Sheikh Ahmed Makes Boeing Sweat Bullets With Emirates Order

It has been a long wait for Emirates, Sheikh Ahmed to announce a mega deal for its airline. Background on the Emirates deal making can lend some insight but not a definitive outline who the Sheikh may deal out the wide body order.

Emirates to decide on Boeing or Airbus multibillion dollar order

Some history with Emirates and Airbus exist which makes it an interesting decision path. 

Emirates Cancels Airbus A350 Order

During June 2014, Emirates dropped the shoe on Airbus and canceled its entire 70 A350-900 order. It amounted a $21.6 billion Airbus embarrassment. After all, Emirates was a leading A-380 customer at this time. It has introduced 95 A-380's into its fleet with a remaining 47 Airbus A-380's on order. Emirates has a big Airbus interest muted by the A350 cancellation in 2014. The conclusion is a slight Airbus advantage before considering a waning super jumbo market dying.

Boeing, was a lady left at the order alter throughout Airbus' march into the UAE and has had a lot of time and change management on its hands since the first A-380 delivered. Boeing has since amassed 150 Boeing 777X orders, Thirty-five 777-8X and 115 777-9X. Similarly it has 139 777 classics in its fleet where the retirement for the 777 classics could coincide with its inducting its 777X order book. The 777X orders came after the Emirates A-350 cancellations. The conclusion is a significant Boeing advantage since Emirates is renewing its Boeing wide body fleet with the 777X.

The current order target is for the mid-wide body class. Emirates already passed on 70 A-350's it had locked down. Winging It assumes it was because the 777X was announced earlier and after Emirates' input regarding the design, range and 777X efficiency. 

Emirates wasn't ready for the 70 A350 it had ordered since the 777-300-ER was providing Boeing air cover for Emirates fleet requirements. It had so many A-380's on order, so cancel A-350's they did! The ordering has opened up again as the Emirate's fleet plans have matured to the point it can slot in either the A-350 or the 787 during the next 10 years. However, the A-380 is slowly turning into a Emirates white elephant causing a fleet strategy change, by using the 777X orders in its place as they retire its super Jumbo fleet over time. A note from Emirates to Airbus, "We don't want no stinking A-380 NEO". A second note from Boeing, "we rented space next to you at the Dubai Air Show". November is end of year-ish as the Sheikh could announce a mega order during the year's last quarter and still be spot on when he just announced it will be the end of the year for a wide body announcement. Enough of the announcements in one sentence.

Several have reported the deal is done and Boeing won, which makes sense when looking at fleet numbers and the A-380 descent in the market place. The A-350 is matched by the 787 at several levels. Perhaps Emirates doesn't need a 8,000 mile traveler with high density appointments. It may only need a high density traveler closer to home reaching Europe and the East as far as Perth Australia. A step up would be a 777-8X for "all" the far east destinations. Having a 787-9 order would fill any intercontinental requirements without it having to fill an A-380 with five hundred passengers. Once again the 777-9X 400 seat lay out would replace any half-filled A-380 route. The fleet combination of 787's and 777X's is a more deadly competitor than having a A350 fleet with an ailing A-380 as its stable mate. Emirates is looking for the right mixture for its fleet. Since the launch of the A-380, a lot has changed and Boeing got the memo to change and change they did. Boeing is looking down the barrel of an immense Dubai order this November as the Sheikh has indicated.

Added Value A Boeing Target

Boeing has for a long time avoided making things without wings such as avionics suites or even engines. The later mention of engines is far from a Boeing thought cycle but it has an eye for other stuff that Rockwell Collins and and Honeywell International may supply. A bold step is adding on other things to a portfolio when making high tech things like airplanes. Boeing makes military, space and other X projects too. It isn't hard to imagine them making avionics for example for its own aircraft and for others.

The manufacturer has a think tank exploring all kinds of ways it could add value to its product line. If it could make its own flight controls, or make  engines then Boeing would add value to every aircraft it sells.

