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May 4, 2016: (c) Leeham Co.: The $500m charge reported last week by Bombardier for 127 recent orders for its C Series resulted in shining the spotlight on Boeing’s deferred production costs for the 787.
As LNC wrote this week, interpretation of the BBD charge was misunderstood. Some press reports yesterday demonstrate it continues to be. We won’t restate what we’ve already written about the true nature of the charge and how it differs from program accounting used by Boeing–this has been well covered by now. The Seattle Times suggested that the per-plane profit required to pay off the $29bn in deferred production and $3bn in tooling costs for the Boeing 787 was greater than
generally recognized. The average figure is about 20% higher than the number widely cited by Wall Street.
The most commonly accepted figure to recapture the record-setting deferred production costs and tooling has been $30m per airplane, a figure most Wall Street analysts believe is too high to achieve. But this number appears understated, according to an analysis by The Seattle Times in the wake of Boeing’s first quarter earnings call.
Boeing’s 10Q contains language that appears to confuse the issue somewhat.
“At March 31, 2016, $23,661 [million] of 787 deferred production costs, unamortized tooling and other non- recurring costs are expected to be recovered from units included in the program accounting quantity that have firm orders and $8,757 [million] is expected to be recovered from units included in the program accounting quantity that represent expected future orders.”
This appears to suggest the first tranche of these airplanes results in a need for a $36m per-plane profit and the second tranche requires a per-plane profit of $54m. Charles Bickers, a spokesman for Boeing’s corporate headquarters in Chicago, told LNC that segmenting out the ordered but undelivered aircraft from orders yet to be received but assumed is not the way to look at the issue.
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Boeing launches PFS 2.0
Update, 0815 PDT July 7: Boeing Corporate Headquarters responded to our questions. The transcript has been added to the article below.
Boeing wasn’t shy about who it targeted, or punished. Even supply-chain giant United Technologies was placed on Boeing’s no-fly list when it balked at the onerous demand.
Now Boeing is moving forward with PFS 2.0, a second round of demands.
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Posted on July 7, 2016 by Scott Hamilton
air force tanker, Boeing, Leeham News and Comment, Pacific Northwest Aerospace Alliance, United Technologies
747-8, 787, Boeing, Dave Gitlin, Héroux-Devtek, Jim McNerney, KC-46A, Michel Merluzeau, Pacific Northwest Aerospace Alliance, Partnering for Success, PFS 1.0, PFS 2.0, PNAA, Richard Aboulafia, United Technologies Aerosystems, UTAS
C Series charge spotlights 787 deferred costs
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May 4, 2016: (c) Leeham Co.: The $500m charge reported last week by Bombardier for 127 recent orders for its C Series resulted in shining the spotlight on Boeing’s deferred production costs for the 787.
As LNC wrote this week, interpretation of the BBD charge was misunderstood. Some press reports yesterday demonstrate it continues to be. We won’t restate what we’ve already written about the true nature of the charge and how it differs from program accounting used by Boeing–this has been well covered by now. The Seattle Times suggested that the per-plane profit required to pay off the $29bn in deferred production and $3bn in tooling costs for the Boeing 787 was greater than
generally recognized. The average figure is about 20% higher than the number widely cited by Wall Street.
The most commonly accepted figure to recapture the record-setting deferred production costs and tooling has been $30m per airplane, a figure most Wall Street analysts believe is too high to achieve. But this number appears understated, according to an analysis by The Seattle Times in the wake of Boeing’s first quarter earnings call.
Boeing’s 10Q contains language that appears to confuse the issue somewhat.
“At March 31, 2016, $23,661 [million] of 787 deferred production costs, unamortized tooling and other non- recurring costs are expected to be recovered from units included in the program accounting quantity that have firm orders and $8,757 [million] is expected to be recovered from units included in the program accounting quantity that represent expected future orders.”
This appears to suggest the first tranche of these airplanes results in a need for a $36m per-plane profit and the second tranche requires a per-plane profit of $54m. Charles Bickers, a spokesman for Boeing’s corporate headquarters in Chicago, told LNC that segmenting out the ordered but undelivered aircraft from orders yet to be received but assumed is not the way to look at the issue.
