Leeham News and Analysis
There's more to real news than a news release.
Leeham News and Analysis
- Bjorn’s Corner: Air Transport’s route to 2050. Part 19. April 25, 2025
- How good is the C929? Part 2. April 24, 2025
- Boeing First Quarter Results Update: China is 10% of the backlog, with 500 in “Unidentified” April 24, 2025
- Boeing First Quarter Results: Tariffs, Return flights, $10.55bn asset sale April 23, 2025
- RTX Q1 2025 Earnings: GTF Talk Takes A Back Seat To Tariffs April 22, 2025
Pointifications: Wide-body orders; Bombardier’s $1bn
By Scott Hamilton
Nov. 2, 2015, © Leeham Co. Boeing gets an order for up to 26 787-10s.
Airbus firms up options to an order for 30 A330s, added to 45 previously announced by the same customer.
Boeing announces an order for nine 787-9s.
For all the talk of a wide-body surplus, this is shaping up to be a good year for wide-body orders.
Through September, Airbus recorded 90 firm wide-body orders, all but three for the A330 family. Boeing recorded 152 during the same period (these are net figures). Not included are any of the orders listed above, which have yet to be recorded as firm contracts.
Based on the YTD-September figures and those above, Airbus has a 42% share of orders this year; Boeing has 58%.
Bjorn’s Corner: Aircraft programs
By Bjorn Fehrm
30 October 2015, ©. Leeham Co: There has been dramatic news this week around Bombardier’s (BBD) CSeries program. I wrote a subscribers article about what to expect in terms of the cash flow problem that the BBD management has been wrestling with. The announcements yesterday and the following earnings call confirmed the financial modelling I did with our aircraft modelling tool.
Having watched experienced Wall Street analysts being hard pressed to understand what has happened with the CSeries, I thought I could use this week’s corner to explain the overall economical flow of an aircraft program like the CSeries (there will be details in a follow up subscriber article). I will also put it in context with how it affects a company like BBD and what one must think about when it comes to timing of such projects.
To give the timing aspect more colour, I will also compare with Embraer and their E-Jet E2 project and Boeing’s 787 program. The three programs are very different and they demonstrate in an illustrative way the challenges of making a new civil airliner and that one must adapt the project to the company’s position and its strength and weaknesses.
Northrop wins, Boeing/Lockheed lose bomber contract
Oct. 27, 2015: Northrop Grumman, builder of the B-2 bomber in the USAF inventory, was awarded the contract to build the next generation long-range bomber, which is yet to be named. For the moment, we’ll call it the “B-3.” For now it’s official name is the Long Range Strike Bomber (LRSB).
The Seattle Times has this story.
This is a big blow to Boeing, whose declining defense business was already in trouble from defense cutbacks and previous contract losses. The contract is worth $80bn.
Boeing’s strategy in acquiring McDonnell Douglas Corp back in 1997 was to even the revenue stream between commercial and military, in which Boeing then had a small portion and MDC was predominately military. Boeing was a sub-contractor to Northrop on the B-2, gaining a lot of its composite experience there which ultimately benefited development of the 787.
Unless Boeing finds grounds to challenge the contract award, prevails and wins a second competition, its Defense unit will continue to shrink.
Goldman Sachs, as with many other investment banks, called this a big win for Northrop.
Pontifications: Is the end in sight for program accounting?
By Scott Hamilton
Oct. 26, 2015, © Leeham Co.: Is the end of program accounting, the staple of The Boeing Co. profit and loss reporting, on its way out?
It is in Europe, where it is called contract accounting, the end of its use is required by January 1, 2018. (LNC’s Bjorn Fehrm has talked about contract accounting in the past.) Companies have the option to eliminate it in 2017.
The fundamentals between contract and program accounting are similar: defer costs of the goods or services, and recognize profits sooner.
Europe’s International Financial Reporting Standards (IFRS) 15 says this has to stop.
Do the Boeing 787 sums add up, Part 2
By Bjorn Fehrm
Subscription required.
Introduction
Oct. 22, 2015, ©. Leeham Co: This is an update on our article about Boeing 787 program costs now that Boeing has presented its 3Q 2015 results.
It was a good quarter for Boeing with solid performance in revenue and in cash generation. The results for deferred costs for the 787 program were also above Boeing’s guidance (guidance: same losses as for 2Q), with a $577m increase in deferred costs instead of $790m for 2Q.