It Sounds Like A 787-300 To Me

Quote coming from: 

5 Things Boeing's Management Wants You to Know

".. [W]e see route structures around the world continuing to evolve as general passenger traffic growth is occurring, in particular, new regional structures, point-to-point connectivity. That's in this 4,000 to 5,000 nautical mile range, airplanes that are in the 220 to 270 passenger range. That's the ballpark that we're looking at and discussing with customers."
-- Dennis Muilenberg

Boeing is going big with a NMA offering. The decision to build a NMA tween the 787 and the 737 has caved into other considerations such as:

Plant expansion and space availability.Technological fall forwards from prior programsRange announcement of 4,000-5,000 milesSeat Announcement from 220-270 units.Mature supply sources in place.

Boeing already has the infrastructure to build more 787 and does not have as much 737 site capacity for a NMA. It has a process in place for building all CFRP aircraft from its two sites in Everett, Wa and Charleston, SC. In fact, Charleston has more available acreage for plant expansion than Everett has on its books. In SC Boeing can buy more land where in Everett the land around its manufacturing footprint becomes more expensive and in shorter supply.

Boeing can't use all its hard gained technology in a NMA metal frame concept. The NMA is ripe for everything Dreamed of over the last 15 years and it will go CFRP on wings and body. In addition, the body design will change to an unconventional shape which is  perfect for CRFP shaping. Using older 737 Max building technology limits any future following advancements for a new type.

The former 787-300 range was set at about 3,300 miles. What Boeing has learned it can build a lighter frame going 4,000 to 5,000 miles on new technology engines. Additionally, it can connect 787 technology to a NMA better than connect the 737 Max technology going forward. Weight saving "All electric architecture" may be a selling point on the NMA. A core operating system from the 787 is more inline for a NMA than using a Max type system for a NMA.

The announced seat capacity of 220-270 suggest a dual aisle - 8 across profile. Something like a 2-4-2 would get Boeing to 220-270 passengers in a two class cabin or less. The eight across would alter the 787 hull diameter by a small increment, thus allowing NMA sections to be moved by the Dream Lifter. 

In fact Boeing has access to an abundance of 747's on the used market where it can expand its Dream Lifter Fleet by several without immense costs incurred. Charleston could build the NMA and 787-10 exclusively. Everett on the other hand would build the 787-8 and 787-9 exclusively.

Finally, the supply line would not be disrupted having only a few modifications to its requirements. A hull and wing building source would have to be identified. The engine maker may go to "the winner takes all", when awarding to only one engine maker, like the 737 has used over its years. 

The competition would be fierce among the Builders. GE, CFN, PW and Rolls are the names of the big players. Engine supplier competition is a fortunate problem offering builders a chance at a whole new engine type unlike any other. A locked in exclusive contract is what stock market values are all about. The NMA could sell 2,000 units in the first five years. This may disrupt both the single and dual aisle current stability at this time. Boeing is betting it will hurt Airbus as a whole, more than its Boeing family of aircraft.

The 787 Marches On With July Numbers

Boeing has had a solid July 2017 with its deliveries of 12 787, completing a 90 day run of 36 of its type delivered. The program as depicted in the first chart showing only at a -1 backlog change for the year , indicating a production increase to fourteen monthly units is possible. Boeing already knows what orders will unfold in the next five months. Having a twelve a month pace for the last 90 days and during the 787-10 first test copies flying, suggests preparation for 14 a month delivery pace is an already a planned production change for 2018.

Fig. 1

In figure 2 below the 12 a month delivery schedule is on track.

Fig. 2

Fig. 3 The tracker indicates 2017 a robust 787 year.

Fig. 4 Program history to date.

Fig. 5 Program 787 model balance for delivery and orders.

Boeing Cash Drives Its Stock

A Movie actor has its time in the fame. It seems like a movie made by an certain actor becomes successful no matter the theme. It also seems the actor's run at stardom will never end. Then without any kind announcement the star actor fades almost over night. Nobody really know why this phenomenon occurs. I remember back ten years ago when Julia Roberts made a movie she made $20 million and was the highest paid female actor in the business. She was a cash kind of person. Her stock in movie making was the highest. But what happened? Julia no longer pushes out movies every year but remains a much loved actor by all kinds of movie goers.

