-check” some volunteer Southwest Airlines 737 crews.
https://www.cbc.ca/news/business/boeing-underestimated-pilot-response-time-1.5298390
Hmm, and there goes the fallacy of superior US pilots?!
“[T]he Senate Committee on Commerce, Science, and Transportation, today released the Committee’s investigation report on the Federal Aviation Administration (FAA). This investigation began in April of 2019, weeks after the second of two tragic crashes of Boeing 737 MAX aircraft, when Committee staff began receiving information from whistleblowers disclosing numerous concerns related to aviation safety. […]
Some of the report’s more significant findings include:
• FAA senior managers have not been held accountable for failure to develop and deliver adequate training in flight standards, despite repeated findings of deficiencies over several decades.
• The FAA continues to retaliate against whistleblowers instead of welcoming their disclosures in the interest of safety.
• The Department of Transportation Office of General Counsel (DOT OGC) failed to produce relevant documents requested by Chairman Wicker as required by Article I, Section I of the Constitution.
• The FAA repeatedly permitted Southwest Airlines to continue operating dozens of aircraft in an unknown airworthiness condition for several years. These flights put millions of passengers at risk.
• During 737 MAX recertification testing, Boeing inappropriately influenced FAA human factor simulator testing of pilot reaction times involving a Maneuvering Characteristics Augmentation System (MCAS) failure.
• FAA senior leaders may have obstructed a DOT OIG review of the 737 MAX crashes.
https://www.commerce.senate.gov/2020/12/wicker-releases-committee-s-faa-investigation-report
“..Boeing inappropriately [love the euphemism]
influenced..”
I am shocked, shocked, I tell you! 😉
This is a misunderstanding of the issue. Congress gave FAA a dual mandate in 2020. Work with other national regulators to improve standardization of crew performance levels. And work with manufacturers to make aircraft more tolerant of variations in crew performance levels.
FAA is therefore attacking on both fronts. The acting Administrator testified before Congress, that the current NPRM is about 60% of what they ultimately want to accomplish. The remaining 40% involves human factors, and both FAA and IG are on record that the data they need to do that effectively, doesn’t currently exist.
This is partly why Boeing has been needing additional time on the SSA’s. They are required to develop human factors data in support of them. Neither Boeing nor FAA had that data. Nor is it enough to use only US data. To accurately capture crew performance risks, they have to include international data.
So Boeing has been mining the many millions of flight and flight hour data on the 737, as well as gathering data from crews in the simulator.
The overall goal is to iron out the pitfalls that may befall crews that are not as well trained, or experienced. MCAS was one such example. A trivial problem for a high performing crew, but a fatal problem for low performance.
To do that, requires an understanding of ways in which crews may respond incorrectly, how and why they do so. Then address the how and why in the SSA’s, fault trees, MMEL’s, documentation, and checklists. This increases the probability they will respond correctly, and lessens the risk of an accident.
Thanks for that personal conviction — without links, of course.
For those interested in the real world: BA is getting its ass grilled regarding overly simplistic assumptions that it made on crew reaction/interacton.
It tried to submit quite a few short-cut SSAs that weren’t up to scratch, and the FAA just binned them.
If you read the NPRM, or followed the Congressional testimony that I cited, you would have a better understanding of the issue. But I have no expectation that you will do so.
Alternatively:
If you read published FAA memos, or followed the Congressional testimony that others have cited, you would have a better understanding of the issue. But I have no expectation that you will do so.
Rob:
Sullenburger did not think it was a trivial problem.
Clearly both crashes had failure of the PM (first officers in both cases) to help the situation but that has been true of a lot of crashes (and sometimes the PF).
It helps to watch Menteur Pilot series and see how rigidly the crews are taught to follow the procedure.
Flip is MCAS where it does nothing like they were trained for and just reading a blurb on it does not cut it (you have all that memory training).
MCAS was not a failure, it did exactly what it was programed to do. But there was no training for it (no simulators)
There have been many Airbus crashes due to crew failures and the Airbus system has its own flaws.
As do crews. I find it unfathomable that the Air Canada crew could not tell an runway from a Taxiway on the SFO x A320 incident but there it is. Runway literally in neon lights, land here and you never land on blue lights. Very possibly a rival to Tenerife on that one.
Pilot reaction is one of the stupidity that the systgem let in, you train to the worst case not the best. The system was complicit and is not designed to adjust to current equipment or reality.
But the standards are a minimum and you can got beyond that.
US and Europe are making major strides there but the rest of the world has not followed suite (or just selective parts of it)
TW: Notably, Sully was not involved in any of the investigations. And his sole experience was in the simulator, replaying the accident events.
No one disputes that given the decisions made by the crews, an accident was inevitable. Nor does anyone dispute the role that Boeing and MCAS played in that. Or claim that this role was trivial. That’s why Boeing worked to correct the flaws, and further to rewrite the flight software.
However the fact that an MCAS malfunction was recoverable, with a very few fundamental training steps that every crew should have known, has been established beyond all doubt.
Every crew that Indonesian and Ethiopian put in the simulator, was able to recover without incident. The only case for which they couldn’t, was the case that Sully ran, mimicking the crew decisions.
This is documented in the accident reports, and also was the basis for the FAA mandated training. And also was both documented and confirmed, in the NTSB and BEA responses to the Ethiopian report.
The obvious problem that results from denial of these facts, is that the crew response problem will go unaddressed, and unresolved. Boeing did address and resolve the problems with MCAS. It’s reasonable to expect the same for crews. The solution is very simple, and amounts to reinforcement of basic flying skills.
Further this is the basis of the FAA’s current interest in human factors. Congress asked them to improve resilience to deficiencies in pilot training around the world. So they are raising the certification bar, to include human factors.
The irony of this, is that reading here, the narrative is that Boeing and the FAA are at fault. While the reality is, that Boeing and FAA are taking the burden upon themselves, to address issues that exist elsewhere in the world.
“However the fact that an MCAS malfunction was recoverable, with a very few fundamental training steps that every crew should have known …”
Unfortunately
• BA hid MCAS from everyone from FAA to pilots
• you forgot to mention how hard team BA had tricked regulators and airline customers not to pursue any sim training for MAX pilots.
Pedro, as you well know, the FAA agreed with the proposal to remove MCAS from the manuals and training, based on the original design of MCAS. That decision was perfectly appropriate.
What was not appropriate, was for two employees at Boeing to not inform the FSB of the changes in MCAS, in the final approval of that decision. For which action, Boeing agreed to a DPA and extensive fines.
However there is no assertion that MCAS training would have avoided the accidents, because it would have been in the expected realm of operation. As the current required training also is.
Nor is it true that Boeing hid MCAS from FAA certification. FAA pilots certified both versions of MCAS, and were fully involved and aware of the modification decisions. The sole instance of omission was in the training materials submission, as noted above.
The training that is meant to avoid an accident, is the runaway stabilizer training. That response was what amplified an upset event to a fatal accident. And is a fundamental part of all pilot training, that is supposed to be a memory recall item.
This was the conclusion of the NTSB and the BEA, as you also well know.
@Rob
Nice deflection. It’s not a “misunderstanding” of the issue. It’s obfuscate, deflect and disinform on purpose.
Well, no. The long-debunked conceptual error in the post you made, has been explained to you a half dozen times, over the span of years.
No authoritative source asserts that response in 4 seconds was required to recover the MAX. In fact this is openly disproved in the required MAX training, where crews must allow MCAS to run to conclusion, in order to experience the effect and learn how to recover.
But you continue to post it, knowing full well that it’s wrong, because you don’t care whether it’s accurate or not. All you care about, is that it sustains your equally incorrect view.
As I mentioned, that is the unique feature of the commentary here, the allegiance to the belief over allegiance to truth.
“So Boeing has been mining the many millions of flight and flight hour data on the 737 … ”
Sounds great. How exactly BA “mined” data from a 60s-design-cockpit?
As explained, the data are related to human factors, not cockpit design. There is a wealth of information available on human factors in the very long 737 history. It’s a very large statistical sampling base, from which to draw.
So, in summary: the certification timeline is still very uncertain.
Wow, the earth shook and time stood still.
Yep, no MAX-7 yet and the MAX-10 will require and extension.
Defiantly defines out as uncertain.
The MAX-7 is fairly certain, as there is only one or two SSA’s left. Deal said Boeing is learning and working to get them approved on the first pass.
The MAX-10 is more uncertain, in terms of the period between completion of certification flight testing, and certification. As we saw with the MAX-7, there is still review and request for resubmission of documents possible.
“Deal said Boeing is learning and working to get them approved on the first”
As if anyone — in the real world — attaches any credence to what “Deal said”.
Have you checked how often BA’s prognoses have been wrong?
Have you checked how often your own prognoses have been wrong? The pot is calling the kettle black, methinks.
The certification predictions have been uncertain because of known reasons, the changes in the FAA certification process. Boeing has admitted this, and also that they need to improve on getting approvals on the first pass. For which they are making progress.
Again you can deny the evidence as much as you wish, it doesn’t change the reality.
Alternatively:
Have you checked how often *your* own prognoses have been wrong? The kettle is calling the pot black, methinks.
The certification predictions have been uncertain because of known ineptness of BA, which can’t wean itself off of self-cert. The FAA has highlighted this, and that BA needs to improve on getting its act together. For which there is no sign yet of progress.
Again you can deny the evidence as much as you wish, it doesn’t change the reality.
-> Ryanair is “confident” in Boeing meeting its current certification timeline for the 737-10 of 2024, Group CEO Michael O’Leary said Tuesday.
Fun fact: When United placed its first order for the 737-10 in 2017, the first plane was due in 2020.
https://twitter.com/ByERussell/status/1656285206796541952
It’s interesting that Tim Cook is essentially saying that he doesn’t want 777X until the engines are mature.
Thing is, I’m not sure that it’s possible to achieve. For GE to mature the 777X’s engine to the extent to which I think Cook is referring to, it’d 1) have to buy a lot of 777X’s, 2) install a lot of engines on them, 3) fly all of them around for a lengthy period of time carrying representative payloads all over the world. In other words, GE would have to set up a testing fleet on the scale of a decent sized airline before Emirates does. That’s not really feasible.
Ok, so a lot of this comes down to how representative can a few prototypes really be, how representative can the conditions in a test cell be, and what variation can there be between prototype testing and real life experience, and what is the difference on the production line?
Limited scale testing cannot hope to replicate every situation. Look at the Trent 1000 on 787 – perfectly fine, except the air they were breathing in service in the hot and dirty Far East was different to the fresh, clean green air around Derby. Pollution had a bad effect on the durability.
There’s nothing quite like in-service usage. Mother Nature is very good at finding mistakes.
So, how can an airline and engine manufacturer actually get to a point of satisfactory service performance? Probably, by embracing the realities of modern complex designs and their likely lengthy maturation periods. Rather than assume reliability / long on wing lives, assume the opposite; plan on there being service disruption, and plan to minimise its impact. Make sure the iterations happen more quickly, less disruptively. Get the maximum value as quickly as possible from faults, if faults are inevitably going to occur.
Why might an airline want to go through that? I think it works if there is a commitment to continuous improvement. At some point the engine starts to get good and reliable, and everyone else is benefiting from that too. Further improvements from that point onwards are likely beneficial to performance, not just reliability gains. These could be exclusive to those early-on co-development airlines, at least for a while. So yes, there may be early pain (even if mitigated), but there should be the prospect of some gain later on.
This comes down (as it always does) to the value of probability risk assessment in design and operation, based on statistical models. Testing is important but it only gets you so far. A good program of risk reduction incorporates both. Ideally, testing feeds data into the models, and the models flag areas where further testing is needed.
The engine manufacturers have been trying to tweak the limits of hot section performance. But sitting on that edge reduces the envelope of reliable operation. The design case, is also a corner case. So they need to anticipate and account for the additional risk that results.
As you mentioned, the Trent is an example where Rolls Royce did not anticipate the risks. We’re seeing another case with the current Pratt & Whitney GTF. As Leeham noted, the problem is not so much in the gearbox, as everyone expected, but the hot section.
The GE LEAP engines have not been immune to issues either. But of the three manufacturers, GE has the greatest experience in applying probabilistic methods, due to their experience in other fields.
Thus I don’t think the GEnx engines will be free of problems, but I think they are much better positioned to have anticipated the risks.
Still I can see why Tim Cook would be spooked. But as you mentioned, there is no way attain certainty unless he sits back and lets others take the risk. In a competitive airline market, I don’t think he will do that. It’s more likely he will seek contract assurances that GE is prepared to stand behind any issues that may develop.
What Tim Cook (Apple) does is not really relevant here.
Tim Clark (Emirates), on the other hand, can just jump ship to a different plane model with engines that have a positive proven track record. And he can do that without losing his deposits. In fact, he’s already done it for part of his original order.
Yes, you are correct, it’s Clark and not Cook.
However the fraction of his 777X orders were shifted to 787’s, which are available sooner. And Boeing has maintained that the 777x orders still exist as options. Whether that will come to fruition or not, time will tell.
Clark wants the 777X more than the 787.
It looks like BA is going to miss EK’s latest deadline, mid 2025, again. Oops.
How many million $$$ is BA ready to dole out to pacify its 777X customers?
https://samchui.com/2023/05/09/ceo-talk-emirates-new-fleet-and-network-update-from-sir-tim-clark/
My bad – I planted the seeds of that with my mistake!
Tim Cook really could afford to sit back and let everyone else take the risk, and then come in and buy more or less every airline on the planet for pocket change…
Matthew:
Mostly correct.
The Trent 1000 ten issues were not environmental. At the core it was a harmonic they did not find until after the Trent 10 came out.
There was some blade wear that was attributed to salt water (hmm what 787 was not going to fly over and in many cases in and out of cites located on the shores of oceans?)
That was part of the issues but it was a wear out not a failure related that the cracking was.
But yes you better plan on early problems and this is just worse though it has shades of the 747-100 except its by all mfgs.
Harrumph. Trent 1000 Package C engines suffered from hot-corrosion related fatigue cracking in the IPT, caused by atmospheric sulphur released in large quantities by heavy industry in the Asia-Pacific region.
Trent 1000 Package B engines suffered IPC failures due to resonance at particular power settings.
Both issues were (eventually) addressed by redesigns of the blades in question.
Orders and cancellations:
April:
– BA had 21 cancellations, all MAXs.
– AB had 3 cancellations, all A320neos.
YTD:
– BA has had 87 cancellations, and 154 gross orders, giving net orders of 69.
– BA has had 17 cancellations, and 161 gross orders, giving net orders of 144.
No wonder BA was able to offer Ryanair relatively early slots 😉
The Air India and Saudi deals still haven’t been firmed up.
https://www.scramble.nl/civil-news/boeing-april-2023-orders-deliveries
https://www.scramble.nl/civil-news/airbus-april-2023-orders-deliveries
Boeing has to work under stricter financial reporting over cancellations. Airbus just keeps dodgy orders on the books as it makes its own rules.
