Boeing actually built hundreds of planes for years without receiving any delivery money. The resumption of deliveries of the Dreamliner is now over, and in this analysis we look at the economic significance of this. Boeing customers are usually very satisfied with the 787’s performance, but the plane maker paid a high price for this. The use of new technologies and materials caused production delays, which were exacerbated by the use of a global spare parts supply chain. Boeing works with a valuation method where the profit is not calculated per aircraft, but over batches, so that the aircraft manufacturer calculates an average profit per aircraft at the time of delivery of an aircraft. If the actual profit is lower than the realized revenue, Boeing includes this in the company’s balance sheet. Before the problems with the Boeing 787 appeared in 2020, this part of the balance was already several billion dollars.
At the time of the supply shutdown, Boeing shut down the Dreamliner production line in Everett, and construction of the type was concentrated in Charleston at a slower pace. Still, during the supply shutdown, Boeing built an estimated 120 planes that it was unable to deliver to customers. As a result, Boeing incurred the costs but was unable to receive the delivery funds for the aircraft.
Investors are now looking at the large number of planes that Boeing has in inventory as a very large potential cash flow that can be used to downsize. That picture is not quite right. Investors often look at the list price of aircraft without considering the actual market value and the translation into delivery costs.
It is not known exactly how many aircraft of each model Boeing has built but not yet been able to deliver, but in our calculations we assume a mix comparable to the delivery mix in 2019. The catalog value of the undelivered aircraft would therefore be 35. .8 billion dollars. Considering that Boeing has a debt of 57.7 billion dollars, it seems that with a return of deliveries, the company can pay almost 60 percent of the debt. However, this is not the case.
Customers never pay list value and often receive discounts of 50 percent or more. The actual value is therefore between $16.3 and $17.7 billion. According to calculations, there is a maximum of 31 percent left of the 60 percent. In addition, the market values do not reflect the delivery money that Boeing receives when a delivery takes place. In the run-up to production and eventual delivery of an aircraft, customers make so-called pre-delivery payments to Boeing. The remaining amount is then transferred at the time of delivery. That’s the $5.6 billion to $6.9 billion that Boeing has yet to receive from customers. In theory, this could pay off 10 to 12 percent of Boeing’s debt. But even this amount does not yet reflect how much Boeing can ultimately expect at the time of deliveries and how much is actually left after costs are deducted. This is because Boeing is currently losing extra money due to the low production numbers and inspections and repairs of the Boeing 787.
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The aircraft manufacturer estimates this amount at about $2 billion, of which more than $1 billion may remain open beyond the first half of 2022. If we also subtract this amount from the delivery money, we are left with $4.5 to $5.9 billion. In addition, Boeing set aside 3.5 billion to compensate customers for the delayed deliveries, leaving less than 35.8 billion after discounts, market value, cash flow translation and costs. This means that only 1.5 to 5 percent of Boeing’s debt can be repaid. It should be noted here that not all costs and compensation will result in a negative cash flow, and that the picture will change further in a negative way if suppliers also have to be paid.
points of light
Despite the minor role that the Boeing 787s are already built to reduce debt, there are also bright spots. Delivery of the 120 aircraft will be a slow process that could ultimately take two years or even longer, but with each delivery Boeing will be able to write a piece of inventory on its books and also the progress billing email that can be seen. debt to the customer until the aircraft is delivered. Bottom line, Boeing’s group balance sheet will therefore improve. In addition, a resumption of deliveries also means that Boeing can ramp up production of the 787 again, generating revenue that Boeing can use to reduce debt.
Stock must be reduced as soon as possible
While investors have high hopes for the restart of Boeing 787 deliveries, calculations show that the 120 planes already built on paper do not add much to pay off the skyrocketing debt. It is true, however, that the aircraft rolling out of the factory at current production rates and later at increased production rates will be a significant addition to Boeing’s cash flow and thus its ability to repay its debt. The significance of the return of the Boeing 787 is therefore particularly great.
This is a full reproduction of the article that appeared in Luchtvaartnieuws Magazine in July. If you want to always be the first to read the background articles, click here and become a member now.