Boeing is a cash kind of entity, will they repeat the profile of a superstar and fade as fast as it comes onto the scene? Fortunately a business is the kind of entity that must reinvent itself every so many times it comes to market. Julia Roberts can't control the scripts offered nor her age changing the audience appeal. Boeing too can control what it is and appeal to an ever fickle aviation audience. Thus bringing back a full circle of cash driving Boeing stock valuation.

Boeing's second quarter 2017 just reported the best quarter since 2009. Its stock value is driven by cash infusions from sales. The definition of a Boeing sale is an airplane delivered and does not reflect an airplane ordered. Going back to production numbers becomes a critical determiner for cash flows. The mix of product delivered is the the secret of Boeing's cash. If producing and delivering less aircraft than last year an entity would expect a lower cash receipt account. Boeing played some tricks on the way to the bank. It delivered aircraft which made more money when recognizing a lower cash received  trend  based on units delivered.

CNBC Quotes:

"Monster cash flow," said analyst Robert Stallard at Vertical Research. The results were "about as close to perfect as it gets from Boeing," he added."

"Boeing has cut spending aggressively by streamlining production, reducing payrolls and winding down development costs. Its 787 Dreamliner contributed about $530 million in cash in the quarter."

If repeating a 1/2 billion cash quarter every quarter, it won't be long before Boeing pays back all its developmental markers enough to reinvent itself again.

Boeing refuses to be a retiring starlet, It's in it to win it!

The trend line has an arrow tip pointing right at a NMA type. The ducks on lake Washington are lined up in a row. Research the market, find launch customers, and find cash to build it. Boeing hired a administrative assistant only to make check marks on its lists of things-to-do which is finally checked-off after the recent 2nd quarter reports.

Since Boeing has controlled its production costs and has an over abundant backlog of aircraft on order, Its a matter of executing its plan without interruption. This only takes time and the outlook ahead says Boeing has already stocked up enough time to improve all its production metrics. The 787-10 is a matter of time as is the 777X. Boeing has learned how to complete a plan as it had learn with the 787 program. The Max program is the symbol of completeness for its single aisle offering. Its competitor in that division has a major engine nightmare. Boeing took its lesson many years ago when it found CFM to do the job with immense reliability for the 737 program. Now Airbus has stalled its big idea for two engines choices for its A320 NEO. The P&W gear driven engine is in some refinement trouble and backs the Airbus delivery goals off a bit thus strangling its cash flows opposite of what Boeing enjoys at this time.

Almost a 1,000 days later Airbus delivers 100th A350

One metric is aircraft production. In the same amount of time for producing wide bodied aircraft the question remains what is the difference between Airbus' A350 and Boeing's 787?

Here is the raw data based on Airbus 100th A350 delivered today July 27, 2017, which happens to mark 955 days later from its 1st A350 delivery.

What did Boeing do with its first 955 days from the 787's first delivery?

Last year, March 2016, was a Winging It blog

which illustrated where the two programs were at about 500 days out from first delivery. Boeing had the lead with 50 787's and Airbus with 16 A350's in about the same amount of production time. Boeing's production margin in 2016 was 34 units ahead of Airbus during the same length of time in days comparing both productions effort. However, Airbus has since picked of the pace as it delivered its 100th A350 today, July 27, 2017. It now lags Boeing by 41 units built during its first 955 production days. Airbus only lost ground in the last production period since March 2016 by 7 units. Boeing produced 141 of its 787 in the same number of days Airbus had when it reached its 100th A350 delivered today.

Implied, Boeing 787 Deferred Costs Have Run Out Of 787's (Updated)

A complex subject indeed. A blog is no match for the topic of Boeing's deferred costs from its 787 program. The first point is defining what the beast is and the second is how much has the beast devoured of Boeing's profit margin. Finally, Bloomberg wrestled the topic in 2016.