Those comparisons you make aren’t worth* the paper* it’s written on.
You’re still confusing ASC606 deletions and actual cancellations.
These are hard cancellations.
“AB has had 17 cancellations, and 161 gross orders, giving net orders of 144.”
YTD for both,
Those numbers are not directly comparable as the rules for each are different , well one follows rules AB makes it up as it goes….which is your method too. Working for Airbus must be such fun
Why BA has 87 cancel orders in 2023? Why it makes sense??
Found this:
BOC Aviation has agreed to purchase seven Airbus A320neo-family jets https://www.flightglobal.com/air-transport/lessor-boc-aviation-to-order-more-airbus-a320neo-family-jets/153267.article
“with deliveries commencing this year.”
Typo — should read:
– AB has had 17 cancellations, and 161 gross orders, giving net orders of 144.
The LEAPS also have issues.
Here’s a new one, relating to the LEAP-1B on the MAX:
“FAA addresses Boeing 737 MAX engine compressor stalls with a directive”
“The FAA was prompted to issue the AD due to “multiple aborted takeoffs and air turn-backs (ATBs) caused by high-pressure compressor (HPC) stall, which was induced by high levels of non-synchronous vibration (NSV)”. ”
““The unsafe condition, if not addressed, could result in engine power loss at a critical phase of flight such as takeoff or climb, loss of thrust control, reduced controllability of the airplane, and loss of the airplane,” the FAA argued. ”
https://www.aerotime.aero/articles/faa-addresses-boeing-737-max-engine-compressor-stalls-with-a-directive
The AD specifies that a small number of engines are affected, 8 total in the US. And that a $100 test will be required every 100 flight cycles, to check for impending failure of the affected engine part. If the test is positive, then the replacement of the part is a $66,000 repair. But can coincide with other engine work.
The FAA concluded that there is no financial impact on the industry from this issue. That is very, very different from the issues discussed above for the Trent and GTF engines.
“The FAA concluded that there is no financial impact on the industry from this issue”
Unless it causes another MAX to crash, of course…don’t forget that option.
***
Nobody asserted that the issue was of the same financial/logistical magnitude as the PW meltdown. But it is an issue that can cause loss of the plane. And it comes on top of other, more extensive issues with LEAPs in hot climates.
Almost every AD issue can cause loss of the aircraft. By definition, an AD addresses an unsafe condition. This one is no different than the thousands of others issued by both FAA and EASA, for both Boeing and Airbus aircraft.
“This one is no different…”
Except that loss of another MAX would be the end of the line for BCA.
Though you probably can’t grasp that, because is isn’t stated in an official BA communiqué.
Bryce, all I can say is that your hopes and dreams, that another MAX accident will occur, so that in your mind, you can be proven right, and that Boeing can be destroyed, is disturbing.
@ Rob
What a perverse and sick reply! Says a lot about you.
Isn’t is bad enough that 346 innocent people died as a result of BA’s shoddy engineering and dollar-driven corner-cutting?
Who could possibly wish for more tragic victims of this Frankenplane?
Your desire to put subjects/people into compartiments is severly impeding your reading / interpretation skills.
Bryce, you have put yourself in that compartment, thousands of times, by your own words. Constantly predicting the worst, and rejecting all aspects of positivity, by every other commenter here. You can’t lay that on anyone else, it’s all you.
@ Rob
*Discussing* the many failings and misadventures of BA does not equate to *wishing* any ill upon the company, or any of its customers.
Your reading/interpretation skills appear to be even worse than you’ve previously demonstrated. One can only assume that your despair at BA’s ongoing misery is severely eroding your judgment/cognition.
You should apologize to the families of the MAX crash victims for that depraved message that you posted above.
Lol! Predictable as always. Even in a message purporting to not wish ill of Boeing, you describe them in completely negative terms.
I know you are unable to see this. But it isn’t lost on anyone here.
Tell you what, let’s do the “Bryce challenge”. For a period of one week, you refrain from any and all criticism of Boeing, in your comments here. Then you might have some credibility.
Conveniently forgets the 228 people who died in Air France Atlantic crash
‘Announcing the verdict, Paris judge Sylvie Daunis listed four acts of negligence by Airbus and one by Air France but told a packed courtroom these were not enough under French criminal law to establish a definitive link to the loss of the A330.
“A probable causal link isn’t sufficient to characterize an offence,” the judge said in her 30-minute judgment marking the end of France’s first ever corporate manslaughter trial. She said both companies nonetheless remained responsible in civil terms for repairing damage inflicted by the crash and scheduled a new hearing on Sept. 4 for some outstanding claims.” Reuters
So not the higher standard for criminal liability but does meet the civil liability standard.
Dont forget the other Airbus plane crashes that had faulty systems which didnt allow for some of the 3 AOA sensors misreading and the pilots oblivious that flight envelope protection was *off*
Poor Rob still doesn’t understand the difference between “describing something in completely negative terms” and wishing ill upon something.
As regards your “challenge”:
What you call “criticism” is what others call “realism”. Why would anyone want to refrain from realism for a week?
That’s what I thought. But thank you for confirming. Again.
@Rob : agree that a better risk assessment based on statistical models and contractual assurances by engine OEM should improve the situation .
But the main difference of today industrial context is Airbus/Embraer will to increase their airframe output rate for higher revenue on short term.
All airframe manufacturers through their field reps have all the airline operational data and engine technical shop report. MRO shops capacity are also known by engine OEM .Based on their updated statistical models with above data ,Engine and Airframe OEM should be able to anticpate and be in a position to increase the number of spare engines in a global pool to cope with an unscheduled major engine technical issue instead to favor aircraft deliveries at FAL. Otherwise spare engines number which have been ordered directly by airlines ( at a higher price without discount) will be not sufficient because the optimistic “commercial ” model -provided initially by the airframe OEM-did not take into account such technical issue .
To summarize airframe manufacturers should be more involved in such situation . Do not forget that they initially selected engine type based on their maintenability/availability specs ( not only on performance figures)
Faster retrofit and continous improvement engine mods should also help but their realization in the airline internal organization needs very often the same engine critical parts which are missing for new engine production.
Good analysis, totally agree. Assessment of risk by all the parties enhances the ability to mitigate the problems.
As you noted, parts availability from the supply chain are often a key element of the mitigation response, so the planning has to go tiers deep, to be effective.
Many engine and aircraft manufacturers recommend the number of spare engines, like +10%. It is up to the airline to buy them or get into spare engine pools. I know of OEM’s requiring a min number of spare engines as a requirement to get a power by the hour contract. This guarantees that a drop in aircraft untilisation due to lack of spare engines is not happening too quick.
Performance specs are a major aspect as pretty much a direct quote “the increase in efficiency is being negated by the early shop visits”
And if shop visits go up high early and you don’t have enough reserved engines in the pool, yea, you park and aircraft and service is hit and hurt.
We are only getting ideas now of what the shop visits and wing time are so a lot of data suddenly shows it can be pretty bad. So suddenly its not just replace a seal and put back in service, the engine is in the shop for months and no spare.
Then you rob engines from aircraft that are down for routine maint and it cascades in costs.
Yes, most engine OEM’s forces their customers to sign power by the hour contracts (RR…) . If the aircraft is AOG then no hours and no revenue. Hence the spare engine requirement in those contracts.
I do not know if most try to force, RR had a reputation for that and when their Trent 1000/TEN crisis hit they had limited shops that could deal with it (they then opened it up to more).
I am sure P&W and CFM/GE push deals but I have not heard the term forced in ref to those entities.
Certainly larger engine discounts for those that do but I would call that horse trading.
It’s like a perfect storm. Airlines stored their aircraft in 2020, delayed MRO to reduce cash drain. They are not faultless. Many also SLB their spare parts and engines to survive.
https://twitter.com/737handbook/status/1656352352696414208
Bryce, Bryce, Bryce,
Calm down …
Your post is just as depraved.
Make someone feel guilty because you’re talking about something past, in the present.
And to indeed continue to type on Boeing today by saying “to tell the truth, it is not to want to harm the latter”. Wait, just let me laugh. Continue your crisis,
when I told you that the United Airlines, the 2 Saudis, and Ryanair you are knocked you out in colossal orders just makes you sick
It’s the Boeing effect on seeing 24 hours after incubation… Lol!
Bryce
Straw man arguments concerning the
Leap1-B FAA AD
embellished with a wishful thinking sick of vicious to see a 737MAX crash .. Lol !!!
Looks like Bryce got angry when Rob told him ADs aren’t usually dangerous.
Selective memory and his anti-Boeing obsession caused him to forget the December 2021 AD that EASA had established regarding the A350 skin CFRP issue.
The EASA also used the same rhetoric of “going to the loss of the aircraft”…
Lol ! Bryce, where were you in December 2021?
Bryce
…”The Air India and Saudi deals still haven’t been firmed up….”
—-
Another example of obvious wishful thinking?
Healing seems far away…
These “orders” haven’t yet been included in the delivery numbers of the OEMs.
Care to provide us with any links to the contrary?
Typo: “haven’t yet been included in the *orders* numbers of the OEMs.”
Am I the only reader becoming very tired of the Fanboy insult-exchanging game of ping-pong (or Whiff-Whaff if you prefer!) going on between certain commentators? Grow up kids!
You are not the only one. Bryce seems to exist solely to dump on Boeing at every possible opportunity. I worked there for more three decades and watched the McDonnellification take place in real time, and Boeing management deserves scorn for what they have enabled. But the relentless, obsessive negative commentary offered by some says more about the commenter than about Boeing.
@retired BA
That’s one way to look at it.
Another way would be that there are some in here that move the goalposts when challenged, quite often with reported, unimpeachable evidence (like details from financial statements) and deflect, obfuscate and jump to another subject – afraid of where the evidence leads them.
This, in turn, raises the hackles of others.
The most recent point of contention seems to be Boeing pricing. I invite you to join in at a small exercise below. Just to see how people respond to reality and their perception – and how close the two match up.
You call it “negativity”.
Others call it “reality”.
Taken a look at what other aviation media outlets have to say about BA?
The company is a ongoing train wreck.
If you want to clutch at little straws and draw hope from them, off you go.
Others, however, are still concentrated on the huge elephant in the room.
Frankly Bryce I agree with you: Boeing is a train wreck, a phrase I used frequently while participating in the development of the 787. I am not in denial about that. I simply agreed with Roger that the endless stone throwing on this forum becomes tiresome. The amount of time you must spend documenting Boeing’s numerous ills is truly impressive. But perhaps you might take a day off once in a while. Throw a ball with your kid, take a walk on the beach, listen to some Mozart, whatever. Surely there is some activity that gives you as much joy as your daily Boeing dump.
It’s not a “Boeing dump”: it’s commentary on what the press publishes about Boeing. And it’s relevant, because it helps evaluate BA’s financial prospects — among many other things.
Are you one of these people who writes to the weather service complaining that the weather forecasts have been so dismal lately?
When BA stops falling over itself and cutting off its own nose, I suspect that the press — and Bryce — will tone down the negative commentary. So, the ball is really in BA’s court, don’t you think?
@Retired Boeing, things are pretty depressing, and I can understand why people might get tired of it.
However, with a long-range-thinking hat on, it’s easy to see that an actual collapse of Boeing would be a huge global economic problem, and the world is totally underprepared for that, especially if it is a disorderly collapse (as seems most probable). And the company and US Gov seem to be continuing their slow sleepwalk into that situation.
It’s a situation with consequences which one can’t really overstate.
I knew a guy who was great at pointing a finger at others and then engaged in the same behaviour.
I have seen some total denial on Boeing side when its clear there has been massive mis-management of Boeing in share buy back and dividends the only focus and product development and a failing structure.
Deciding you are the adult in the room is as worse than what some others are doing and in my view the ultimate in childish behavior.
@Checklist
The AD the “chosen one” is referring to effected a whopping 8 CFM leap 1B engines !!.
Ofcourse he completely omitted the AD transport Canada issued for over 200 A220’s for faulty sensor’s In the bleed air system that could damage surrounding components if not replaced …
As if the A220 didn’t have enough issues already !!
Its clear Boeing stood its ground on the Ryanair pricing and they now have a nice 300 orders for the -10.
Short term to mid term Boeing has great prospects of success if they can continue to maintain quality vs the failures of the recent past (Spirit is one of those tough calls, Boeing is responsible but does not have control). Flip is they could have maintained control.
Longer term the Boeing issue is what the management behaviour is if they get their debt paid off and where the money goes. Clearly there is going to be a desperate need for a 200-250 size single aisle type operating economics.
I have not had a ride in an A220, but I did get one in an E175 and I would call it a mini 737. Every bit as good. I can see the even better A220 as a huge threat to the -8 even in the -300 version and a -500, phew.
So there is a major issue in the lower end as well.
‘Its clear Boeing stood its ground on the Ryanair pricing and they now have a nice 300 orders for the -10.’
Really? How do you know this?
If you’d be so kind, there is a little pricing exercise below I’d like for you to take, just to gauge where you stand on pricing.
Thanks
AllianceBernstein estimates that Ryanair paid $38M each for the 737-10s in the latest order — representing a discount of 71%.
Levels above 65% represent a loss for BA.
Morgan Stanley estimates that Ryanair paid $57M each for the 737-10s in the latest order — representing a discount of 57%.
Levels above 65% represent a loss for BA.
Guess BA made some money.
Frank:
Boeing walked away from ridiculous low pricing and OLeary has admitted he had to pay more.
So yea, Boeing looks to have met what it wanted on the deal.
Nothing wrong with saying that and still keeping an eye on Boeing long term future, 300 x -10 is not a savior and setbacks like the fin bracket issue are not the end of the world.
From what I am reading on the T-7A, the digital build has issues in the model for the aerodynamics is not right. How you can miss on a trainer that is not bleeding edge tech is a fair question.
Now its 2027 while they work through the issues.
My guess is Boeing lacks the experienced engineers that can sort out a bad model area from what it should be.
So you can do some things really fast and well (fit) and wind up going down an aerodynamic path that has problems you have to fix.
I have seen contracts that were rejected because the bid was too low. Clearly that leads to problems (KC-46A another one).
Sure Boeing has to make it up but it impacts all the aspects of what you are counting on.
https://www.reuters.com/business/aerospace-defense/ryanair-set-order-jets-boeing-burying-hatchet-after-price-spat-2023-05-09/
Ryanair said the deal was worth $40 billion at list prices, though experts noted that this included options, which are not booked as orders, and typical discounts for firm orders run at more than 50%.
“We’ve had to accept a modestly higher price,” O’Leary said. However, if Ryanair maintains its 94% or near-full load on flights aboard the larger MAX 10 jets, the extra 30 seats will “pay for the aircraft in their entirety,” he said on Tuesday.
Did you notice the “modestly higher price” syntax?
How shall we construe “modestly higher”?
For example, if Ryanair got a 69% discount on its previous order, but got a 65% discount on the new order, would that quality as a “modestly higher price”?
