Boeing commercial aircraft discounts (update for 2010)

Boeing released 2010 results last Wednesday. The company reported revenues in excess of 64bn$, 462 commercial deliveries and 530 net orders for its commercial aircraft. All these were widely reported by the media.

Last year I wrote in one post what was my estimation of Boeing discounts. In this post I wanted to update, if necessary, the figure I calculated for the average discount Boeing applies in its commercial aircraft in relation to the published list prices.

Most of the necessary information can be found in its website. Boeing list prices can be found here. With these list prices, the updated average list price per kg is now ~1,750$ (find the post I wrote last year about this).

The number of gross and net orders (after cancellations) year by year can be found here. Last year deliveries can be found here.

As in the post of last year:

  • I needed to make one assumption: new orders come with a 3% down payment in the year of the booking, while the remaining cost I assumed that was paid on the year of delivery (for simplicity I didn’t consider more intermediate revenue recognition milestones linked to payments, the 3% figure was taken from the AIAA paper “A Hierarchical Aircraft Life Cycle Cost Analysis Model” by William J. Marx et al.).
  • I also needed to estimate the figure Boeing Commercial Aviation Services revenues: the figure I have used is 2.5bn$ [1].

Having put all the figures together, the calculation is immediate. Boeing Commercial Aircraft revenues are the sum of:

  • the discounted prices times the delivered aircraft in the year,
  • less the down payment of the current year delivered aircraft, as the down payment was included in previous years results,
  • plus the down payment of current year net orders,
  • plus services revenues.

The discount figure that minimized errors last year was 38%. Using this figure, the error obtained this year in relation to Boeing Commercial Aircraft reported revenues is 2.8%. A little higher discount would reduce the error; the best estimate is now 39% (being the errors in revenues of: 1.3% for 2010, 1.45% for 2009, 1.7% for 2008 and 1.02% for 2007).

Thus, the updated discount for Boeing commercial aircraft is 39% (!). The price of Boeing aircraft per kg after the discount is then ~1,070$.

***

[1] The error in the estimate of the services revenues is negligible when calculating the magnitude of the discounts: an error of 1bn$ up or down in the figure used affects the error in the estimate of the discount in only 3%; or another way to see it: an error of 1bn$ up or down in the figure used for services would impact the discount value in just 2% to obtain the same error, e.g. 36% instead of 38%.

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11 Comments

Filed under Aerospace & Defence

11 responses to “Boeing commercial aircraft discounts (update for 2010)

  1. Actually down payment is 1%. There are progress payments at set intervals of 3% to 5%, so that by delivery 30% of the airplane has already been paid for.

  2. Thanks for your comment, Scott.

    With these figures you mentioned I could play with the model and see what result I get. Nevertheless, it wouldn’t necessarily provide a more accurate result as I would need to take more assumptions: e.g. how many of these intervals fall within a same fiscal year (for the purpose of the analysis would be treated as a single figure), I don’t have an aircraft allocation matrix from Boeing a/c (e.g. single aisle have a backlog of years while 767 or 747 not) so the how to relate aircraft sold in say 2009 with when would the deliveries take place would be another estimate, etc… would be more complex.

    I used the other figure 3% because it appeared in a public source, as I don’t have inside knowledge from Boeing and don’t write about Airbus for obvious reasons. I take that the figures you mention come from contacts with customers that you may have as the discounts that both Aboulafia and Monitor showed in your article, I don’t have those.

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