Wednesday, April 1, 2015

The All Important 787 Break-even POINT

"The Dreamliner 787 will be achieving breakeven by this year’s end, which is great news for investors as the planes were being sold at a loss due to increased development costs of manufacturing. This break-even, according to reports, is due to the fact that per unit cost of production is decreasing."

Okay the Dreamliner day of reckoning is coming in about 90 more 787 deliveries with this optimistic WSJ statement. My own predictions said it should be 2016-2017, way back in the day during 2012. However, production costs keep falling down a profitable slope for Boeing with its retired risks.

"I said prior in a posting, that I believe Boeing will reach Break-even when 150 (142 actual orders as of today's book) 787-10's are sold or delivered.  I don't know when that will happen but, I believe this can be done well before 2021, but not by 2015 (I was wrong on the 787-10). Boeing will have to exhaust a significant portion of its order backlog through deliveries by 2015 to meet that goal (I was right on that statement). However, by 2015 Boeing will have all risks retired, and certainty of "when it will exactly meet, the profitability barrier beyond 2015" (I was right on this prediction from 2012).  A 2015 forecast for the year 2017 from Boeing, is a better forecast than this years 2012 forecast for 2015. Two years from now a solid view to the future will excite the investor, and I believe Boeing will state it will make money by 2017 (I was wrong), (not the press prediction) during 2021. A financial cushion of time would lean towards 2018. Boeing will make money on the 787 project as a whole surging past its breakeven point late 2017 (late 2016)or early 2018 (2017)."

I was wrong with my own prediction made at the end of 2012. It will be the end of 2015 or early 2016 according to this WSJ quote today.

December 12 2012 Winging It Quotes:

"However, the press and financiers will have a collective moment of throwing cautionary tales out for the reading public to sell copies, while financial people love conservative analysis sold to investors. So 2021 becomes the outer time limit for a conservative target date for profitability. In the meantime, an investor has time for buy/sell;  knock you self out selling short, buying low, or dumping stock, because the crazies are running the market during any week or two period of time. But, long term investors are far more certain of success if picking a spot now and jumping in for a smooth ride.

The newspapers will continue to chase every little dust ball found on new aircraft coming out of the factory, until people stop reading those news reports that "made them look". This battle will "continue into infinity" as in some kind of "Toy Story".

Final points: To the investor, keep your eye on two big ticket items in your portfolio analysis.
·       One, the accumulation of new Boeing orders after post A-350 introduction, 
·       and how much money airlines are making flying their 787's."

Why I was not exactly on point for the break-even timing?

Accounting notes, adjustments and deferrals for the break-even analysis often reduce the cost accumulated during production or development within a program.  Some of those accumulated cost can be applied to other programs such as the MAX, 777X, or other programs. The production rate has achieved a remarkable pace of almost 120 units a year. A feat the 777 program never could sustain. The rapid acceleration of production, the retirement of risks, and R&D cost sharing all contribute towards a targeted time for a 2015 break-even milestone where the 787 starts making money for the investor. Boeing reached its ultimate efficiency in a very rapid progression faster than I could anticipate.