Where’s the cutoff?
Bryce:
What is the point of saying any of that when no one knows the terms of the contract compared to previous sales not to mention the -10 is in a MAX category of its own that there is no comparable pricing on.
As they are next door, I suggest you break into archives for IAG and see what they paid for an A321 order and do the same for RyanAir and then get us the results.
@TW
Even when information isn’t *given*, it’s still often possible to *derive* it.
Frank and I post lots of calculations for you here on a regular basis — but they seem to go over your head.
New article on the 737 MAX tail fastener mitigation. Boeing will set up 4 worksites at Renton, Everett, Boeing Field, and Moses Lake, to address 170 affected aircraft in inventory.
Fully assembled aircraft are expected to require 2 weeks to repair. Incomplete or unassembled fuselages in about a week.
There is also a worksite at Spirit, which has about 40 affected fuselages in inventory.
This will suppress production and delivery output for a few months, but both Boeing and Spirit said they will compensate to meet their year-end goals.
https://aviationweek.com/air-transport/aircraft-propulsion/boeing-sets-four-sites-737-attachment-fitting-work
Rob
Thanks,
The plan seems ambitious, that there are no more stupid problems like this in the future, because let’s realize that Boeing had delivered for the first time since 2018 (pre MCAS/Covid crises) more than its competitor. It was quite amazing despite the negative things we would have heard.
I’m not telling anyone, the day of delivery is the real pay day and potentially Boeing can do things positively amazing and negatively the worst…
If it goes well until to 2026,i think we could start talking about a new program to be launched around 2028-2030, but the shareholders will have to be convinced of the effectiveness of Arlington by then…
I have confidence Boeing will work through this. But I would not be surprised if other issues turn up, as they work with suppliers to improve safety culture, safety management systems (SMS), and quality control.
The institution of SMS is meant to find problems. That’s its purpose. The important thing is to recognize identification of quality problems in the supply chain, as the progress that it is. It’s what the FAA has asked them to do. Over time, the frequency will lessen. They are really still in the early stages.
Billy Nolen talked about this in his Congressional testimony. SMS has been in place at airlines for awhile, but is new to the OEMs. So it’s a work in progress.
“So it’s a work in progress.”
Everything at BA is “a work in progress”.
Just like a cat chasing its tail: lots of distance is clocked up…and, yet, the cat never actually gets anywhere.
Objectively false, as usual. There is ample evidence of Boeing progress on all fronts. I’ve given many examples, as have others here. Which is not to say the progress is complete. Hence the “in progress” status.
Alternatively:
Objectively false, as usual. There is no evidence of meaningful Boeing progress on any front, since the company is still moving from one screw-up to another and is still running a quarterly loss. I’ve given many examples, as have others here. Which is to say that the lack of progress appears to have become a fixture. Hence the “no progress” status.
Rob:
At best Boeing is at a point where its no longer loosing ground fast.
The concern is that it was not one of the safety triggers that caught the issue.
Bad news on the T-7A end, so there is a whack a mole aspect to all this.
I continue to hope for the best for Boeing as a company. I despair that Calhoun is an answer to anything other than mediocrity.
Boeing *didn’t deliver more* than Airbus in that period.
The real result was Airbus fell flat on its face for deliveries which were considerably down than expected.
You’ll read all about it in the European aviation press alongside pictures of all the undelivered planes…….. Sorry wrong country.
The tame European press just parrot what ever Airbus says
TransWorld,
I agree with you in substance but not in form.
Fanboys have transgressed far too much. I cannot therefore accept your point of view entirely because this kind of people cannot and do not want to have a balanced and enriching speech.
I agree that we criticize Boeing for the real mistakes they made. But please do not forget Airbus also even this one will necessarily give objectivity. In truth, the same information from two different people will naturally be perceived differently.
You can’t be a hardened Fanboy and say things about a manufacturer, because it’s true that Boeing went too far in its method more than 15 years ago. But I think you can run a business and hand out money if you stay straight in your boots, there’s nothing wrong with that in today’s world.
If you think Boeing pre Mc Donnel Douglas merger is better then you are wrong because what was stopping Boeing from launching a brand new 737 replacement in 1993 during the 737NG launch?
They could have run it as a 777 twin program with EICAS / Fly By Wire 777 cockpit right?
Because the 30-year-old 737 at the time was a pre-Apollo design (1963-1969).
So please drop the Mc Donnel Douglas fantasy because in 2019 Boeing was ready to launch the NMA but my theory is that the launch of the A321XLR prevented it.
I’m not saying that -XLR is aiming for a big market but I’m just saying that a new concept can wake up a market. Where Airbus wins is only that they prevented Boeing from doing it better than their -XLR offer. In other words I really think that the NMA could have captured 700 orders from the -XLR + 600 other orders generated by a new aircraft launch effect with the replacement of 757/767 + growth + new line opening.
The A321-XLR has picked up everywhere with a “limited” platform, capturing an obvious niche market. I have long compared the -XLR market with that of the LCC market highlighting the success of the 737MAX-10 (at the option of upsetting certain Boeing haters).
The redesign of the MAX-7 in 2016 and the launch of the MAX-10 in 2017 was an obvious repositioning to be able to occupy the market above and below the 787 Dreamliner.
These are proofs that today’s Boeing wants to launch aircraft.
But indeed with the setbacks of MCAS and Corona Circus, CEO Calhoun understood that they had gone too far, he currently cleaned up as soon as he took office in 2020 and since then things have been progressing better. So once again the relentlessness against Boeing is simply disproportionate and abusive by sticking to its mistakes of a few years ago.
Regarding the A220-500, I thought a few months ago that it would be a very bad idea to cannibalize a ca$h machine such as the A320neo. But today I just learn like everyone else that if Airbus is not able to deliver these aircraft due to problems in the supply chains and not being able to reach the long-promised target of 84 aircraft / month (and we know we are far from it) so yes the A220-500 could be an option to “relieve” and meet the demand of a huge market. But I see 2 checkboxes for its launch because, IMHO, it must be far enough away from the A220-300 to not suffer the low sell 737-900NG/MAX-9 effect compared to the 737-800NG / MAX-8 otherwise it would have a failure and would not be a market response to the A320neo which will not meet its delivery target promised to customer airlines while investing in an aircraft which will ultimately produce nothing for the market.
Let’s say 2-class 30 seats spacing from the A220-300 seems reasonable to me. But given the problem and the unknown situation of future deliveries of the A320neo, we will have to think carefully and take our time before launching an A220-500 without risk…
Thanks
“Boeing was ready to launch the NMA but my theory is that the launch of the A321XLR prevented it.”
Nope. The MAX grounding stopped the NMA.
Hello Scott.
TRUE. But the -XLR factor also has its part IMHO because the MAX grounding would only have delayed the NMA, not canceled it altogether.
Checklist:
I have never posted that the performance of Boeing since the MD takeover was a good thing. I do contend its a mixed bag.
Boeing got a huge defense portfolio and much it it continues to this day (F-15/F/A-18/AH-64).
But BAC clearly has been run into the ground.
And I do fear for Boeing. Failure to come out with new BAC product is a bad thing.
The -10 is a success (assuming they get the cert for it)
That gives Boeing short and mid term stablity but what they do with it is an open question.
The A220-500 can replace both the A320 and the -8 MAX (not the -9)
As more and more of Airbus production is shifting to the A321, the A220 is a way to beat Boeing where it hurts in the -8 area as Boeing has done well with the 800/-8.
But we are years away from A220 production reaching high enough to replace the A320 or threaten the -8.
Lots of moving pieces involved.
@claes : Agree but the 10% figure was to my knowledge the upper range for determining the number of spare engines for each airline depending each operational context . However, this number would not cover the unavailability rates written of the AW article (above 10%), and it is in my opinion this gap that must be anticipated by the aircraft manufacturer with the help of simulations and supported by the engine manufacturer and the aircraft manufacturer . Keep in mind price for spare engine ( bought directly by airlines) were ( are?) far more expensive than those installed on delivered aircraft. At the very end, In this ” three parties”business airlines margin are less than aircraft/ engine manufacturers: that ‘s why the global economical model should change.
Looks like TK is going to be a sensation this year and a sensational Paris Airshow ’23 with lots of announcements in favor of Airbus.
Boeing announcements at IATA in Istanbul in early June. Gorgeous…
https://www.reuters.com/business/aerospace-defense/turkish-airlines-set-order-600-aircraft-june-chairman-2023-05-11/
(!) What are the speculations?
A220’s, A321-XLR’s, 737MAX-10’s, A330neo’s for TK regional market? But Still 787s and A350-1000s going to Australia?
The 777-9 as a replacement for the 777-300ER?
TO: Transworld, Duke, Checklist, Rob, Retired Boeing & anyone else
RE: Boeing Pricing
Everyone seems to be up in arms over claims made about how much revenue BA receives, or will receive for it’s aircraft. Let’s have some intellectual honesty then, using indisputable evidence to reasonably estimate how much BA gets in revenue for it’s aircraft.
Here is the most recent delivery information for Q1/2023 and the breakdown of what was delivered:
737…… 113
747 ………1
767 ………1
777……… 4
787…….. 11
Total… 130
I would like everybody here to give their ESTIMATE on how much revenue they think Boeing received, by model.
737…….$
747 ……$
767 ……$
777……..$
787……..$
If you think Boeing lists a Max for $110 million and gives a 50% discount (and yes, this is an average price for the quarter) then it’s $55 million in revenue per 737. A price for each model, please.
No need to go off on tangents. No explanations. No waffling. No attacks. Just put a number there.
Simple.
Thank you.
You don’t actually expect any of the addressed commenters to reply to that challenge, do you?
Far too realistic and confronting for comfort.
Good exercise, though. You should extend the invitation to financial analysts and see how wrong they get it…
Can’t speak for others here, but I didn’t respond because I know where Frank is going with this. He will conduct another financial analysis that shows Boeing cannot survive. We have seen many of these over the years.
Additionally, no one here knows the information he requested, with any degree of certainty. So the numbers can be manipulated to produce the outcome one has chosen at the outset.
Thus it’s not productive in establishing or predicting real world results. Which we have witnessed repeatedly over these same many years.
I will hazard a non-numerical guess on the most recent Ryan Air order. Boeing is on public record that they are exercising price discipline to maintain margins, and has noted Airbus is doing the same, in their various competitions. Also O’Leary is on public record that he didn’t get the pricing he wanted, favoring instead to get production slots.
From this I will speculate that the pricing was in the normal discount range, which does preserve margin for Boeing. And that O’Leary may instead have gotten other concessions, such as compensation or options for delivery delays.
FWIW I don’t think Frank has suggested “Boeing won’t survive.”
Thank you, Sir. I’m glad you have come forward and said this. Now we can move on to the actual point of the question.
Ever noticed that Rob tends to ignore conditional and/or qualifying syntax in comments from others?
For example:
X: “If this continues, BA will run out of cash before the year is out”
Rob: “X predicts that BA will not survive”
Y: “BA’s current unit margins are unsustainable”
Rob: “Y predicts that BA will not survive”
As I cannot see the contract I have no answer other than to state I have never engaged in what Boeing is or is not getting on their sales.
Sometimes we get a view of airline pricing but mostly not.
So why comment or speculate, the details come out in retiring debt and that is what counts. Are you making progress or not?
Scott, no possibility of profit implies no possibility of survival. So Frank may not have said it explicitly, but it has been implicit for a long time.
If he said that Boeing is currently operating at a loss, but they have the potential for future profit, I would agree.
But I don’t agree with his analysis that every program cannot be profitable, therefore the company cannot be profitable.
It also seems that the market agrees with me on this. So either everyone else is a fool, or Frank’s model may not be effectively capturing the reality.
“Scott, no possibility of profit implies no possibility of survival. So Frank may not have said it explicitly, but it has been implicit for a long time.”
(1) This is incorrect. A commercial entity can continue to exist on a purely breakeven basis (i.e. zero profit).
(2) Where did Frank say that BA has “no possibility of profit”…with emphasis on “possibility”? Just because it’s cold today doesn’t mean that it won’t be warmer in 6 months time, does it?
Reading skills!
‘He will conduct another financial analysis that shows Boeing cannot survive. We have seen many of these over the years.’
Where you pull this narrative from, I have no idea. I’ve never said BA cannot survive.
But once again, like being unable to give us a straight answer on YOUR numbers for the KC-46 program, you once again deflect to another subject.
You say that this is not productive in offering real world results. I am literally using numbers from BA’s financials – real world results, to illustrate a point.
I guess you don’t like what those numbers are telling you, therefore you’re going to avoid them at all cost.
(P.S. I guess you’ve learned to keep it generic and never make any claim that can be tested with mathematics. “Non-numerical guess”…- I guess Ryanair can pay them with non-numerical money and BA can publish non-numerical results every quarter. “Here’s your paycheck Rob, we’re paying you non-numerically this month!”)
Lol
Frank, I’m sorry but when I joined this site in spring 2019, you were making the same analyses you are making today. By your numbers, Boeing cannot make a profit and therefore cannot survive.
The KC-46 program was one example of this. I tried to explain that the program will be profitable over time, but you rejected that on the basis of your analysis.
In fact you have rejected every argument against your analysis, continuously for 4 years. Why would anyone here believe this time will be any different?
Yet Boeing still exists, and continues to move closer to profitability, while paying down its debt. How is that possible? According to you, it isn’t.
And this is after a veritable perfect storm of misfortune, during these same 4 years.
So here is my advice. If your analysis is so superior, you are wasting your time in the Leeham comment section. You only need to publish your results online, to win universal acclaim and prove yourself superior to all other analysts.
Although that sounds like sarcasm, it isn’t meant to be. I really wish you would put your methods to the test, in the crucible of the real world. Then we could all see how they fare. And finally stop arguing about it here, one way or the other.
@Rob
‘I tried to explain that the program will be profitable over time, but you rejected that on the basis of your analysis.’
You said that BA was making between 10-15% margin on Defense. You said BA was going to earn $60 billion in revenue on the program, is that correct?
Here we go:
https://leehamnews.com/2023/04/26/boeing-says-it-still-will-deliver-up-to-450-737s-this-year/#comments
Rob
April 28, 2023
Just to clarify on some of the comments above on the KC-46, Boeing has generated about $27B in revenue, after roughly 60% of the initial production run. That run has already been extended by 25 aircraft, and more are likely in the pipeline.
Further that does not include the services and upgrade contracts.
Thus Boeing has losses on the development contract, but has profit on all the other aspects of the program. Which will likely total around $60B, over the aircraft life.
and from another post:
“With a likely margin of between 10% and 15%, since it’s military sales.”
Those are your numbers. That’s what you’ve said. $60 billion in revenue and ‘because it’s military’ – a margin of between 10 and 15%.
So far, the entire shebang is $7 billion behind. Dev costs, prod costs, whatever – $7 billion down. $27 billion in revenue.