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Posted on May 5, 2016 by Scott Hamilton
Airbus, Boeing, Bombardier, Delta Air Lines, Leeham News and Comment, Premium
787, 787-9, A330ceo, A330neo, A350, A350-900, Air Baltic, Air Canada, Airbus, Bank of America Merrill Lynch, Credit Suisse, Delta Air Lines, Dominic Gates, program accounting, Rob Spingarn, Ron Epstein, Seattle Times, unit cost accounting
737-7X, 737-10 studies illustrate Boeing weakness in single-aisle market
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The Wall Street Journal revealed last week that Boeing is planning the airplane, which is larger than the current 737-7 but smaller than the 737-8. Jon Ostrower, the reporter, dubbed the plane the 737-7.5. Internally, it’s called the 737-7X.
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Posted on April 27, 2016 by Scott Hamilton
Airbus, Boeing, Bombardier, CSeries, Delta Air Lines, Leeham News and Comment, United Airlines
737-10, 737-200, 737-300, 737-500, 737-600, 737-7, 737-7.5, 737-700, 737-7X, 737-8, 737-800, 737-9, 737-900, 737-900ER, 757, 767-200ER, 767-300ER, 787-8, A318, A319, A319ceo, A319neo, A320, A320NEO, A321, A321NEO, A330-200, A330-300, Airbus, Boeing, Bombardier, C Series, CS300, Delta Air Lines, Dennis Muilenburg, Jon Ostrower, Randy Tinseth, Ray Conner, Southwest Airlines, United Airlines, Wall Street Journal, WestJet
Bombardier’s Delta deal looking good, but don’t celebrate yet
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Introduction
Air Baltic will be the first operator of the Bombardier CS300. Source: Bombardier.
April 18, 2016, © Leeham Co.: Bombardier, if it didn’t dominate the news cycle in commercial aviation last week, must have come close. Consider:
While on balance, it seems likely Delta will order the C Series, Bombardier has been down this road before. Only a few months ago, the market and others were excited over the prospect that BBD was close to landing an order from United Airlines, only to see Boeing swoop in and grab the deal.
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Posted on April 18, 2016 by Scott Hamilton
Airbus, Airlines, Boeing, Bombardier, CSeries, Delta Air Lines, E-Jet, Embraer, Leeham News and Comment, Premium, United Airlines
737-700, A319, A321ceo, Air Canada, Airbus, Boeing, Bombardier, C Series, CS100, CS300, Delta Air Lines, E195 E2, E195-E1, Embraer, United Airlines
Leeham’s Bjorn Fehrm selected for Swedish medal for engineering work
Bjorn Fehrm
April 14, 2016: Bjorn Fehrm, the aeronautical and economical analyst for Leeham Co. and Leeham News and Comment, has been selected to receive the 2016 Thulin Silver Medal from the Aeronautics and Space Technology Society and the Royal Academy of Engineering Sciences of Sweden, the groups announced this week.
Fehrm focuses on technical evaluation for Leeham Co and LNC, providing a level of technical and aircraft economic reporting rarely seen among aviation writers.
Fehrm has a background both as a fighter pilot and engineer, “where the knowledge came to foster a brilliant idea how to make radar chaff work for effective self-protection, and in 1980 filed a patent application for his invention,” the groups said in a press release announcing the award. “The principle is that the chaff must be spread very quickly in the transverse direction to give effect on modern radar stations which have high range resolution and Doppler signal processing. The chaff dispenser is mounted close to the aircraft’s wing tip vortices and is designed to not block any weapon positions or require mounting in the aircraft structure. This is achieved by integrating the dispenser in existing missile launchers of the aircraft. The dispensing of the chaff can be made with high precision and high endurance. The chaff is placed in discrete packets using an electro-mechanical dispensing method and is then distributed with the help of the aircraft’s wingtip vortices.”
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Posted on April 14, 2016 by Scott Hamilton
Leeham News and Comment
Aeronautics and Space Technology Society, Bjorn Fehrm, Leeham Co., Leeham News and Comment, Royal Academy of Engineering Sciences
Airbus needs more vertical integration, says official
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Introduction
John Leahy, chief operating officer-customers. Airbus photo.
March 3, 2016, © Leeham Co.: Airbus may well have avoided the supplier-driven delivery delays on its A350s had the company brought some key work in-house and become more vertically integrated, says its chief operating officer-customers.