During 2016 Bloomberg estimated that Boeing moved a total of $32 billion loss into an accounting pit which would not affect its annual profit loss statement. In essence, the $32 billion Boeing spent on its 787 program is set aside as a deferred cost to reach a zero balance at a future date. Boeing says, "when the 1300th 787 is delivered". Currently Boeing stands at 575 787 delivered. It has booked 1,275 787's. Boeing has estimated it will pay for the program by the 1,300th 787. It should exceed 1,300 orders by year end 2017. But most certainly reach the sales goal during 2018 without concern.

Therefore 1,300 delivered 787's minus the 575 already delivered gives Boeing about 725 units to pay off the remaining estimated $27 billion deferred costs. The $27 Billion is a debated number which would take another thousand pages of technical text book writing to nail it down. So an estimated $27 Billion deferred cost number is for Boeing to explain to investors.

Boeing started making money on each delivered 787 during 2016 and has since profited a little for each 787 delivered since that recognition of per unit profit. Unit profit is not a program accounting element. However, going from $32 Billion down to $27 Billion deferred costs is a $5 billion reduction of that type of cost.

What is the deferred cost beast? The accounting theory takes a journey from 787 program inception to eventual profitability. Accounting does not match a delivery with the programs total debt at the time of each delivery. Unit Accounting Example; If Boeing had spent $10 Billion getting to its first units delivery then the first unit would recognize a $10 billion loss at delivery. As the program goes forward with real time delivery, it also incurs additional R&D costs during the program's journey. In March of 2016 Bloomberg asserts a $32 billion cost hole, but Boeing had already delivered about 400 787's when the deferred cost account topped out at with Bloomberg's estimated total. 

Defining the deferred costs beast comes from program accounting theory. The program someday will deliver 1,300 787's at which time will have paid off all cost set aside on its books. Boeing looks at the over-arching accounting block of the program and not a unit by unit chiseling away of debt with each 787 delivered. Program accounting does not know at any given time what additional cost may arise, but does know with some certainty when a program matures to profitability.

Winging It 787 program status March 2017:

The units Boeing has yet to deliver going forward must contribute with each delivery towards a reduction of debt and Boeing bets it will do so by unit 1,300.

The $32 billion dollar hole has shrunk by $5 billion with its last 175 787's delivered. This indicates for every one 787 delivered it reduces the deferred cost amount by about $28 million per unit. With 725 units expected in the its current accounting block that pace suggests Boeing can reduce about another $20 billion of its $27 billion money pit when it reaches its 1,300th delivered.

Boeing has other ways of reducing its programmed deferred cost. It is making more money per unit over-all than last year profit making metric. 

Additionally, the 787-10 will contribute a lot more profit dollars per unit than the 787-8 or the 787-9. 

Finally, Boeing has taken an aggressive production cost reduction on plant assembly through efficiency, which allows a smaller cost for each unit delivered. 

This is an ongoing Boeing production efficiency program with no ending during the 787's production lifetime. Boeing hopes to increase its per plane profit from $28 million upward to $37 million per unit from this day forward. Boeing needs to find an additional $9 million per unit in order to meet its block accounting goal of 1,300 units.

Boeing doesn't reveal airplane prices during a sale and it is estimated the average sales prices is 51% of actual list price. It is much like a window sticker price on a new car. Nobody pays sticker. The Airline industry does not pay a list price. 

Before break-even analysis can be reported, the variable and fixed costs are identified per unit delivered. Boeing has not publicized its cloudy trail of costing for the 787 program. That is needed for further analysis in order to isolate its contribution margin per unit. How much does each unit's profit contribute during the length of time during its program? 

Boeing set the length of time by 1300 units delivered where its program debt will be extinguished. The 1,300 unit block is not a break-even even point. The program debt set aside as deferred cost becomes a program pacing method as costs are added and production efficiency value reduces its debt-set-aside during the program execution. The 1,300th unit is an estimation from out of its production of an intersection as a zero balance is achieved with its deferred cost account. 

Points to Ponder:

• On-going production costs are part of break-even analysis.

• A per unit profitability is a source for paying down any Boeing liability.

• Unit profitability is a margin between sales price and production unit costs (using variable and fixed cost accounting).