You estimate another $33 billion in revenue. Fair enough. Take your 10-15% margin and what is left?
Make it make sense.
————————————————————————–
Thank you very much for running me down again – if you could just stay on track and answer the questions, that would be great.
Here’s another one for you:
737…….$
747 ……$
767 ……$
777……..$
787……..$
I notice that Rob didn’t provide an answer to Frank’s question, but instead engaged in the usual smokescreening.
Dollar amounts Rob, for each model.
That link you provided the other day upthread on Boeing aircraft cost estimates seemed quite well-argued and supported, for the evidence-based community..
@ Vincent
Thank you.
I found the considerations and calculations in the link to be very thorough.
The feasibility of the outcome of such calculations is verified every quarter when BA publishes its financial results, from which it’s easy to calculate average unit revenue and EBIT. Comparing these to average list prices then yields the average discount given.
Some people here don’t seem to realize that, even when information isn’t explicitly posted at the front door, it can still be extracted via the back door.
and Rob
Just to put this whole tangential issue to bed, in no way do I think that BA will not survive.
They are too important to America. For a variety of reasons, both militarily and financially.
Is Ch 11 a possibility? Yes.
Is it probable? No. It would take some monumental circumstances for those in the C-suite to follow this course of action.
My point is that Boeing and most analysts have a far superior knowledge and understanding of their financials than either you or I. When they are worried, I’ll be worried. But I see no reason to be worried at this juncture.
The guidance given in the quarterly earnings calls seems to be largely correct, with the only variation being unexpected charges. As I tried to explain, it’s wise to write those down immediately rather than carry them against future revenue.
@Rob
‘My point is that Boeing and most analysts have a far superior knowledge and understanding of their financials than either you or I.’
Like who Rob? Boeing has a vested interest in making their financials look as good as possible – but I’d like to see who all these analysts, who you say are in the majority are.
This sounds very Trumpian of you – “People are saying…” without ever quoting anyone. Or ever stating any of their potential vested interests in saying such things.
“As I tried to explain, it’s wise to write those down immediately rather than carry them against future revenue.”
I agree. Write them down immediately. Tell it like it is, right? Be upfront and truthful on things.
By the way….have you ever heard of a Deferred Production Balance? Do you know what it is and where it is kept on the balance sheet?
737…….$
747 ……$
767 ……$
777……..$
787……..$
Yes its possible that Boeing may go CH 11. It has worked well for Boeing’s and Airbus’s airline customers. Because of the defense business it would be prepackaged. It would reemerge more or less the same entity (Pentagon is not going to allow a further consolidation of its vendors). There would be a clean sweep of the board and management. And it would allow the 787 debt to be partially written off too and become a true cash cow.
Yes, its possible. Who knows.
“My point is that Boeing and most analysts have a far superior knowledge and understanding of their financials than either you or I. ”
The same Boeing that put all its money into share buy back and dividends to the big fellers could keep their stocks up and retire like kings?
analysts that disagree with each other across the board.
Wall street that reward short term gains and no qualms about seeing a company fail as long as they get their before the getting no longer exists?
I do not predict Boeing is chapter 11, they can’t, the assets are too high.
But BAC could wind up slowly dying off? Yea that is possible. Unless you have new products any firm that is based on mfg dies off if it has none.
Boeing is not going to go Chapter 11, based on the issues they now face. My god. Off the rails we have gone, Padawan.
Rob’s reading skills are letting him down again.
Where did Frank say that BA was going to go Chapter 11?
You do understand the difference between “possible”, “probable” and “certain”… don’t you?
TO: Transworld, Duke, Checklist, Rob, Retired Boeing & anyone else
The “anyone else” includes you, Bryce.
So, what you’re really saying is that you’re not going to reply to the challenge because it’s far to realistic and confronting for comfort.
Got it.
Mike:
Impossible as none of us has access to the agreements.
I never claimed I did and please leave me out of the stupidity of that.
If Boeing retires debt then they are making progress and you have to know where the money came from (defense, BAC or both)
@Trans
The point being made about aircraft pricing by posters is about price being discounted against list prices.
We can get an overall picture for the reporting period, of what the average discount would be;
We have the list prices
We can calculate what the discounted rates are
We have model delivery numbers
We can determine an expected value for a level of discount
We have an exact amount of revenue for the time period
Are there terms and conditions, like Duke pointed out, whereas customers engage in service contracts for future revenues?
Yes.
Do we know the details of the service contracts, as you’ve pointed out?
No.
But we can get a clearer picture of pricing and revenues, by doing a little bit of analysis. We can even compare OEM’s on their pricing structure.
TW,
I know I didn’t explicitly address my comment to anyone, but if you read it carefully, you will realize that I’m actually talking to Bryce. I also should’ve put the first sentence in quotes, because I was repeating exactly the intro line to Frank’s comment above.
Admittedly I got lazy, but Frank’s intro line should be fairly recognizable if one is paying attention to this thread
@ Mike Bohnet
I post here regularly about BA’s discounts, and I calculate and post its unit revenue and unit EBIT per quarter. You’d know that if you regularly read the comments.
It’s Frank’s turn now: I’m not going to take over his show.
p.s. thanks for telling us that you’re lazy…though we already knew that 😉
Bryce,
What a bunch of cowardly BS!
You are the king of taking over the show in this forum, so why change now?
Don’t know what you are getting at but 50% off is normal for both OEMs on mega orders. More importantly, the customers that actually sit down and negotiate with both OEMs know this too.
You’re VERY behind the curve.
50% hasn’t been “normal” at BA for quite some time now — if it were, then BCA would have had decent EBIT in the past few quarters. The calculations have been presented here for you on multiple occasions…
@Bryce
Let them answer. Let’s not have everybody get their backs up. Everyone is entitled to their own opinion.
Thanks
P.S. WOuld be good if your threw in some estimates, as well. 🙂
Keep me out of it for the moment — you know that I can throw lots of data and calculations onto the stage.
Let your invitees reply first.
[sound of crickets]
Let me go first.
I really don’t know or care what Boeing discount is per aircraft. Its not possible to accurately deduce it. And purchase price is only part of the deal. Other ancillaries can be added to make up for the discounted purchase price.
Got nothing for you on this subject.
Interesting that airlines and OEMs hide their deals behind NDAs yet some can deduce the discounts offered by reading financial reports. Especially when most of the money is paid near delivery of aircraft. I would think WSJ, Bloomberg, CNBC or London Financial Ties would gladly put on blast the discounts airlines are offered if it was so easy. Makes for attention grabbing headlines, more so than in a comment section.
If it was so easy perusing financial reports then my question from a year ago on this comment section about how much did American and Delta paid for their A321NEOs would have answered. But that is another story, I digress.
@williams
I’ll actually do an Airbus thing, after. That’s a great idea.
“Especially when most of the money is paid near delivery of aircraft.”
The total amount of revenue is recognized at delivery, when final payment is issued and then deposits and PDP’s are backed out of Customer Advances.
All I’m asking for, is a number, for what you think they get (and subsequently get’s reported in the financials) for each model.
It’s not easy, but I want to hear what posters here think Boeing is getting in revenue for their models:
737…….$
747 ……$
767 ……$
777……..$
787……..$
Just throw some numbers out there. Believe me, I’m not going to ridicule anyone or run you down.
Can I make the leap, since you’ve posted before – that BA get’s an average of $55 million a Max? Would that be fair?
Williams:
Exactly. The true model is far more complex than that being attempted here.
Oh Rob, you’re here. How nice.
Would you care to jump in and lay out some numbers?
Or you’re just in town to muddy the waters?
737…….$
747 ……$
767 ……$
777……..$
787……..$
Like stated earlier, both OEMs start at 50% for big orders. So whatever 50% of the MAX is what Boeing will settle for or a little less, if the airline buy floor mats and paint protection.
And since you didn’t ask, I will add regarding these mega orders. I find it hard to believe that a customer will pay more to one OEM than the other. Especially in the NB market just because one have GTF engines ( now a pariah) and the other does not. And since these contracts and discounts are sealed for a reason, IMO, the asking price for a MAX 10 and 321NEO are close or will be getting closer as expected delivery times stretch out. Since no OEM have been left out of these mega deals, that means both are giving the same amount of discount.
@Williams
“both OEMs start at 50% for big orders. So whatever 50% of the MAX is what Boeing will settle for or a little less, if the airline buy floor mats and paint protection.”
Floor mats and paint protection, I like it!
(You know, I’ve heard that those paint protection/rust proofing g’tees are never paid out? I know it’s a tangent, but there’s always a reason – ‘a stone caused this rust’, that they never get paid)
So lets do this, we’ll take the list prices of each BA model and give them a 50% discount:
Right off their website:
https://www.boeing.com/company/about-bca/
737 MAX 8 121.6
737 MAX 200 124.8
737 MAX 9 128.9
747-8 418.4
767-300ER 217.9
767-300 Freighter 220.3
777-300ER 375.5
777 Freighter 352.3
787-8 248.3
787-9 292.5
787-10 338.4
Now let’s give them a 50% discount. What I’m going to do is take the cheapest model that they are still producing, so that we get the lowest price possible – on a 50% discount. We’ll also do some rounding…
737…….$60 million
747 ……$210 million
767 ……$110 million
777……..$175 million
787……..$125 million
Good?
Now let’s go back and put in some actual delivery numbers. Let’s use Q1/2023:
737…… 113@$60=$6.780 billion
747 ………1@$210=$ .210 billion
767 ………1@$110=$ .110 billion
777……… 4@$175=$.7 billion
787…….. 11@$125=$1.375 billion
So based on a 50% discount off of list, using the lowest priced models, those would be the expected revenue numbers generated by each model.
Totaled up: $9.175 billion
(double check my figures, just in case)
https://s2.q4cdn.com/661678649/files/doc_financials/2023/q1/2023-03-Mar-31-8K-PR-Ex-99-1.pdf
This in the Q1/2023 financials:
Commercial Airplanes
Commercial Airplanes Deliveries 130
Revenues $6,704
———————————————————————–
As an exercise, I am going to run the 2018 banner year results in BCA against a 50% discount:
https://s2.q4cdn.com/661678649/files/doc_financials/annual/2019/Boeing-2018AR-Final.pdf
Deliveries
737: 580 @ $60=$34.8 billion
747: 6 @ $210=$1.26
767: 27 @ $110=$2.97
777: 48 @ $175=$8.4
787: 145 @ $125=$18.125
Total : 806 aircraft @ $65.555 billion
Reported revenues:
Commercial Airplanes $60,715
An awful lot closer, percentage wise. Call it an overall 10% difference in 2018, for simplicity’s sake. 10% on $6.7 billion is only $670 million.
—————————————————————————–
My takeaway; Boeing is not getting the same revenue for it’s aircraft, that it used to. Also – factor in that those are 2018 figures, in 2018 dollars. 5 years ago. We used the same prices.
https://leehamnews.com/2018/02/26/pontifications-oems-hike-list-prices/
2018
“In years past, discounts were assumed to be about 45% on average. In recent years, 50% became the norm.
Now, LNC sees deals going to 60%, 65% or even more discounted to list.
It’s not just the big airlines, like United, Delta or British Airways, that are seeing steep discounts.
Small airlines with small orders (a dozen or so) airplanes are seeing deep discounts.”
” Airbus and Boeing are known to have offered the A321neo and 737-10 at discounts of more than 60% to list.”
If the competitor is discounting so do you with some clawbacks in services
“737-10 at discounts of more than 60% to list”
Coupled with compensation for repeated delays, no wonder BA is losing their shirt.
@Williams
I recall WSJ had a good write-up on discounts given out.
OTOH “London Financial Ties”?? Interesting!
@Williams
So let’s do Airbus.
https://www.airbus.com/sites/g/files/jlcbta136/files/2023-05/Airbus%20Q1%202023%20Results%20Release%20Presentation.pdf
Deliveries: 127 aircraft comprising 10 A220, 106 A320 Family, 6 A330 and 5 A350
List Prices
https://www.airbus.com/sites/g/files/jlcbta136/files/2021-07/new-airbus-list-prices-2018.pdf
A220/300 90
A319neo 101.5
A320neo 110.6
A321neo 129.5
A330-200 238.5
A330-900 (neo) 296.4
A350-900 317.4
AIRBUS AIRCRAFT
2018 AVERAGE LIST PRICES* (USD millions)
We’ve got an exact breakdown of what was delivered by type. Click on the deliveries, then again on the deliveries tab at the bottom of the excel worksheet.
https://www.airbus.com/en/products-services/commercial-aircraft/market/orders-and-deliveries
A220/300 – 10 @$45 million = $ .45 billion
A319Neo – 2 @ $50 million = $ .1 billion
A320Neo – 45@$55 million = $2.475 billion
A321Neo – 59@$65 million = $3.835 billion
A330/200 -1@$120 million = $ .12 billion
A330/900 – 5@$150 million = $ .75 billion
A350/900- 5@$160 million = $ .8 billion
Total: $8.53 billion in revenue @ 50% discount off of list (price given in USD) .
(once again, rounding in effect and please check my numbers)
——————————————————-
https://www.airbus.com/sites/g/files/jlcbta136/files/2023-05/Airbus%20Q1%202023%20Results%20Release%20Presentation.pdf
pg 11
Airbus Revenues Q1/2023
IN € MILLION
Revenues 8,110
8,110 Euros to US = $8.871 billion @ 1.09 exchange rate
No surprise that you didnt copy all the quote which included Airbus giving deep discounts.
Misrepresentation rules
@Frank
Interesting calculation. So that means, based on your numbers, the average discount over all aircraft was some 63.5% ($6.7B / 2 x $9.175B). Given that you have used the cheapest model available, the real average discount must be even higher than that.
I wonder what a similar number looks like at Airbus and Embraer.
@Duke
I didn’t have to copy any quotes on estimates. Below is an actual real world calculation (and do please go ahead and check my numbers, to backstop me) of Airbus deliveries in Q1/2023, as requested by some posters.
So rather than an estimate, we can get a picture of what Airbus actually receives in revenues, against what the list prices are.
———————————————————————–
@Matth
I went back and had a look at the BA website on actual deliveries
https://www.boeing.com/commercial/#/orders-deliveries
50% discount numbers
737-800: 2 ($52.5 million)
737 Max: 111 ($60 million)
747 8-F: 1 ($210 million)
767300F: 1 ($110 million)
787-8: 2 ($125 million)
787-9: 6 ($145 million)
787-10: 3 ($170 million)
777F: 4 ($175 million)
So I would tend to agree
Humour me – throw in what you think BA sells it aircraft for:
737…….$
747 ……$
767 ……$
777……..$
787……..$
Frank
…”TO: Transworld, Duke, Checklist, Rob, Retired Boeing & anyone else”…
——
Lol !!!
Even if it were true, this argument does not justify your sarcasm. In short, this does not bring anything objective
We understand that you hate Boeing, and we don’t care. Is it difficult to understand?