Airbus has been bedeviled by delays in business class seat and galley deliveries from supplier Zodiac, resulting in delayed deliveries of the A350-900 to several airlines.
John Leahy, in an interview with LNC at the International Society for Aircraft Transport Trading (ISTAT) conference Feb. 29-March 1 in Phoenix (AZ), said Airbus shouldn’t be at the mercy of suppliers of interiors. His wide-ranging interview also touched on several other topics.
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Posted on March 3, 2016 by Scott Hamilton
Airbus, Boeing, Bombardier, CFM, CSeries, ISTAT, Leeham News and Comment, Pratt & Whitney, Premium
737-7, 737-700, 787, A319, A320NEO, A330-900, A350, Airbus, Boeing, CFM, GTF, ISTAT, John Leahy, LEAP, Pratt & Whitney, Zodiac
Dissecting Boeing cost-cutting
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Feb. 11, 2016, © Leeham Co. The news yesterday that Boeing is undertaking a new round
of cost-cutting has been buzzing around management and labor circles for months.
LNC last year began hearing management at Boeing Commercial Airplanes would likely face personnel cuts of 10% to 15%. Cuts were expected within the marketing/sales departments, in part due to struggling sales of the 7-Series airplanes, sources told LNC.
The leading labor unions, SPEEA (engineers) and IAM 751 (touch labor), each told LNC last year they expected workforce layoffs were in the future.
More ominously, a consultant who occasionally worked with Boeing, told LNC that the elevation of Dennis Muilenburg from president and chief operating office to president and CEO (and, eventually, chairman) would make former CEO Jim McNerney’s cost- cutting efforts pale by comparison.
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Posted on February 11, 2016 by Scott Hamilton
Airbus, Boeing, IAM 751, Leeham News and Comment, Premium, SPEEA
737-10, 757, 777X, A330, Airbus, Boeing, Dennis Muilenburg, IAM 751, Jim McNerney, KC-46A, Ray Conner. 787, SPEEA, Wall Street Journal
LNC’s annual production forecast for Airbus, Boeing
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Introduction
In our annual production rate forecast for the Big Two OEMs, we combine announced production rate plans, Market Intelligence indicators—largely from the supply chains that serve the Big Two—and our own analysis of where we believe rates should be based on backlog, market
conditions and ramp-up of the 777X and A350 production.
Our forecasts may well run contrary to what the Big Two will say publicly, and even privately, but our assessment is what it is.
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Posted on January 11, 2016 by Scott Hamilton
Airbus, Boeing, Leeham News and Comment, Premium
737 MAX, 747-8, 767, 777, 787, A320, A330, A350, A380, Airbus, Airbus and Boeing production forecast, Boeing, Leeham Co.
Pontifications: Looking ahead to 2016
Jan. 4, 2016, © Leeham Co. Let’s take a walk through our outlook for 2016.
Boeing is 100
There will no doubt be all kinds of celebrations at the Air Show. To the extent possible, I would imagine Boeing will try to have a whole lot of orders to announce there. There will be all kinds of run-up to the 100th anniversary. Few throw a party as well as Boeing. (Just don’t sing “Happy Birthday;” I never have liked this song.)
It’s a great achievement and we should all celebrate with Boeing for the next seven months.
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Posted on January 4, 2016 by Scott Hamilton
Airbus, Boeing, Bombardier, Comac, Farnborough Air Show, Leeham News and Comment, Mitsubishi, Pontifications, Pratt & Whitney
747-8, 777 Classic, A380, Airbus, Boeing, Bombardier, C919, Comac, CS100, CS300, CSeries, Farnborough Air Show, Mitsubishi, MRJ90, Pontifications, Pratt & Whitney
Top 10 Stories in 2015
Here are the Top 10 stories on Leeham News and Comment for 2015:
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Posted on December 23, 2015 by Scott Hamilton
Airbus, Airlines, Boeing, Emirates Airlines, GE Aviation, Leeham News and Comment, Malaysian Airlines, MH370
737, 737-8, 737-8ERX, 737-9, 747-8, A320, A321LR, A321NEO, A350-900LR, A380neo, Airbus, Boeing, Emirates Airline, Malaysia Airlines, Singapore Airlines
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