• Deferred Costs reduction is a "use" identified when "sourcing" production profits for its reduction. 

It Had No Stealth It Had No Counter Measures

Want to blow some treasury change then fire missiles and take out a US Reconnaissance Aircraft. It was just after the Vietnam war conflict. Pilots came to an airshow featuring the SR-71 and a question came from the crowd. 



Were you ever or almost shot down flying over Vietnam? 

One pilot had a wry smile and said no! He did elaborate further with his closest call in an SR-71 on recon patrol over North Vietnam. 

He elaborated, "The adversary has a devastating weapon nicknamed the SAM missile or Surface to Air Missile. Pilots would often refer to them as flying telephone poles. The closest call I had was during one such flight as my radar picked up a pack of flying telephone poles coming at the SR-71. Having no defensive countermeasures, our training said to put the pedal to the metal engaging afterburner mode. 

Was I endanger? Yes, and no. Yes because they were entering my flight level and no it was the SR-71 which did not have stealth or needed it back then. It had exceptional speed as the brochure indicates that of Mach 3+. The brochure is correct it does go Mach 3+ but fails to define what the plus stands for and that that is only known by a few on the ground or in the air. I hit the "plus throttle" and watched in amazement how blips on the radar dropped off the screen. The SR-71 flew almost through China before I turned around and came back for refueling."

In 1971 there was speed before stealth as an SR-71 flies faster than a speeding bullet. These many years later the U.S. has had almost sixty years to make something more advanced in every aspect to the SR-71's capabilities. Satellites and newly developed drones are replacements for the SR-71. Does the US need a vastly improved version of the SR-71? NASA had its hands on a few since the 1990's. A futuristic SR-71 would skip off of space and back to the atmosphere for look at the ground. No need for a fighter jets going that fast because missiles would carry the "fight load" going faster than even a ramjet. If speed is the combative determiner then no pilot would be needed in the air frame. The pilot would be in some basement complex at a military base near you. 

The last sixty years of black projects the industry has moved the standard into new realms where the SR-71 remains a modern marvel made by people before computers were available.

United Airlines May Be Deal Making Its A350's Away

After pondering the United Airlines dilemma of what to do with its 25 A350-900's converted to A350-1000 and another 10 A350-1000 it had ordered, an idea came forward. The total book value of the two orders equals $12.6 billion at list prices. The total order contracts are estimated for about $6.3 (50% of list) billion for which United is on the hook for and it would like to move forward with another plan. Its 747-400's are in need of retirement and United is back filling the jumbo with 777-300ER's. So far the tally is eighteen 777-300-ER purchased to four A350-1000's delayed, moving those back to a later date for delivery.

The smoke signal is plain. United  has other plans for its planes. How can United get out from under a long standing order without financial mishap?

• Trade out $12.6 billion in orders to other airlines.
• The trade out may amount to $6.3 billion in actual United contractual book orders(based on 50% of list price).
• Seek out A350 customers who need an Airbus build position
• Seek out Airbus customers who would agree in a three way deal with Airbus for other types.

The above short list can get more innovative as time marches on. United has signaled a bailout on its Airbus wide body orders with the four delayed A-350's and more 777's taken into United's fleet. The game is afoot with its unwilling Airbus partner, but having some victory is better than no victory for Airbus.

The log jam starts with slow A-350 sales in the market place, and then a slow production start as compare with Boeing's own problematic 787 start-up. United may have to rely upon Airbus customers trading for a mix of single aisle A320-321's, A-330's and A-350's which takes time to arrange equaling about $6 billion in trade on United's books. That number represents a lot of single aisle, like a 117 of the A-320's ordered by an Airbus customer at list price. United must find both A-320 and A-350 customers to get out of order hell while convincing a not so happy Airbus to go along with this type of suggestion. It is not known at this time what it would cost United Airlines just to burn its order up it has from Airbus. 

There lies the United conundrum, whether to trade away orders with others in a three way deal with Airbus or just pay Airbus some agreed upon amount for dropping the Airbus order.