What do you suggest here the disappearance of Boeing?
Don’t count on it.
Your pious wishes have nothing to do here
Look forward to the Big orders arriving in June and celebrate if you like aeronautics!
Unless it’s misguided stubbornness
Fanboyism has already done its damage. Leave that aside…
And your “intellectual honesty” is not above that of anyone else here after loads of trash exposed here by hardened fanboys that doesn’t seem to have bothered you so why do we have to choose between Cholera and Malaria here?
Let people enjoy the events in peace. Is it complicated for your ?
Enjoy life and leave sarcasm and other inner conflict aside aside…
We notice that haven’t actually answered Frank’s question.
Go ahead: give it your best shot!
I am sorry – that response is incorrect.
Please format your answer in a numerical manner:
737…….$
747 ……$
767 ……$
777……..$
787……..$
This is interesting 😉
After the recent political “massaging” in the Saudi deal, Jeffries now alludes to a possibility of similar political “massaging” in an upcoming Turkish deal:
“Jefferies analysts believe Boeing is a front-runner to get a larger portion of the order book. The carrier has 469 aircraft at the moment with 52% belonging to Boeing and 48% to Airbus.
““Turkey has had its request for F-16 upgrades approved in April, coming two weeks after Turkey dropped its objections to Finland joining NATO. Turkey also wants to buy 40 new F-16s from the US, with that likely more contingent on Turkey dropping its objection to Sweden joining NATO, but the aircraft order could potentially be used as a bargaining chip,” the analysts said in a client note.”
https://uk.investing.com/news/stock-market-news/boeing-seen-beating-airbus-for-the-largestever-aircraft-order–jefferies-432SI-3018926
Not really, you are naïve if you think politicians are not involved in blockbuster deals.
What? You think Macron is not pimping Airbus on his worldly jaunts?
China is nodding their head in agreement.
China has a different angle, where the country – lets say Indonesia- isnt amenable to the top level political visit. A leassor connected to the
state owned manufacturer just buys control of a minor airline which then leases a large fleet of new planes.
The planes however are quite suitable for the country and the leassor takes all the risk of value at end of lease. We hope the airline does well.
A captive leasing company is very well known the car business, especially for so called prestige brands and was also how Huawei was able to sell so quickly into a market not known for vendor finance
Good news !👍
William
+1👍
It’s like denying the quality of Boeing products, especially Widebodys. Boeing doesn’t need to sell through politics. Bryce can’t stomach Boeing’s skyrocketing sales since the market stabilized after the Covid crisis. Kudos to Boeing for launching great products and making the 737MAX a very competitive product.
The next order from Turkish Airlines is likely to be exciting. Next June is going to be exceptional, and Le Bourget will be a very pleasant show…
👍
“Bryce can’t stomach Boeing’s skyrocketing sales since the market stabilized after the Covid crisis.”
Bryce posts what *Jeffries* analysts say about politics in a possible Turkey deal — and that’s somehow interpreted as “Bryce can’t stomach Boeing’s skyrocketing sales”…?
So, if the BA Back Office complains about “politics” in China, is that then bitterness about AB’s skyrocketing sales in Asia?
***
And just as a reminder: there’s little point in sales if they don’t generate earnings…
Wow. What happens when caught with pants down??
On a “Knucklehead of the Day” note:
YouTuber Trevor Jacob admits to crashing plane for views
https://www.bbc.com/news/world-us-canada-65567519
“A YouTuber who intentionally crashed an aeroplane for views will plead guilty to obstructing a federal investigation by cleaning up the site of the crash, US prosecutors say.
Trevor Jacob, 29, posted the video of the plane crash to YouTube in December 2021, implying it was an accident. It has over 2.9 million views to date.
In a plea agreement, he said he filmed the video as part of a product sponsorship deal.
He could face up to 20 years in prison.”
He needs to be made an example of. Its bad enough when “influencers” trash expensive cars just to get a high click count. Doing all kinds of obnoxious things, again just to get a high click count. Hopefully Google has banned him from YouTube too.
WHAT AN IDIOT!!!!
https://www.carscoops.com/2023/05/youtuber-who-crashed-plane-for-views-could-be-jailed-for-20-years/
Now Jacob is facing up to 20 years behind bars after admitting to obstructing a federal investigation. When he initially reported the crash to the National Transportation Safety Board, the YouTuber was told that he was responsible for preserving the airplane wreckage for investigation. But Jacob used a helicopter to lift the wrecked plane, which was then illegally taken to a hangar at Lompoc City Airport by a trailer attached to Jacob’s truck, was dismantled and the parts were disposed of.
The irony of the whole story is that more than 18 months after it was uploaded, Jacob’s original video “I Crashed My Airplane” has only been watched a relatively modest 3.1 million times, which is about the number of views Carwow gets for drag-racing three wagons, though that does admittedly also involve a runway.
What does 3.1 million views on Youtube earn you?
https://www.businessinsider.com/how-much-youtube-pays-for-1-million-views-to-creators
What a knucklehead – so trashing his aircraft got him, at best, some $90k in revenue.
Along with a chance to go to the slammer.
So on the great “Frank Financial Analysis Model” debate, here is an analogy that may be relevant. Offered with the usual caveat that I don’t expect the anti-Boeing crew to accept it, but rather to illustrate for others what the core issue is.
In the 1870’s, the Roeblings began design and construction of the Brooklyn Bridge. It was at that time, the tallest structure in New York, and the longest single span ever attempted, by a wide margin. Also at that time, 1 in 4 long-span bridges failed within 5 to 10 years of construction, so failure was a very real possibility.
A group of civil engineers in New York at that time, concluded that the bridge as designed by the Roeblings, could not stand. They offered extended engineering analysis as evidence. They petitioned the government to stop construction, and wrote editorial pieces to educate the public as to the risk.
Of note here is that like Frank, these men were capable, competent, well-intentioned and sincere. Many of them were licensed professional engineers, with respected reputations of their own. They truly believed that the bridge was an enormous folly.
They caused considerable grief for the Roeblings, forcing them to accept greater government supervision and intervention, which eventually led to corruption and compromises in the bridge structure. The Roeblings had to adapt the design on the fly, to compensate for substandard materials they were forced to use, in order to maintain financial support for the project.
Indirectly, the concerns raised by this group also led to a deadly stampede, shortly after opening, when a woman screamed that the bridge was falling.
So how is it that this disconnect developed, between perception and reality? Obviously the bridge has stood for 150 years, and is more than strong enough for even modern traffic loads. There is no real limit on its life, at present.
The answer doesn’t lie in the caliber of these men, or in the quality of their numbers, or in their calculations. It lies in their allegiance to the engineering models they used. They would not accept as correct, the methods and models being used by the Roeblings.
The lesson there has to do with the notion of premise. Ayn Rand famously expressed this as:
“Whenever you think you are facing a contradiction, check your premises. You will find that one of them is wrong.”
Some of these men were able to do this, but some also continued to predict the bridge would fail, for the rest of their lives. That should be familiar to people reading here.
More long-winded handwaving to avoid addressing presented facts.
next..
I’ll take this as evidence that it’s right on the mark.
As mentioned, some members of the opposition group adopted the Roeblings’ methods, and with them, went on to successfully build their own structures. While others were unable to do so, as their beliefs were too strong to make the adjustment.
Yes. He used the newly available steel wire bundled as rope to support the bridge deck.
He had first built in 1849 the Delaware canal bridge over the Delaware river – which still exists but as a footbridge – with bundled wire rope but that didnt have long spans
The Roeblings came up with many innovations. Washington the son, far more than John the father.
He used high-strength steel for the truss work superstructure as well, having as a goal that the 1600 foot arched main span would support its own dead weight, without the cable system, if necessary. That was one of the main criticisms at the time, since it was viewed as impossible. But that view was based on the earlier use of iron, which is far heavier and has much less strength.
Washington understood the absolute need for high quality steel, and he trusted only one foundry to make it properly. That delayed the bridge construction by years.
He also caught his competitor cheating on the steel cable, and successfully got the contract to manufacture all the cable himself. The competitor compromised the strength of the bridge, but Washington recalculated and spun in more cable to compensate.
The final safety factor was supposed to be 6, but he settled for 5.5.
“I’ll take this as evidence that it’s right on the mark.”
No Rob, it’s evidence that you’re smoke-screening and fudging again in order to dry to deflect from the actual subject matter at hand.
As is your wont 😉
Bryce, as I mentioned, I didn’t expect you to understand or accept. You never have accepted any facts or contrary evidence to your beliefs, in all this time, whether presented by myself or others here. That is what uniquely defines you.
Also as mentioned, this was an illustration of the parallel to another group, who were equally committed to a belief that wasn’t true, which rendered them equally unable to accept what reality laid before them.
Although you don’t understand this, others do. Thus as also mentioned, it wasn’t written for you.
More vacuous, self-aggrandizing waffle.
Great illustration of the fact that it’s possible to talk without actually saying anything 🙈
Bryce, I’ve tried to explain that when you resort to the back-biting, mocking, and insults, that’s evidence of an inability to respond or counter rationally. But I also know that you won’t accept this either.
Rob, I’ve tried to explain that when you resort to the fudging, evading, and self-aggrandization, that’s evidence of an inability to respond or counter rationally. But I also know that you won’t accept this either.
p.s. it’s 4 a.m. there in California — are you so put out by the realistic discussion here on LNA that you can’t sleep…?
Like I said, you prove my point every time. I am grateful for that, at least.
Yes, Rob — the feeling is entirely mutual 😉
Have you tried counting sheep?
All of this back biting doesn’t help the blog As a aviation ‘geek’ having worked in the field and looking for objective posts, this site is getting too toxic. I understand that there are gifted engineers posting providing information to people like me. Stop this stuff that permeates the media across the board. Grow up, otherwise Leeham News just might go subscription only. Can Ya’ hear me Scott?
https://twitter.com/SpaethFlies/status/1656683150179979265
The message thread was getting long. For those who requested an Airbus comparison over the last quarter;
AIRBUS AIRCRAFT
2018 AVERAGE LIST PRICES* (USD millions)
A220-300 90
A319neo 101.5
A320neo 110.6
A321neo 129.5
A330-200 238.5
A330-800 (neo) 259.9
A330-200 Freighter 241.7
A330-300 264.2
A330-900 (neo) 296.4
A350-800 280.6
A350-900 317.4
A350-1000 366.5
—————————————————–
Deliveries: 127 aircraft comprising 10 A220, 106 A320 Family, 6 A330 and 5 A350 (we have exact model breakdown)
Q1/2023 Deliveries
A220 – 10@$45 million = $ .45 billion
A319Neo – 2@$50 million = $ .1 billion
A320Neo – 44@$55 million = $ 2.42 billion
A321Neo – 60@$65 million = $ 3.9 billion
A330-200 – 1@$120 million = $ .12 billion
A330-900 – 5@$150 million = $ .75
A350-900 – 5@$160 million = $ .9
Total expected revenue at 50% of list price = $ 8.64 billion (USD)
—————————————————————
Airbus Results
Deliveries Units – 127
Revenues – 8,110
IN € MILLION
Convert to USD @ 1.09 = $8.84 billion
———————————————————————
Links
https://www.airbus.com/sites/g/files/jlcbta136/files/2023-05/Airbus%20Q1%202023%20Results%20Release%20Presentation.pdf
https://view.officeapps.live.com/op/view.aspx?src=https%3A%2F%2Fwww.airbus.com%2Fsites%2Fg%2Ffiles%2Fjlcbta136%2Ffiles%2F2023-05%2FODs-April-2023-Airbus-Commercial-Aircraft_0.xlsx&wdOrigin=BROWSELINK
https://www.airbus.com/sites/g/files/jlcbta136/files/2021-07/new-airbus-list-prices-2018.pdf
@ Everyone
BUT WAIT, there’s more…
Something struck me in what Duke said and I do my best to be even handed in my financial analysis. His point was:
‘If the competitor is discounting so do you with some clawbacks in services’
Thank you for that, Duke. Because…
…Boeing has BGS, which they’ve broken out into a different division. Revenues are separate from BCA. Airbus (and please correct me if I’m wrong) does not break out Services into a different company. It’s all under Airbus;
https://www.airbus.com/sites/g/files/jlcbta136/files/2023-05/Airbus_SN_Q1-2023.pdf
From their Q1/2023 financials, pg 11
Airbus SE
Unaudited Condensed Interim IFRS Consolidated Financial Information
for the three-month period ended 31 March 2023
Total revenue 8,110
Internal revenue (167)
Revenue 7,943
sales of goods at a point in time 6,984
services, including sales of spare parts 959
—————————————————————-
So doing an apples to apples comparison, revenues for aircraft sold (goods) would be 6,984 Euro’s or $7.613 billion USD.
Versus an expected revenue of $8.64 billion USD @ 50% discount
—————————————————————-
It begs the honest question, then;
BGS has revenues for Q1
Global Services
Revenues $4,720
Airbus has revenues of 959 million Euros = $1.045 billion
Does Boeing really do 4 times the service work that Airbus does?
Just asking the question…
Yes they do. Remember thy bought Aviall, a major player in the BizJet Parts and MRO Business
I’m not doubting it – just looking at the numbers. Given the size of Airbus I wonder why they don’t try to catch BA? Service has been a bright spot for Boeing, I don’t think they’ve had a negative earnings year, throughout the whole grounding/pandemic (I could be wrong, kinda lazy to look it up).
You would think that the Airbus bosses would look at those numbers and want to grow that side of the business. they’re only ~25% of what BA does, in a profitable sector.
I’m just surprised that the gap there is so large, given the way the delivery/order numbers/aircraft in operation are.
After all, the A330 is the 3rd most delivered WB (over 1500). There are 8,000+ A320Ceo’s out there, almost 3,000 Neo’s…
….what am I missing?
Frank…..
I think you are missing that Airbus is a state coordinated manufacturing enterprise. As such, I dont believe they have a state mandate to do MRO…. Its not a bad idea to do it, but there may not be the jobs in it to move the policymakers
Don’t think this is correct, if it was so, AirTransportWorld, Aviation Weekly, Flight Global would be doing the same thing. Like I stated, the OEMs have a vested interest in keeping deals confidential.
Your plane breakdown is a guess.
There was a big snafu about A321 discounts because AA had a clause they got the best discounts offered. Rumor got around that Delta may have gotten a bigger discount and that setoff all kinds of behind scenes phone calls and threats of legal action. No doubt Airbus cleaned it up and everyone involved is copasetic. So no, I don’t think you can look at a spread sheet and come up with the discount amount or percentage of discount.
There are bigger players involved who have a big stake in knowing such info.
@williams
I’m not saying I know how much airlines pay for their aircraft, that is incorrect. The details are unknown.
What I am saying is that the average discount for a group of aircraft, in this case the planes sold during Q1/2023 by Airbus, is X.
That group of aircraft makes up planes of various types and models, sold to various airlines and lessors.
