Boeing actually built hundreds of aircraft for years, without receiving any delivery money. The restart of the deliveries of the Dreamliner is now over, and in this analysis we look at the financial importance of this. Boeing customers are usually very satisfied with the performance of the 787, but the aircraft manufacturer 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 parts supply chain. Boeing works with a valuation method in which 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 balance sheet. Before the problems with the Boeing 787 manifested itself in 2020, this part of the balance sheet was already several billion dollars.
Large stock
At the time of the supply shutdown, Boeing closed the Dreamliner production line in Everett and construction of the type was concentrated in Charleston, at a slower pace. Still, during the supply freeze, Boeing built an estimated 120 aircraft, which 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 aircraft Boeing has in storage as a very large potential cash flow that can be used to deleverage. That image is not quite right. Investors often look at the list price of aircraft without considering the actual market value and the translation into delivery charges.
It is not known exactly how many aircraft of each model Boeing has built but has not yet been able to deliver, but in our calculations we assume a mix that is comparable to the delivery mix in 2019. The catalog value of the undelivered aircraft would therefore be 35. .8 billion dollars. Given that Boeing is in debt of $57.7 billion, it seems that with a return of deliveries, the company could pay off nearly 60 percent of the debt. However, this is not the case.
Customers never pay the list value and often get discounts of 50 percent or more. The actual value is therefore between 16.3 and 17.7 billion dollars. According to calculations, a maximum of 31 percent of the 60 percent remains. In addition, the market values do not reflect the delivery money that Boeing receives when a delivery takes place. In the run-up to the 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. It is that amount of 5.6 to 6.9 billion dollars 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 the deliveries and how much is actually left after the costs have been deducted. This is because Boeing is currently losing extra money due to the low production numbers and the inspections and repairs to the Boeing 787.
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The aircraft manufacturer estimates this amount at about 2 billion dollars, of which more than 1 billion may remain open after the first half of 2022. If we also deduct this amount from the delivery funds, we are left with 4.5 to 5.9 billion dollars. In addition, Boeing set aside 3.5 billion to compensate customers for the delayed deliveries, leaving below the 35.8 billion mark 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.
bright spots
Despite the minor role of the Boeing 787s already built to reduce debt, there are also bright spots. Delivering the 120 planes will be a slow process that could eventually 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 mail, which can be seen. as a debt to the customer until the aircraft is delivered. Bottom line, Boeing’s corporate balance sheet will therefore improve. In addition, a resumption of deliveries also means that Boeing can ramp up production of the 787 again, generating revenues that Boeing can use to reduce debt.
Stock must be reduced as soon as possible
Conclusion
While investors have high hopes for the restart of Boeing 787 deliveries, calculations show that the 120 planes already built on paper don’t add much to pay off the skyrocketing debt. It is true, however, that the aircraft that will roll 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, therefore, its ability to repay its debt. The importance of the return of the Boeing 787 is therefore particularly great.
This is a full rendering of the article that appeared in July in Luchtvaartnieuws Magazine. Do you always want to be the first to read the background articles, Then click here and become a member now.
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