Deferred Costs And Boeing's Dreams

Deferred cost is a noted Boeing contrived concept in program accounting. It takes so many billion to develop an airplane. In Boeing's case it spent about $30 Billion more developing the 787 than it had, so it programmed how many 787's it needed to build in order to pay-off that 30 $$ billion debt it had incurred. It also adjusts the number of production models it needs to build to pay for an ever expanding production debt as technology is developed and introduced to that aircraft. Kind of like a line of credit on its credit card.

Boeing needed about 1,100 of its 787 delivered to pay off this deferral of debt. Where each airplane it delivered was more efficiently built thus allowing more money available to pay down deferred 787 cost with each airplane it had built. However, the 787 incurred more debt greater than its production efficiency, so it had to increase the projected 787's it needed to deliver to reduced the deferred cost to a theoretical zero balance when delivering oh let's say 1,200-1,300, or 1600 hundred 787s. 

Each of those deferred costs broken down into units delivered while its benchmark kept increasing as the aircraft matured as the production cost increased because technology improvements were added as its development costs increased for those improvements. It's like a dog chasing its costs tail. Is 1,600 units the ultimate deferred cost benchmark? That answer remains to seen as Boeing has not yet sold 1,600 units and for what price going forward. I would speculate to say Boeing will sell enough 787 to past 1600 units but it will also take another five years to extinguish its 787 deferred development cost for the 787. The year 2025 is a more doable time frame for investors unless Boeing gets more significant breakthroughs on build costs through material efficiencies or equipment development.

Always improving is a cost factor that can be derived from from historical data. It can be a cost component factor turned into a quantifiable number as a forecasting component. Also sales or commitments is a number in the same position. It can be factored in a forward looking estimation from global history and commercial trends. Somewhere in between lies the fact. So a computer guess is needed to surmise where Boeing will reach its deferred costs nervana of zero balance after the (nth number) of units are delivered and revenue is realized for each unit against its actual current production cost.

There are two costs before the margin is establish. One portion goes towards the deferred balance and one towards the actual production of an aircraft. Once the aircraft is delivered, the accounting flows can continue through the accounting programs at an actual rate where deferred costs are actually reduced and a profit margin outside the deferred cost is applied. It becomes a tangled view of when
real value is recognized for the 787 program by investors. It is probably safe to say, investors must make money with Boeing during the near term investment cycles of stock values and during value increases or decreases. Investors may wait another five years for making money on the long term program completion from program Investment cycles. 

I am not a stock analyst and do not make recommendations for stock purchasing. I only guess like the next person what may happened in the "market place". So invest at your own capability, means or risk. 

Boeing Oust Muilenburg As Chairman

Another Max crash at the top of Boeing is a long awaited Max purge has begun, Muilenburg is no longer board chairman but has been relegated to CEO. Boeing must reinvent itself as a renaissance kind of corporation and build something flawless and immune from the critics looking for dust balls floating about Boeing fortunes.

Dennis Muilenburg looks ahead

Chairman to CEO is a preliminary round to spending more time with "your family" rather than "spending more money in time". Boeing has finally cried "UNCLE"! The time has come to start the journey down the beanstalk picking off golden parachutes hanging like low hanging fruit off its limbs. Boeing is making a turn away from headwinds and now will run with the aviation surge if one can be found.

Boeing must have one keystone aircraft to build a new perception about its ability to provide an aircraft everyone desires. Two crashes of the Max has brought Boeing in a face to face confrontation with its maker. Its customer and not the stockholder. Boeing is to big to succeed! It must reach for its trim control and now fly its aircraft like a seasoned pilot before it too crashes.

Boeing Blinks: Reengine Recycle 767

The US military chose the 767 for it tanker model going against the A330 so there was something in the sauce Boeing provided the US Military tanker program that goes beyond the A330 than just money and convenience the A330 couldn't offer.

The 767 is a good airframe. Now it is considering rengining the 767 with GenX type engines leaving PW behind to sort out what happens next. The PW engine is listed Two Pratt & Whitney PW 4062 with 62,000 lbs. However, GE has been developing its own class of engine for the 777X and 747 8 projects thus pumping billions into R&D into its behemoths for sometime far outpacing PW expenditures on similar class jet engine like the PW4062.

Now come the 797 proposition from scratch white paper. It's too expensive and late to compete with the A321 class of extended range gap filler. Boeing sees something out of the Airbus playbook that has quickly made it more powerful than Boeing's marketing effort. The NEO is working in the market as we speak. Boeing may divert using the 767 frame and attaching GE engine technology to its frame. It would use the 767-400 configuration and perhaps call it the 767-8i and 8F. It would be bigger than the 797 and fly further but could fit into continental market places well when flying to LA to NY as an example. Boeing needs to make it efficient for 1,000 - 5000 mile range and it will compete with the A330 and buy time for the 797 concept to evolve monetarily. 

What must Boeing do: 

• Improve 767 build technology. Done that! 767, (KC-46 program)

• New GEX engine. Done that!  (GE can provide a scalable engine  from its GEX program

• Have a short development cycle for minimal costs. Set up for that!

• New 767 wings. Done That! (It has a new wing plant in Everett, Washington awaiting more work in its space and a 767 wing could be slotted in in a short amount of time. It already has wing designs ready to go based from its 787 and 777X programs.)

• Plane Size: Done that!

• Passenger amenities. Done that! (from all its family of programs and supporting suppliers eager for expanded business.)

• Commonality. You complete me theme from its family of aircraft.

• Customers. A Works in progress! It is the tipping point for making this business case. Does Boeing have a strong and risk-averse business case for its customers? Can Boeing make 1,000 orders from the NEO 767 idea? That all remains to be seen.

Job one. (Win customer trust back and kill the Boeing Golden Parachute mentality.)