Some pay below the average, some pay above the average. I don’t know who pays what – but as a group, for that time period, we have a number.
But what we are looking for – given that there are published list prices, is how far off the list, in this case the expected value, aircraft are being sold at.
——————————————————–
Found it!
I am making a new post about aircraft pricing from a financial report, which I cut and paste and posted here. I think you’ll find it interesting.
@Williams
Way back in 2020, I was skimming through the Q3/2020 financial report of SWA (as one does) and came across this, buried way down on pg 30:
Sale-Leaseback of Aircraft
“In second quarter 2020, the Company entered into transactions with third parties, involving ten of the Company’s Boeing 737-800 aircraft and ten of the Company’s Boeing 737 MAX 8 aircraft that qualified as sale-leaseback arrangements under applicable accounting guidance. The Company sold the ten 737-800 aircraft to a third party for $405 million, then immediately leased the aircraft back for approximately ten years. The Company sold the ten 737 MAX 8 aircraft to a third party for $410 million, then immediately leased the aircraft back for approximately 13 years. As such, the aircraft were de-recognized from Property and equipment at their remaining net book values. All of the leases from the sale-leasebacks are accounted for as operating leases, and thus are now reflected as part of the Company’s Operating lease right-of-use assets and operating lease liabilities in the accompanying unaudited Condensed Consolidated Balance Sheet. The 737-800 and 737 MAX 8 sale-leaseback transactions resulted in a recognized gain of $153 million and $69 million, respectively, reflected within Other operating expenses, net in the accompanying unaudited Condensed Consolidated Statement of Comprehensive Income. The 737-800 and 737 MAX 8 sale-leaseback transactions have increased the Company’s future operating lease obligations by $18 million remaining in 2020, $71 million in each of the years from 2021 through 2025, and approximately $440 million thereafter.”
Here is a link to the financial report:
https://seekingalpha.com/filing/5206107
Here are the two pertinent pieces of information (cut and pasted):
1) The Company sold the ten 737 MAX 8 aircraft to a third party for $410 million
and
2) The 737-800 and 737 MAX 8 sale-leaseback transactions resulted in a recognized gain of $153 million and $69 million, respectively
——————————————————-
Assets are kept on the books at historical cost. Historical cost is what your company paid for an asset when you originally bought it. Furthermore, in accordance with accounting conservatism, asset depreciation must be recorded to account for wear and tear on long-lived assets.
So they sold those 10 Max’s for $410 million. On the sale of them, they had to report a GAIN of $69 million, meaning they were on the books for $341 million, or ~$34 million each, at the time of the sale in 2020.
A quick look at Planespotters, shows the earliest 737 Max’s delivered to SWA was in Aug 2017. So by the time that this transaction took place, the OLDEST that those ten Max’s could be, are 3 years old. No older.
That means that at most, there is 3 years depreciation to be counted against the historical cost of those planes. Call it a million a year for depreciation?
So you add back $3 million to the $34 million that they carried each Max on their books, to get a price of somewhere around $37 million.
————————————————————-
The transaction is again reported in the LUV 2020 EOY financials:
https://www.southwestairlinesinvestorrelations.com/~/media/Files/S/Southwest-IR/LUV_2020_Annual%20Report_.pdf
pg 123
“The Company sold the ten 737 MAX 8 aircraft to a third party for
$410 million, then immediately leased the aircraft back for approximately 13 years. As such, the aircraft were de-recognized from Property and equipment at their remaining net book values.”
Net book value, also known as net asset value, is the value at which a company reports an asset on its balance sheet. It is calculated as the original cost of an asset less accumulated depreciation, accumulated amortization, accumulated depletion or accumulated impairment.
“The 737-800 and 737 MAX 8 sale-leaseback transactions
resulted in a recognized gain of $153 million and $69 million”
——————————————-
If I’m not mistaken, by SEC rules, this transaction was materially significant, therefor it had to be reported.
So who was the launch customer for the 737 Max in 2011 and as such would have received launch order pricing.
Its not the same as orders 10 years later in the planes life cycle, let alone inflation added.
Interesting details you discovered, which makes sense, but I thought *you financial people* had formulas on tap/spreadsheets to work backwards from a depreciated price ( likely a straight line method over 20 years) to come to the invoice cost for the first 10 plane in SW 150 launch order?
https://boeing.mediaroom.com/2011-12-13-Boeing-737-MAX-Logs-First-Firm-Order-from-Launch-Customer-Southwest-Airlines
Jeez, that’s funny.
Since you place the people at Boeing in such high exalted status (along with those other ‘experts’ you claim as sources) you’d think that they would be able to project pricing some 6 or 7 years down the road and the time value of money.
Are you saying that the brain trust at Boeing didn’t know that 2011 dollars, when they signed the contract – wouldn’t be the same as 2017 dollars, when the revenue was earned?
Doesn’t make them look very bright, does it?
————————————————
It would be really nice if you could make your point without trying to run down people.
Launch customer pricing is a valid point, BTW.
As far as how much LUV depreciates their aircraft, I’ve heard that they set a floor price and straight line a balance over 20 years – point being, the pricing calculation is an estimate to ballpark a figure. We really don’t know which 10 Max’s were sold, when they came off the line and how old they were at the time of sale. They could have been the ten newest Max’s received right before the grounding, for all we know.
No . Its your lack of real world financial tools to work backwards from a depreciated asset value to find the original invoice price.
You just guessed at it because you dont have any work experience at using standard computer based methods .
Thats fine , just say that you are interested in such things but dont have in depth expertise. That way people will work with you rather than thinking LOL
I dont have expertise as I keep saying , thus my finding out that LNA had discovered Airbus’s program accounting fudges
There you go again – running someone down when you don’t like what is being said, without offering anything of substance in rebuttal.
BTW – program accounting is a uniquely Boeing thing.
‘Boeing, which is the only U.S. commercial plane maker, appears to be alone in using program accounting. Accountants said they were not aware of other U.S. companies that employ it, and defense contracts are not handled that way because they have a different structure than airplane sales.’
https://www.reuters.com/article/us-boeing-probe-accounting-idUSKCN0VL2K0
…and you say I’m the one who lacks expertise.
Sigh.
https://twitter.com/rschuur_aero/status/1657127517881245706
Wow…that was fast!
@ Frank
You asked a question above about Airbus MRO.
Don’t forget that Airbus is 45% owner of Elbe Flugzeugwerke (EFW), which does MRO.
Other than that, there may be clauses in place to cap Airbus MRO competition with Lufthansa Technik and AF-KLM.
Nice calculations from @Frank above.
The same result follows from BA’s unit EBIT per quarter — which consistently hovers around zero — bearing in mind that the breakeven level is at about 65% discount.
For those who sniff around enough, there are also plenty of discount figures disclosed by “persons close to the negotiations”, and/or calculated by analysts, and/or derivable from retrospective analysis of regulatory filings by airlines.
It must be a big surprise for some commenters to read that there’s an actual STRUCTURAL REASON why BCA’s earnings are negative every quarter — regardless of the number of deliveries in that quarter.
So, brace yourselves now for BCA’s Q2 results…although some commenters will prefer to stick their heads in the sand and instead defer to the PR waffle from Stan.
@Bryce
‘For those who sniff around enough, there are also plenty of discount figures disclosed by “persons close to the negotiations”, and/or calculated by analysts, and/or derivable from retrospective analysis of regulatory filings by airlines.’
You see – that’s the thing, though;
An argument can always be deflected when the ‘unnamed source’ is being used. It’s a lot tougher when you look at the numbers.
———————————————————-
‘It must be a big surprise for some commenters to read that there’s an actual STRUCTURAL REASON why BCA’s earnings are negative every quarter — regardless of the number of deliveries in that quarter.’
I think we’ve talked about this before.
I believe that there is a number, maybe around the 600 mark, where fixed costs will be covered (including interest expense) and BCA will be profitable, once they hit that number of deliveries. They’ve got to get those 787’s and Max’s out of the parking lot.
That’s my opinion.
@ Frank
Regarding the first part of your comment: that’s why I used the word “also” — to clarify that such sources do not stand on their own, but that they do confirm the calculations that we do.
Regarding the second part of your comment: with $640M per quarter in debt interest payments, any breakeven point is going to be highly dependent on the exact size of the very thin unit margins left after discounts are applied. There was a BCA loss of more than $600M in Q4, despite 142 deliveries: 4x 142 = 568 — which is close to your 600 figure, though still with an annual loss of $2.4B
@Bryce
2022 Full Year
Commercial Airplanes Deliveries – 480
Loss from Operations – ($2,370)
Q1 – 2023
Commercial Airplanes Deliveries – 130
Loss from Operations ($615)
‘Operating margin of (9.2) percent also reflects
abnormal costs and period expenses, including research and development.’
IMO they’ve got to get the abnormal expenses under control, get up around the 150 delivery mark per quarter and margins will turn positive. 480 isn’t going to cut it
@ Frank
The problem is: the “cash clock” is ticking.
If the cash burn rate that the company had in Q1 continues, there’ll be nothing in the kitty by the end of the year [p.s. Rob: that’s an example of the use of a qualifier in a sentence].
Now, of course, there’ll be deposits coming in from new orders — but there’ll also be expenses coming in from new screw-ups. Will the difference between the two be enough to grant any meaningful reprieve?
The analyst consensus is for another BA loss in Q2, and a flatline in Q3 — and that was before the current vertical stabilizer mess was made public. Moreover, the analyst consensus has been consistently over-optimistic for many quarters now.
So, cash burn will be key in the coming months.
The inescapable truth is that the Boeing financials are reviewed and analyzed by thousands of analysts and investors, the majority of which have not concluded, what has been concluded and predicted here. Nor have predictions here been borne out in reality.
If you present a financial model, and then demand that it be disproved, it is effectively disproved if it doesn’t reconcile with reality.
My expectation, which has thus far been borne out in reality, is that Boeing will continue to build their order books, and continue to improve their financials, and will reach profitability. There is no reason or evidence to believe otherwise.
“The inescapable truth is that the Boeing financials are reviewed and analyzed by thousands of analysts and investors, the majority of which have not concluded, what has been concluded and predicted here.”
Got a link for that, Rob?
***
“My expectation, which has thus far been borne out in reality, is that Boeing will continue to build their order books, and continue to improve their financials, and will reach profitability. There is no reason or evidence to believe otherwise.”
Sounds like a direct quote from Stan.
There are many, Bryce. Any of the analyst consensus websites. For any time over the last year at least. The consensus consistently ranks Boeing stock as a good investment, and consider it overweight as well. That has been true for quite awhile.
Well, Rob, if “there are many” then you shouldn’t have any trouble posting one — right? And, yet, you still haven’t posted any. Then again, it’s hard to post something that doesn’t exist, isn’t it? 😉
***
“The consensus consistently ranks Boeing stock as a good investment, and consider it overweight as well.”
Did you check out what the analyst consensus was before SVB and First Republic imploded?
Did you see the nice Seeking Alpha analysis that I posted here last week in which it was explained in detail that BA’s P/E ratio is too high by a factor of ca. 1000? Probably not — because I doubt that that analysis was on Stan’s “approved reading list”…;-)
@Bryce While I usually agree with your points, just take it easy. Why that Messianic urge to make everyone believe (you)?
If the situation is as dire as you say, short BA like there is no tomorrow. The fewer that do that, the better for you.
@ Matth
I have absolutely no “Messianic urge” to do anything — and certainly not to “make everyone believe” me.
But I do make a point of returning the ball to someone who tries to score a goal with total BS.
Further: I don’t believe in shorting any stock, and I don’t believe in buying puts or issuing calls either. Trying to time the market is a foolhardy game.
You have made your points multiple times already. And no matter what you are saying, you won’t get the reply you want to hear.
In my opinion it sounds rather desperate when you emphasize a point again and again. A single, strong argument is so much stronger in its message. Like Frank’s calculation of the average discounts. Everything is said with that one.
@ Matth
If/when a comment is posted in reply to a specific commenter (as above), then it’s part of a conversation with that commenter, don’t you think…as opposed to being addressed to the forum in general?
Frank also posted multiple comments — with essentially similar content — in reply to the same commenter…hadn’t noticed that? Do you want to count Frank’s posts here relating to the same subject?
Bit selective in your criticism, aren’t you? Is today “National Let’s Pin it on Bryce Day”…?
If it’s any consolation to you: While I addressed it to you, it definitely applies to all of the users here. From all sides.
I cherish a meaningful discussion, and developing a point is fine. Pointing fingers at others again and again though is not contributing to the interesting subject at hand here. And I’m also way off topic, apologies for that.
@ Matth
“Pointing fingers at others again and again though is not contributing to the interesting subject at hand here.”
You might want to address that advice to a certain group here that regularly plasters “blanket denial” posts without any supporting links, and then goes radio-silent when confronted with hard evidence that undermines their “arguments”. Others here — including me –do their research, and take the trouble to post supportive links from many sources. Like you, I value civilized discourse, but sometimes it’s necessary to “give what you get”.
But, OK, I get it: just pick the nearest guy to p#ss on, and then feel better that you’ve lightened your load 👍
@Rob
Reuters
‘Investors eye Boeing jet production outlook, delivery schedule’
However, analysts warn Boeing still faces major risk to increasing aircraft production, as supply chain recovery and additional regulatory requirements could delay schedules.
“It’s not just a simple production recovery story,” said Aerodynamic Advisory analyst Richard Aboulafia, who pointed to Boeing’s backlog of hundreds of undelivered 737 and 787 planes sitting in storage.
Investors will also be looking for Boeing to shed light on why it is taking so long to deliver MAX planes sitting in storage. The Federal Aviation Administration is still individually inspecting each MAX before it can be delivered.
“It does look like that is not progressing as quickly as they would like,” Vertical Research analyst Robert Stallard said.
The 787 Dreamliner program, which restarted deliveries in August after an 11-month pause, faces similar questions about its planned increase to 10 widebody planes a month by 2025.
Over the first three quarters of 2022, Boeing racked up about $4.4 billion in losses on defense programs, with high manufacturing costs and labor shortages. Investors are skeptical Boeing can remain on cost and schedule in that business.
———————————————————-
https://www.reuters.com/business/aerospace-defense/investors-eye-boeing-jet-production-outlook-delivery-schedule-2023-01-24/
Another 4: Reporting by Valerie Insinna and David Shepardson, Aboulafia & Robert Stallard
And this is just the first page of a google news search
@Rob
Jeez, even Leeham analysts have been saying the same thing:
‘What kind of vision is that?’ Industry analysts scorch Boeing and CEO Calhoun
https://leehamnews.com/2023/02/08/what-kind-of-vision-is-that-industry-analysts-scorch-boeing-and-ceo-calhoun/
By Bryan Corliss
Feb. 7, 2023, © Leeham News – Less than a week after Boeing CEO Dave Calhoun stood in the company’s Everett factory and vowed to “maintain this leadership culture forever,” a panel of top aerospace industry analysts blasted Boeing’s corporate culture and criticized Calhoun’s leadership, saying he lacks vision, industry knowledge – even charisma.