Another United option is sale and leaseback for its 35 A-350 on order and then cut away leases one by one as its 747 fleet ages out. This would be over a decade worth of selling to lessors and leasing back its A-350's over time. United must have a fleet plan for such a leaseback strategy. It would eventually cause a Boeing back-up on 777 delivery and handcuff United options into an Airbus wide body fleet. 

A permanent solution is selling its A-350 order to other Airbus customers at United contract price with Airbus. This last option is what United Airlines could be doing, and it maybe why they are incrementally pushing back delivery times like its first four A-350's it had ordered.

Beyond Approach Or Compare Is The F-35

5^th Generation departs from flying as a combatant and becomes a platform for deception and delivery. Russia declares superior horsepower from dubious engine reputation and a world’s best dog fighter claim. If this was World War II then what Russia makes of it is that it has a dog fighters chance, becoming a valid Russian claim. 

The Russian Su-35 or its unfinished PAK T-50 is possibly not 5^th generation. Fifth generation is not designed as an improved dog fighter but an aircraft that has the best super computer installed. The American F-35 has stubby wings and a powerful engine surrounding its computers. The dog fight or attack is fought in cyber space and Lockheed brings computers to the battle. Out of tradition it mounts a fighter pilot in a cockpit, so the pilot can monitor systems which are monitored by satellites and ground installations back the helmet.

The next time a glitch is reported in a long line of F-35 problems a sense that firm-ware or software lies beneath the problem. Because the aircraft works at computer speed and not Mach 1.6.  Pilots sometimes suffer hypoxia or lack of oxygen to the brain. This is a signal the human has not caught up to what the F-35 can do. The Russian pilot is subjected to extreme dogfight conditions as well. The Su-35 is some trick pony dancing about the sky waiting to find its incoming dance partner, a missile. 

If war became a rock fight, then the Su-35 is a marvelous dodger of rocks. If war becomes serious, then the F-35 is more deadly in a turkey shoot and the Su-35 becomes the turkey after coming from its airshows.

Can other nations duplicate American technology and its Research and development engine? The F-35 journey started over 15 years ago and possibly started in the 90’s. The concept is an open challenge not constrained by conventional thinking. The Russians and Chinese have gone down two different roads. 

The Russians choose to build superior dog fighters. 

The Chinese are emulating the F-35 at every turn. Remembering how the US industrial complex can’t figure out what it has done with the F-35, it seems hard to believe the Chinese have duplicated or exceeded America’s unrefined F-35 technology currently tested and delivered at its Initial Operational Capability (IOC).

The problem with the F-35 is that it is a twenty year project before IOC. However, the current plan is for a ten year IOC which falls short of time for how much the US is biting off with its 5^th generation fighters.

A 4+++ generation fighter is a superior dog fighter but the fifth generation fighter is a wicked adversary that remains unseen and fights before a dogfight starts, hence no need for Mach 2.0 or stunt maneuvers Russia is perfecting. Jet speed and maneuverability is not fifth generation. Computer speed and system management is the fifth gen. battle space. 

Lockheed calls it fusion with six eyes and a dozen computers or more. The pilot is there out of a traditional belief a pilot is needed to hook its brain into a helmet and becomes a vital link in its operation as its computer waits for a pilot input.

Fifth generation is not a reflection of traditional fighting because it attacks without the Marquis of Queensbury rules. Go fast enough, go long, and then shoot when invisible from any searching electronics as an undetected assassin. The theme of warfare has changed and so the chest thumping becomes a trite example of gen. 4++, or also known as a superior dog fighter. True fifth generation is not a dog fighter it is an assassin with all the bells and whistles. China can’t steal that attribute fast enough just as America can’t fix it fast enough on its F-35's.

War makes pressure which makes diamonds. The American industrial complex is in the money making mode and it is not pressurized by war. Therefore, the F-35 initial capability seems like a lump of coal awaiting a catastrophic pressure for its true purpose, that of a diamond cutting tool of war. The only saying worthy of its current condition comes from Grecian ancient times. “The mills of the Gods grind slowly but oh so fine”.