Update: Javier has answered (or responded to, depending on your viewpoint) many of our reader comments here.
A blog of which we were previously unaware came to our attention late last week that has the best, most comprehensive analysis of the 787 financial picture that we have seen anywhere by anyone.
This post is very long. Called “The Blog By Javier,” it is written by Javier Irastorza. He works for Airbus Military on the A400M program, which will automatically make his analysis suspect in some quarters. But we were darned impressed by this analysis.
For those who don’t believe there was a connection between the Cargolux-Boeing-GE dispute and the 787 and Qatar, watch the Dubai Air Show. We’re hearing Qatar will sign announce it has selected GEnx for the 787.
Speaking of Max, Boeing didn’t say much about the 737 MAX on the earnings call. In fact, Jim McNerney was downright ambiguous. Boeing is still considering where to build the airplane and it’s still talking to customers. Boeing said in August at MAX’s unveiling that design details would be forthcoming the following month. November is around the corner and we’re still waiting.
Boeing’s union nemesis, IAM 751, is already reaching out to membership about “wants” for contract negotiations next year. Overhanging negotiations will be the NLRB complaint–testimony is supposed to begin next month–and the MAX assembly site. Our prediction: this will be purely a testosterone contest. We have dour predictions at this point.
Airbus and the A350: assembly is supposed to begin by year end with first flight next year. We’ll see.
Update, from 7:30 am-the Earnings Call:
Jim McNerney (JM):
- Passenger traffic remains resilient, but cargo traffic weakening and needs watching.
- Interest in 737 MAX remains high, still working with customers [to define product].
- We’re monitoring European debt crisis for impact on financing airplanes but believe any outcome will be manageable.
- Defense spending will depend on outcome of Congressional Super Committee working to cut deficit and whether automatic cuts emerge that will harm national defense and the industrial base.
- Sticks with goal of 10 787s/mo by the end of 2013. Sticks with first 787 from Charleston next year.
- Change incorporation in 787s on track and defined. Challenge remains to burn down the work on timely basis.
- Defense: continuing emphasis on cybersecurity, intelligence which are growth areas.
- KC-46A completed first integrated review on technical specs, now focusing on preliminary design review in early 2012.
James Bell (JB)
- 1,100 block is consistent with accounting practices. Over 20 years estimate market demand at 5,000 units. 1,100 block is 10 years of production. Initial gross margin booking rate on 787s is in low single digits, to be assessed quarterly. Deferred production balance $9.7bn for 40 airplanes and will grow as more airplanes produced. Will begin to decline after hitting 10/mo.
- Our clear priority [now] is executing ramp up across all programs and developing KC-46A and MAX.
- JM: If 787 rate of 10/mo did slip a quarter or two it wouldn’t have an impact on accounting block.
- JM: Not really seeing cargo customers seeking 747-8F delays due to softening market.
- JB: When we get up to rate and stabilize for a year, year and a half 787 revenue will exceed costs to build it. (In other words, 2014-2015 is when on a purely revenue/cost basis, the 787 will be profitable–Editor.) [Later]: I would assume 2015 rather than 2014. Late 14 or early 15 to be stable.
- JB: We’ve never set the accounting block previously, so have not adjusted it. We never went through analysis to determine if there would have been a forward loss at 1,000.
- JM: We are not over-reaching market demand, we are following market demand [with production rates]. We are not going for market share.
- JM: We have pretty good fidelity on what the MAX is, still having discussions. It is settling down quickly on details, happy with design. We’re still thinking through where we would produce it.
- JM: Vast majority of rework is on first 40-45 airplanes. Our plan is that after 50-60 mark we are pretty much in the clear, pretty clean after that.
- JM: We’re in a sweet spot seeing demand for the 737NG and the 737 MAX.
Boeing set its long-awaited accounting block for the 787 at 1,100, an announcement coming with the third quarter earnings release today. Boeing said, “At quarter end, the 787 had 821 units sold firm and approximately 200 options. The company established the initial accounting quantity for the 787 program at 1,100 units, consistent with accounting practices applied on other new airplane programs.”
Previous airplane programs were typically set at 400, according to a good analysis by Jon Ostrower.
Ostrower, in Hong Kong following the 787′s first flight (and thus up long before we were), had this quick take on the earnings announcement and some observations about the 787 ramp up and deliveries this year.
Boeing also lowered its delivery forecast for the 787 and 747-8 to just 15-20 combined. Originally Boeing forecast 25-40 evenly split between the two airplane types then in July 25-30, weighted toward the 747. Since then, Atlas Air canceled three 747-8s that would have been delivered and Boeing’s internal plan for the 787 has been eight while key suppliers have been telling us four-six. Boeing said in its press release today that two thirds of the deliveries will be 747s, or 10-13. Thus, this means 5-7 787s will be delivered this year if forecasts are met.
You have to hand it to the public relations staff for some real chutzpah.
Air Berlin has been struggling for years, over-ordering aircraft and canceling some of them (Boeing 787s among them). Today the airline deferred Airbus and Boeing airplanes and issues a press release entitled, “AirBerlin optimizes Airbus and Boeing order book.”
Crosscut Seattle, an on-line only news outlet (and one we consider to be quite good) does occasional in-depth think pieces. Today it has one about the burning question to Washington State: where will the Boeing 737 MAX be built?
We’re alluded to this question and potential sites in several previous posts, including our recent one about the earthquake in San Antonio (TX), which is suggested to us to be on the short list for the MAX site.
Crosscut is known for calling shots as it sees them and it fires one at the King County Aerospace Alliance formed by the county executive with the MAX in mind.
Crosscut’s conclusion is largely correct, but it misses the point: King County government has been AWOL for years in promoting aerospace, a short-coming of previous executives who rested on complacency.
It’s about time the county got in on the action.