“No new aircraft until 2035,” said AeroDynamic Advisory Managing Director Kevin Michaels. “What kind of vision is that?”
Having Calhoun at the helm of Boeing at this juncture is “the worst-case scenario,” said Michaels’ partner at AeroDynamic, Richard Aboulafia. “(Calhoun) is somebody not only not from this industry, but someone who maintains a willful ignorance of it.”
The challenges Boeing faces mending fences with all the groups it has disappointed or alienated in the past 20 years – customers, suppliers, regulators and workers – are immense and it may be more than one person can handle, said Bank of America Managing Director Ron Epstein, who also was on the panel.
But instead of pursuing what would be a very successful airplane program, Calhoun is holding back waiting for some sort of market-disrupting new technology that will cut fuel burn by some 20%, Aboulafia said.
But that’s just not how aerospace works, he said. “Disruption doesn’t happen in this industry. It doesn’t happen. It never happens.”
Boeing already has fallen behind Airbus in the all-important single-aisle market, where Airbus has a 60/40 advantage, Epostein noted. “When you look out 10 years down the road, if nothing new happens, you’re in a market situation of 70/30 in the single aisle.”
Boeing has “been at war with its suppliers for the past decade,” Michaels said. Boeing’s “Partnership for Success” initiative – which Michaels derisively called “partnership for poverty” – was self-defeating.
———————————————-
So Gates, Aboulafia, Epstein, Michaels….
https://leehamnews.com/2023/02/08/what-kind-of-vision-is-that-industry-analysts-scorch-boeing-and-ceo-calhoun/
Are all these guys going to face the wrath of Rob??
@Bryce
‘Sounds like a direct quote from Stan.’
I think Stan would have a better grasp of the numbers
Oh, I think we can assume that Stan is very cognizant of the numbers.
But, of course, that doesn’t mean that what he *says* has any bearing on what he *knows*…after all, he wouldn’t want Dave to chide him for talking down the share price, would he? 😉
OK Rob, we’ll do it your way
Forbes
———————————————————-
“Boeing Is Haunted By Years Of Aggressive Bidding On Defense Contracts”
“Boeing is uniquely vulnerable to labor and other costs,” says Richard Aboulafia, managing director at AeroDynamic Advisory. “The pandemic-related jetliner downturn and the 737 MAX shutdown hit commercial revenue hard, leaving these [up-front] money-losing defense contracts to stand alone, and they’re now costing the company dearly.”
Chief among them is the long-troubled KC-46A aerial refueling tanker, which Boeing booked a $1.2 billion reach-forward loss on in the third quarter, bringing its total charges on the program since 2014 to $6.6 billion.
Boeing won the U.S. Air Force contract to develop and produce the tanker in 2011 with a lowball bid to beat out Airbus that was motivated by a desire to keep its European arch-competitor from establishing production facilities in the U.S., says Loren Thompson, an industry consultant and chief operating officer at the Lexington Institute.
Boeing also booked $285 million in losses on the Air Force T-7 trainer it’s developing, a contract it also put in a notably low bid to win in 2018, bringing total charges on that program to $1.1 billion, according to Aviation Week; and $351 million on the Navy MQ-25 refueling drone ($867 million to date), a bid which was also aggressively priced, if not to the same extent as the KC-46 and T-7, says Aboulafia, a Forbes contributor.
The company also booked $766 million in losses on the two new presidential jets it’s outfitting – another price-fixed contract that it has now eaten $1.9 billion in cost overruns on.
Two factors fueled Boeing’s low-ball bidding: years of fat profits on its 737 and 787 passenger jets and a string of losses in major weapons competitions, including the Joint Strike Fighter (won by Lockheed) and Long-Range Strike Bomber (Northrop GrummanNOC +0.7%), that threatened to consign its defense business to a collection of declining legacy programs.
Boeing could still turn a profit on the KC-46A program, says Aboulafia — if it doesn’t lose an Air Force competition for up to 160 tankers to a joint bid by Lockheed and Airbus.
Profitability for the T-7 may be harder to achieve, he says. “The Air Force locked in a bunch of planes at a very aggressive price.”
The struggles of Boeing’s once-mighty commercial aviation business over the past three years delayed senior management from dealing with festering problems in its defense division, says Thompson, a Forbes contributor. The task has been handed to Ted Colbert, who was appointed CEO of Boeing Defense & Space in March after 2.5 years running Boeing’s aftermarket parts and services division.
“If he does well, then he’ll be a candidate to be Boeing’s next CEO,” Thompson says. “But first, he’s got a mess he’s got to fix.”
————————————————————————-
https://www.forbes.com/sites/jeremybogaisky/2022/10/27/boeing-is-haunted-by-years-of-aggressive-bidding-on-defense-contracts/?sh=491aa9791d7a
So that’s 4 different analysts – Forbes, Aboulafia, Aviation Week & Thompson, who are talking about money losing programs in defense.
When the article came out in October last year, the KC-46 was $6.6 billion down, as Aboulafia points out. Now it’s down over $7 billion.
He even states, that they need to win ANOTHER 160 tankers to try to get to profitability on the KC-46 program, which directly contradicts your point about getting there with another $33 billion at a 10-15% on this one.
@Rob
“Nor have predictions here been borne out in reality.”
That is patently false and a straight out lie. Bryce has been posting each quarter on how BA will not have positive earnings in the upcoming quarter. I have said the same. Especially when BCA has such low delivery numbers.
Each and every quarter.
Hey, [Edited] Rob has a job to do, [Edited].
[Edited.]
@Rob
Nor have predictions here been borne out in reality.
If you present a financial model, and then demand that it be disproved, it is effectively disproved if it doesn’t reconcile with reality.
—————————————-
Rob, the reality is that BA has had losing quarter after losing quarter. Those losing quarter are the history of BA for the past few years. Engraved in black and white.
All that I have done is try to offer an explanation for the losing streak, in BA’s history, using the numbers available.
I understand – you don’t like it. But it is, what it is. You haven’t presented anything to disprove it. You don’t even try, with the exception of “I say BA will sell another $33 billion on the KC-46 program, get 10-15% margin and that will get them out of a $7 billion hole on the program” beacause….reasons.
Ok. You say so.
That is the reconciliation with reality.
Question of the week:
Now that we’ve established that BCA is structurally discounting itself onto (and below) the flatline, the next question is: why?
(1) Is it an attempt to follow the same model as the engine makers, i.e. sell the product for peanuts but try to make some revenue on the MRO?
(2) Is it an attempt to (re)gain some semblance of (faux) market share, in an attempt to pimp up the stock price?
(3) Is it unwillingness among customers to pay more for BCA’s products?
(4) Any other possibilities to throw into the discussion?
Hasnt been *established*
If theres deep discounting they are matching Airbus – as anyone with any knowledge of selling would know.
And the Ryanair order showed that O’Leary blinked, holding back only long enough because he could see *his* order slots being sold elsewhere.
You evidently couldn’t follow the crystal clear calculations above.
BA discount average: 63.5%
AB discount average: 50%
Breakeven is at ca. 65%.
@Bryce
I think the average discount figure for Airbus is 56%. Remember, we backed out parts and service from the sales figures, which BA has in a separate division.
Still better and it’s reflected in their financial results.
Yes, correct.
Je m’excuse.
Love to know if you (frank) are employed because of your aviation financial expertise or if its a hobby and you are a CPA. Or something ‘other’
@Duke
Rather than digging for an angle, why not try to stay on point and debate the actual validity of the evidence being presented.
For instance:
Depreciation on the LUV deal. Yes, I estimated it. You disagree with my estimate, then say so and offer a number that you think is correct.
You do make valid points, like launch customer pricing.
@Duke
Here’s a question for you that is far more pertinent than questioning Frank’s credentials.
If you take the quarterly revenue for both AB and BA, and you divide that revenue by the number of deliveries at each OEM, you get the average unit revenue. I did this calculation here 2 weeks ago after BA posted its Q1 results, and it yielded:
BA: Revenue of $51.5M per plane.
AB: Revenue of €62.67M per plane ($68.94M).
So, the AB figure is 33.8% higher than the BA figure.
Please share with us your explanation for that difference.
Bear in mind that this is *revenue*, so costs and/or cashflow are in no way relevant.
Also bear in mind that BA typically delivers proportionally more WBs than AB, and that WBs cost more.
Interesting:
WSJ: “Rolls-Royce CEO Embarks on ‘Last Chance’ Overhaul at Jet-Engine Maker”
“New CEO is replacing senior management, slashing spending, renegotiating contracts”
https://www.wsj.com/articles/rolls-royce-ceo-embarks-on-last-chance-overhaul-at-jet-engine-maker-7cee56d4
https://www.ft.com/content/2518eba3-b1f2-47dd-8fc6-744678d01f88?ftcamp=traffic/partner/feed_headline/us_yahoo/auddev
Rolls-Royce boss forced to defend ‘burning platform’ comment at AGM
So, we’re just about half way through May and here are the delivery numbers so far this month (from Planespotters):
MAX: 13
787: 2
777F: 2
767F: 1
A320 neo: 9
A321 neo: 16
A220: 1
A350: 1
A330 neo: 1
That’s 18 for BA and 28 for AB.
Hard to believe, but the 5G debacle in the US still isn’t sorted out:
“5G: FAA Proposes Airworthiness Directive Revision For Boeing 787 Aircraft”
“The FAA has proposed revising an Airworthiness Directive (AD) of February 16, 2022, and updating the limitations and operating procedures sections in Boeing 787 aircraft flight manuals to ban specific landings and the use of certain minimum equipment list (MEL) items.”
https://simpleflying.com/5g-faa-airworthiness-directive-revision-boeing-787/
‘United Pilots Picket for Better Contract After American, Southwest Counterparts Authorize Strikes’:
“Following what the Air Line Pilots Association called “more than four years of empty promises,” 3,000 off-duty United Airlines pilots represented by the union protested at major airports across the U.S. on Friday, demanding the finalization of a contract with higher pay and humane scheduling practices..”
https://www.nakedcapitalism.com/2023/05/united-pilots-picket-for-better-contract-after-american-southwest-counterparts-authorize-strikes.html
Good to check in from time to time to see the same o same o.
Frank,
Since this thread is ridiculously long, I posted my answer to your question here.
Model—–List—–Deliveries—-Total List
737-800—37.1—–2———–74.3
MAX8——121.6—-111———13497.6
747-8F—-419.2—-1———–419.2
767-300F–220.3—-1———–220.3
777F——352.3—-4———–1409.2
787-8—–248.3—-2———–496.6
787-9—–292.5—-6———–1755.0
787-10—-338.4—-3———–1015.2
Total Undiscounted List——–18887.4
2023 Q1 Revenue—————-6704
Est. Average Discount/Unit—–64.5%
A note about my 737 numbers. I used the list price for the MAX8 because I couldn’t find delivery breakdowns between the MAX8 and MAX9. Also, there were 2 deliveries for the P-8 program, so I assumed that those frames would transferred to Boeing Military at cost. You can see that I applied your magical “break even” discount of 65% to the list price for these frames. It doesn’t make a big difference. The average discount per unit would’ve come out to 64.8% if I would’ve used the full 737-800 list price.
It was an interesting exercise that raised some questions in my mind. It seems to be good for helping to evaluate the current financial situation of the company. However, it doesn’t seem to be accurate enough to evaluate whether or not Boeing is exceeding break even on a particular delivery, or to accurately determine the average discount per unit.
Questions for you:
1) How does one account for the progress payments made for each unit? The entire revenue for each frame is never realized in the delivery quarter. If I assume that 20% of the negotiated price has already been paid in progress payments during some previous quarter, then the average discount per unit comes out to 57.4%.
2) How did you arrive at the average break even discount of 65%?
Thanks.
Thanks Mike – that’s a nice bit of work.
1) The magical 65% number is Bryce’s, not mine.
2) Deposits and progress payments aren’t accounted for until the aircraft is delivered. They are ‘held’ if you will, in Unearned Revenue (a liability account) until handover, when they are backed out into a Revenue account (Sales) and moved off the balance sheet and into the income statement.
You Sell an aircraft to an airline for $50 million with 20% deposits and PDP’s.
You get 10mil in deposits
………………………………………Debit………………Credit
Cash……………………………….10 million
Unearned Revenue…………………………………..10 million
You get another 40 mil at handover
Cash……………………………….40 million
Unearned Revenue…………..10 million
Sales……………………………………………………….50 million
So Unearned Revenue is zeroed. Cash has $50 million in it from customer and Sales gets credited for $50 million.
———————————————————————-
This is what Boeing has on deposits from customers:
Liabilities and equity
Advances and progress billings ……………….54,498
https://s2.q4cdn.com/661678649/files/doc_financials/2023/q1/2023-03-Mar-31-8K-PR-Ex-99-1.pdf
$54.5 billion in deposits.
Needless to say, some of that has been spent already:
Cash and cash equivalents $10,812
Short-term and other investments 3,955
Frank,
Thanks for the education on how deposits and progress payments are handled.
One last thing. I suppose if one is interested in figuring out the true average discount per unit, the list prices at the time of contract signing should be used, instead of the current list prices. They are changed, what, once a year?
Two things Airbus does differently from Boeing
1) They stopped publishing list prices
2) They use percentage of completion accounting
———————————————-
On List Prices
For a bunch of reasons, using list prices to estimate how a company is doing, especially when comparing the two OEM’s isn’t a good benchmark. I’ve explained below where I was heading with pricing.
Why isn’t it good?
There are just too many differences between the two, starting with the prices themselves. Are both OEM’s using the same expected percentage of profit when a Max 8 is listed at $121.5 million and an A320Neo is listed at $110.6? Have Airbus purposefully priced the A320Neo lower to make it seem like a better deal? Or when Boeing comes off the $121.5 million price and asks $50 million, telling you “Hey look, we took off $71.5 million!” do you feel you’ve ‘won’ the negotiation?
Is a 55% discount on an Airbus aircraft as good as a 65% discount on a Boeing plane?
On the expense side of things (let’s put aside all the 787 problems for a second) I would say it’s a fair point that Boeing can make a 787 in South Carolina for less labour costs, that Airbus can make an A-330Neo in Europe. If both aircraft take (just throwing out a number) 10,000 man hours to make, Boeing will beat them on labour. It’s unionized Europe vs SC.
I think it’s just window dressing to give the great unwashed something to talk about.
@ Frank
The 65% breakeven level comes from a Forbes analysis (published before the MAX crashes) which calculated that a 737 with a list price of $100M generates a margin of $10M for BCA when an “industry standard” discount of 55% per cent is applied. Simple math reveals that the costs are thus 35% of the list price, meaning that 65% is the breakeven level.