Boeing’s CFO, Greg Smith, commented that this result and also gave new values for when the 787 goes cash positive and what the learning effects are for the 787-8 and 787-9. We update our analysis based on these further data points.
Summary:
- Boeing reports less deferred costs than expected but Greg Smith put this in perspective in his comments. We decode what this means for the deferral curve for the 787.
- Smith also gave new information regarding learning effects for 787-8 and 787-9 and when the 787 goes cash positive. We check if this changes any of our assumptions in our original article.
Boeing 3Q15 earnings call
Oct. 21, 2015: Dennis Muilenburg, Boeing president and CEO raised 2015 raised revenue and EPS guidance as a result of the strong third quarter results and he said $8bn in share buyback has been completed through the nine months.
Power on for the 737 MAX was achieved.
Dennis Muilenburg, Boeing president and CEO. Reuters photo via Google images.
Extensions of the KC-46A refueling boom and refueling drogues were achieved in the quarter.
Commercial unit business environment remains “healthy” but the cargo market continues to be watched. Demand for the 737 MAX “remains high.” Given the strong market demand, “we continue to see upward pressure on production rates above the [announced] 52/mo.” But Boeing is not yet ready to go forward.
On the 777 Classic, 44 orders and commitments have been received YTD.
Boeing 3Q result positive; first analyst take
Oct. 21, 2015: Boeing reported a strong 3Q2015, with good cash flow and above-consensus revenue. 787 deferred production rose but less than some analysts 
predicted, yet in-line with International Institute for Strategic Leadership. The press release is here.
The first take on results from some of the analyst community, ahead of the earnings call, follows. LNC’s Bjorn Fehrm will take a concentrated look at the 787 results in a later post.
Is FedEx poised to order 777Fs?
FedEx Boeing 777. Airplane-Pictures.net via Google images.
Oct. 20, 2015. (c) Leeham Co.: Two developments at FedEx may give a boost to Boeing’s slow-selling 777 Classic program.
Pilots approved a six year contract that had been open for some time. Pay increases an average of 10% and other contract benefits were achieved.
Pontifications: 50% of something or 100% of nothing: something to consider at Bombardier
By Scott Hamilton
- On Sunday, The Seattle Times had a long article about whether the Boeing 787 will ever record a profit. Leeham Co’s Bjorn Fehrm is quoted extensively.
Oct. 19, 2015, © Leeham Co. Bombardier is dominating the aerospace news lately, given the reports of talks with Airbus about selling a stake of the CSeries program to the European company; a report that it planned to approach Embraer for a business tie-up; and on Friday, a long analysis by Reuters about BBD’s financial challenges.
Last week I chronicled Bombardier’s history predicament of how it got to where it is today, a very deep hole that the new management—which only got on the scene last February and which has spent much of the year reorganizing the company and hiring a new team—has to dig out of. It’s not an easy task and it won’t come overnight.
Let’s take yet another look at things, given the continued headlines last week.
Do the Boeing 787 sums add up?
By Bjorn Fehrm
Subscription required.
Introduction
Oct. 19, 2015, ©. Leeham Co: Boeing presents its Q3 2015 results on Wednesday. This is a hotly awaited presentation, as analysts then will get another data point in their quest to understand if the 787 program will ever turn a profit.
We believe it is pretty clear that the program will not record an overall profit with the cost of development as well as production costs included. With a development cost of close to $20bn, this is to ask for too much. The question is if the production over the first 1,300 units can turn a profit. This is also under scrutiny.
Boeing employs program accounting for the production phase of an aircraft program and now, 25% into the accounting period for the 787, the accumulated deferred costs are such that it is questionable if future deliveries can compensate.
We take a look at the present state and what Boeing has said about the future. Based on this information, we can deduce if it is probable that Boeing can turn $32bn of deferred cost for the 787 into a profit by 2022.
Summary:
- We analyze Boeing’s information around its deferred production cost for the 787 and show how many analysts have misunderstood what has been said.
- Based on the Boeing information, we can deduce the present production cost level, learning curves and when production costs go below the assumed average in the accounting block.
- We also show what the delivery mix from 787-8 and 787-9 to 787-9 and 787-10 will mean for margins in the program.
- Finally, we judge whether Boeing will turn the corner on production cost and get the accounting block to a black zero (or better).