That figure is commensurate with your calculations above and with my recent calculations of BCA’s rudimentary unit EBIT for Q1 (before debt interest payments). The EBIT was just $231k (as opposed to $5-7M over at AB), and that corresponded to the average discount of 63.5% that you calculated above. So, if we tweak your discount to 64%, we see that unit EBIT goes to zero — in other words, breakeven is at 64% (before debt interest payments).
Of course, if we factor in debt interest payments, then breakeven will occur at a much lower discount percentage.
Moody’s — not Forbes.
Here’s a similar calculation for the MAX 8, with a list price (at the time) of $121.6 M.
$12M profit when discount is 55%.
45% of 121.6 is 54.7.
54.7 — 12 = 42.7
42.7/121.7 = 0.35
Once again: 35% of list price is costs.
Here’s a paywall-free link with the Moody’s info.
https://naijacarnews.com/news/check-out-estimated-profit-on-every-boeing-737-max-8-plane-delivered-192
Once again: these rosy profit margins are from the bumper year 2018!
Bryce,
The link you provided states:
So, if you use $15M instead of $12M, 67.3% could be the breakeven discount level instead of 65%.
$12M profit corresponds to 55% discount.
$15M profit corresponds to 50% discount.
The 15/50 dataset yields a breakeven percentage of 62.33%.
The real-world results from Q1 yield 64%.
Take your pick.
Your Q1 “real-world” results assume your breakeven discount calculation for the 787 MAX 8 holds true for the other models, i.e. that the list price has the same proportionality to unit cost for all models.
No, actually, the 64% breakeven figure for Q1 does not depend on the Moody’s figures for the MAX-8: it follows from Frank’s calculations above and from my calculations of unit EBIT (before interest payments).
All of these figures are averages — nobody is claiming that they apply uniformly to all models.
You’re right, the 64% breakeven figure for Q1 is the average across all models. My bad.
Then why are you comparing it to the 737 specific breakeven discount numbers and making claims based on the comparison?
I’m not “comparing” it, as such: I’m showing that the “global” figure calculated by Frank/me is *consistent* with the earlier Moody’s calculation for the 737. As the largest source of BCA’s revenue under normal circumstances, the 737 has a dominant effect on the whole BCA figure across all programs.
Calculating a similar figure specifically for the 787 is complicated by the huge program losses. And, nowadays, the 777F and 767F are just very minor players.
And now, let’s do a quick calculation of what the breakeven discount was in Q1, taking debt interest payments ($640M) into account.
BCA unit revenue for Q1 was $51.5M, corresponding to an average discount of 63.5%.
Accordingly, average unit list price was $141M.
Unit debt interest was $640M/130 = $4.92M.
Unit debt interest as a fraction of unit list price: 4.92/141 = 3.5%
So, breakeven for Q1 was at a discount of 64 — 3.5 = 60.5%.
Accordingly, a discount above 60.5% in Q1 resulted in a loss.
A higher deliver number per quarter would push this percentage a little higher.
To give some examples of a recent discount:
On the Greater Bay airlines order in March, Aircraft appraiser Avitas Inc. indicated a unit price of $52.33 M per MAX-9, which represents a 59.4% discount on the list price of $128.9M…thus hovering near the breakeven point.
Bloomberg referred to a 60% discount on the recent United order — and an insider that you (Frank) know said that BCA wouldn’t make a cent on that order.
Another one: The link that I posted here the other day calculated a 69% discount on Ryanair’s penultimate order — which thus represents a sizable loss per plane.
Bryce,
From the Irish Times:
The Ryanair deal could represent a good profit, or sizable loss, depending on one’s predisposition.
https://www.irishtimes.com/business/2023/05/12/ryanairs-oleary-loses-battle-but-wins-war-in-mega-boeing-deal/
I referred specifically to the *penultimate* Ryanair deal getting a 69% discount — not the most recent deal.
The most recent deal does, indeed, have a broad range of possible discounts in the Irish Times article. On the other hand, O’Leary said that he paid “just slightly more” than on his previous deal. How does one define “slightly more” in this case?
Bryce,
I looked for the link you said you posted about “penultimate” Ryanair deal in this comments thread and couldn’t find one. Which deal are you referring to? What thread did you post the link in?
@Mike
And AllianceBernstein does have a small position in BA
Boeing Company (BA) 0.1 $256M +40% 1.3M 190.49
But I didn’t see any Airbus.
Just to be fair…
Frank,
Since AllianceBernstein has a small position in BA like you mentioned, which way do you think they would want to sway the the sales price? The Irish Times reported that they were on the lower end ($38M) of the sales price spectrum.
@ Mike Bohnet
Here’s the Ryanair link that I referenced and posted earlier (twice):
https://www.gridpoint.consulting/blog/ryanairs-aircraft-cost-advantage
Mike
On what discounts are given:
Scott talked about this is another article and I will echo his sentiments – list pricing is a very fictitious number, especially when trying to compare the 2 OEM’s. I’ll get to that in a bit.
Here’s the real point I was trying to make;
You can break down the Q1 sales figures into a mathematical equation
X1 (737 x 113) + X2 (747 x 1) + X3 (767 x 1) + X4 (777 x 4) + X5 (787 x 11) = $6.704 billion
Where
X1 = average revenue earned for all 737’s sold during the quarter
X2 = average revenue earned for all 747’s sold during the quarter
X3 = average revenue earned for all 767’s sold during the quarter
X4 = average revenue earned for all 777’s sold during the quarter
X5 = average revenue earned for all 787’s sold during the quarter
That $6.7 billion is fixed. They sold 130 aircraft and that’s what they got. As you’ve shown, it’s ~65% off of list price.
65% off of list price of a 737 Max ($121.6 million) leaves an average price of $42.56 million, yes?
————————————————————–
Now if someone were to say “Boeing is getting $50 million for their Max’s”, my next question would be;
“If that’s the case, what are they doing – giving the other planes away for a song and a dance?”
Because $50 million X 113 units sold = $5.650 billion, which leaves $1.054 billion (the remaining revenue reported) to account for:
One 747
One 767
Four 777’s
Eleven 787’s
17 widebodies – big ticket items, which averages out to $62 million each.
Does that make any sense to you? I think the claim can be made that there is no way BA got an average price of $50 million per Max, during Q1.
Of what significance can “list price” be at all, if very large discounts from that number abound?
Looks good in a news report to investors when they say
“OEM X has sold 100 aircraft valued at $XXX billion dollars!!!”
Looks impressive
INSANE Boeing Order from United Airlines Worth $43 Billion!
https://www.youtube.com/shorts/KHeOnMl6ASM
He does qualify it by saying that there are substantial discounts. But that gets overshadowed by the big numbers being thrown around.
They do the same thing with Airbus
‘Lufthansa to order 22 long-haul aircraft with total list price of $7.5 bln’
https://www.reuters.com/business/aerospace-defense/lufthansa-order-22-long-haul-aircraft-with-total-list-price-75-bln-2023-03-02/
That works out to $341 million per aircraft.
Frank,
Thanks!
In your experience, does the Boeing list price for each model sort of proportionally track some kind of deduced unit cost for each model?
I’m asking because everyone here seems to focus on discounts. If the list prices really don’t mean anything, then using them as a reference would also be meaningless, or at least arbitrary.
My pleasure, Mike.
‘does the Boeing list price for each model sort of proportionally track some kind of deduced unit cost for each model?’
I don’t think so. Especially in the past few years, where everything has been thrown up in the air, with the grounding, covid, supplier issues, Ukraine and the Max, 777X & 787 issues.
In 2018 and before….perhaps. There are so many different strings to this bow, including BA sitting with a bunch of debt on their books and the need to pay it off. Airlines have accountants as well and they can read financials just like we can.
The only undisputable proof we have is Boeing sold X amount of aircraft, received Y amount of revenue for them and made (lost) Z amount of margin on them. (mind you, even that can be fudged a bit by throwing some overages into the Deferred Production Balance)
As I’ve said – the amount of revenue is fixed. If one feels they get X amount for that particular model, multiply it out and see what it leaves for the rest of the aircraft.
In the Q1 deliveries, for every $1 million increase in (avg) price you think a Max gets, you’ve got to take away $113 million from the other planes (since they delivered 113). Play with the numbers yourself.
You are correct on list price. It really is meaningless. Probably an ego thing (“Airbus is discounting so much! No, Boeing is!”)
I will say this about Airbus;
They are lucky that they have the A320Neo family and the A350 because IMO they are carrying the company. The A330Neo isn’t selling well and the A220 is still going through it’s teething issues and probably still costing them money. If it is as has been reported that each A220 delivery is costing them $4 million, then the other programs had to cover a $40 million hole for the quarter.
Nice to have that to fall back on…
@ Frank
With regard to the A330neo not selling, I think it might be more accurate to use the qualifier “yet”.
The plane was intended (inter alia) to act as a replacement for existing A330ceos, and that replacement cycle is still in its infancy.
Delta, for example, may be on the cusp of ordering “dozens” of A330neos — to replace older A330 ceos and 767s.
https://www.flyertalk.com/articles/delta-may-look-to-airbus-for-international-aircraft.html
@Bryce
But….but….the Delta 767 fleet is only 27 years old. There going to try to get another 10 years at least, out of them, no? 🙂
https://www.planespotters.net/airline/Delta-Air-Lines
The oldest 330’s average 18 years old.
I wonder if they’re going to try and do a United, replacing the 67’s with the A330Neo in a bulk purchase.
Since we’ve got our formula, was can also plug it into the 2022 year end results;
Deliveries
737 387
747 5
767 33
777 24
787 31
Total: 480
Commercial Airplanes
Revenues $25,867
Selling a Max at $50 million would get them $19.350 billion, leaving $6.517 billion earned by the remaining 93 widebodies = $70 million each. Not really feasible.
Selling a Max at $45 million would get them $17.415 billion, leaving $8.572 billion earned by the remaining 93 widebodies = $92 million each. Again, pretty lean. There are 33 – 767’s in that, but still.
If they got $45 million for every Max and $70 million for every 767, they would earn $17.415 billion and $2.31 billion for a total of $19.725 billion, leaving $6.142 billion for 60 (747’s, 777’s 787’s) for ~$102 million. Still not happening…
But the Good Thing is, Boing is gonna make big munny on the KC-46A and the T-7A [courtesy of the US taxpayer, of course] and Stuff Like That..
freedumb is expensive.
@Mike
Just to be fair – let’s run the same thing for Airbus. Here are their list prices:
AIRBUS AIRCRAFT
2018 AVERAGE LIST PRICES* (USD millions)
A220-300 90
A319neo 101.5
A320neo 110.6
A321neo 129.5
A330-200 238.5
A330-800 (neo) 259.9
A330-200 Freighter 241.7
A330-300 264.2
A330-900 (neo) 296.4
A350-800 280.6
A350-900 317.4
A350-1000 366.5
and the Q1 delivery figures
Q1/2023 Deliveries
A220 – 10
A319Neo – 2
A320Neo – 44
A321Neo – 60
A330-200 – 1
A330-900 – 5
A350-900 – 5
Deliveries Units – 127
———————————————-
Let’s do things a little differently. We’re going to assign a value to what we think they are getting for some aircraft, based on reports out there – then get an average for the rest.
1) There are many reports that Airbus (from Bombardier) have sold the A220 at a huge discount. Let’s say they have. $30 million each?
10 deliveries = $300 million
2) Same thing for the A330, which has had to compete with the 787. Let’s say you can get one for $100 million.
6 deliveries = $600 million
3) A350. New aircraft getting a good price. Let’s assign a 50% discount off of list here. Rounded up to $160 million.
5 deliveries = $800 million. (I had a typo in the post above and gave it $900 million, but once I take off my shoes and socks, I see that 5 times 16 = 80)
$300 + $600 + 800 = $1.7 billion
Revenues for aircraft sold (goods) would be 6,984 Euro’s or $7.613 billion USD, which leaves $5.913 billion in revenue to be spread out over the remaining (A320Neo family) deliveries. (That $7.6 billion figure is the number with services backed out, as we talked about earlier)
127 total deliveries less the WB’s and the A220’s (21 units) gives you 106 A320 family for an average of $55.78 million.
If you throw another $300 million into the A220/A330/A350 pool (for a total of $2 billion) the average revenue drops to $52.95 million (which includes 2 A319Neo’s)
Singapore just canceled eight 737-MAX8s.
Actually, they did it in March — it’s only being widely reported now.
https://www.scramble.nl/civil-news/boeing-march-2023-orders-deliveries
See, Duke? These are real cancellations — not ASC606 deletions.
In another report that you can file under Things That Will Not Turn Out Well:
‘Russia’s biggest airline asked employees to refrain from reporting malfunctions on flights, report says’
https://www.msn.com/en-ca/travel/news/russia-s-biggest-airline-asked-employees-to-refrain-from-reporting-malfunctions-on-flights-report-says/ar-AA1bfRKd?ocid=msedgntp&cvid=bc6b8311451f41d983dcff7b06ec8f39&ei=106
Russia’s biggest commercial airline Aeroflot has asked its employees to refrain from reporting malfunctions as it continues to suffer under Western sanctions, according to the investigative Russian outlet Proekt.
.
.
.
The investigation cited internal company documents and interviews with current and former employees.
We should always, without exception, believe what’s reported in Western Media. I know I do..
We should always, without exception, not believe what’s reported in Western Media. I know I get the right information on what is true from Facebook, Twitter and other ‘real’ sources. You also find the best medical advice there.
I guess I should’ve included a /sarc tag, but thought it was self-evident.
So how much cash did Boeing lose in the first quarter of 2023, again?
#winning..
This AvWeek article is from March, but I don’t recall seeing some of the content before:
‘EASA-Boeing Compromise Is A Positive Move For 777X’
“..Most important, the European Union Aviation Safety Agency (EASA) and the U.S. manufacturer appear to have reached an understanding on common mode failure certification criteria for the large new twinjet, industry sources tell Aviation Week.
Although details of the compromise remain sparse, sources say EASA has given up its demands for fundamental flight control system changes to comply with its definition of redundancy. In return, Boeing has agreed to a protocol under which the system performance and any potential failures will be closely monitored for at least the first several years of 777X operations..”
interesting.
https://m.aviationweek.com/aerospace/aircraft-propulsion/easa-boeing-compromise-positive-move-777x
Seeking Alpha: ‘Avoid Boeing Stock: It’s Fool’s Gold’:
“..management projects that free cash flow will recover to $10 billion by 2025 or 2026. On that basis, Boeing stock trades for just 12.5 times future free cash flow. That has many analysts and investors bullish about the stock.
However, Boeing will need to use the bulk of its cash flow over the next five years to fix its balance sheet. Moreover, while free cash flow may recover to $10 billion within a few years, that is more likely to represent a cyclical peak than a base for future growth. As a result, Boeing stock continues to look unattractive..”
https://seekingalpha.com/article/4606014-avoid-boeing-stock-fools-gold
Seeking Alpha seems to have had a recent Damascene Conversion with regard to BA — this is the second very candid article on the company in just 2 weeks.
Reality-based community..