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My forecast of Boeing Commercial Airplanes 2015 revenues

Last year, I put the model I use to estimate the discounts applied by Boeing on the sales of its commercial aircraft to the test of trying to forecast in advance what would be Boeing Commercial Airplanes division revenues for the year. In this post I want to repeat that exercise (1).

The latest estimate of the discounts that I made, in 2015 yielded a 47% (same as the previous year). See here the post in which that estimate was explained (using Boeing’s reported figures of deliveries, orders, list prices and revenues) and below its evolution.

 

Boeing Average Discount Evolution, through 2014.

Boeing Average Discount Evolution, through 2014.

As of today, January 11th, Boeing revenues for the full year 2015 have not been announced yet. Boeing’s investors relations website informs that the 2015 earnings conference call will take place on January 27th.

The process and sources with which I will reach to my forecast are described below:

  1. See here Boeing (net) orders for the year 2015: 768 aircraft among all models.
  2. See here Boeing deliveries in the year 2015: 762 aircraft among all models.
  3. See here Boeing 2015 list prices.
  4. See in the above curve the average discount I will use: 47% (this is the figure calculated with 2014 data, and that is a hypothesis that will be put to test with how accurate the forecast turns out).
  5. See here [PDF, 839KB] Q3 2015 earnings press release. I use it to see how were faring in 2015 Boeing Commercial Airplanes services, deducing it from the reported figures of Sales of Services, Boeing Capital and Global Services & Support, reported in different pages of the release. Up to end September 2015, the services figures were increasing in comparison to 2014 figures. I will assume the global figure to follow the same proportional increase; arriving at ~1,636 m$ for Boeing Commercial Airplanes services (remember, this figure will not be actually explicitly reported).

With all these ingredients… my forecast is: 66.98 bn$ (2).

In the 2015 Q3 report you can see Boeing’s own guidance for year-end figures:

Boeing’s 2015 Financial Outlook at Q3 2015 earnings press release.

Boeing’s 2015 Financial Outlook at Q3 2015 earnings press release.

Some comments:

First, you can see that my forecast (66.98 bn$) is about a billion dollars more optimistic than Boeing’s own outlook 3 months ago, 65.0-66.0 bn$  (3), which was even lifted from 64.5 – 65.5 in the 2015 Q3 earnings release.

Second, in the 2015 Q3 release, you can see the revenues up to end September (below). In them, you can see that up to then, revenues of Boeing Commercial Airplanes had increased 16% in relation to 2014. My forecast is a bit less optimistic here for the year-end as it estimates the increase in revenues will be +12% (that is due to lower deliveries in the Q4 of 2015).

Boeing Commercial Airplanes revenues Q3 2015.

Boeing Commercial Airplanes revenues Q3 2015.

Final comment: if Boeing managed in 2015 to command better prices on delivered aircraft, the figure will be even higher. If the figure is lower than the 66.0 bn$, and in line with Boeing’s Outlook, it’ll mean that the market is forcing Boeing to apply ever higher discounts to their published list prices.

I am now looking forward to January 27th and Boeing’s earnings call!

Note: After Boeing’s earnings call, in order to compare the results with the forecast and evaluate its accuracy I will either write an update of this post or a new entry.

(1) See here the post from last year, in which I missed the revenues by just a 0.3%, closer than analysts and Boeing’s own financial guidance provided in their 2014 Q3 earnings release.

(2) To be more precise the forecast from the model is 66,978 m$.

(3) As I mentioned in last year’s post, if my forecast turns out correct some may be tempted to say that this is the usual trick played by CFOs: to present better figures (in the results) than expected (in the outlook).

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Boeing discounts detailed calculation, 2014 vs. 2013

Last years I have published in the blog  some posts (1) dedicated to show what was my estimate of the average discount Boeing applies to its commercial airplanes. I included in those posts the rationale used for the calculation. Find here the post related to the calculation of the discount based on 2014 data of Boeing Commercial Airplanes revenues, deliveries and list prices.

In 2014, I included in another post a simplified table (2) with the calculation comparing 2013 simplified result versus 2012. In this post I wanted to update that table with 2014 figures in comparison to those of 2013:

Boeing discount detailed simplified calculation: 2014 vs. 2013.

Boeing discount detailed simplified calculation: 2014 vs. 2013.

In the table above, you may find for both 2014 and 2013 Boeing reported deliveries per model and Boeing published list prices per model (3) and Boeing Commercial Airplanes reported revenues.

What is then estimated? Boeing Commercial Airplanes services revenues (these are deduced from financial reports reported information), Boeing Commercial Airplanes platforms revenues (derived from the previous figure) and the average discount; this is calculated from the difference between estimated BCA platforms revenues and what should have been that figure had the airplanes been sold at list prices.

Results: average discounts of 46.3% in 2014 and above 46.2% in 2013, though nearly the same.

(1) Find here what is becoming a “body of knowledge” on Boeing discounts: estimates calculated for 20142013201220112010 and 2009; a review of the French portal Challenges.fr of aircraft discounts prior to Le Bourget airshow of 2013; aBombardier’s CEO statement on what is known in the market as the Boeing discount; Boeing Commercial Airplanes president Ray Conner speaking about the more aggressive pricing they are being forced to offer.

(2) I refer to this table as “simplified” as it excludes from the calculation the potential influence on yearly revenues (note, not cash flow) of down payments linked to orders received in then-year versus orders received in previous years for aircraft delivered in then-year.

(3) Two assumptions are needed: 737-800A transfer prices from BCA to Boeing Defense Space & Security for the P-8 (for simplicity assumed to be the same as the 737-800 price) and for the 737-based business jets (for simplicity assumed to be the same as the 737-900ER).

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Boeing commercial aircraft discounts (update for 2014)

Few days ago, Boeing released 2014 results [PDF, 838KB]. The company reported revenues of over 90.7bn$ (59.99bn$ for the Commercial Airplanes unit), 723 commercial deliveries and 1,432 net orders for its commercial aircraft. All these were widely reported by the media and mean a great year 2014 for Boeing (with increases in these metrics from 6 to 12%).

Last years, I wrote in some posts (1) what was my estimate of Boeing discounts: the relation between what is announced by the press, what appears in its list prices and sometimes as backlogs and what it is indeed computed into the profit and loss account. In this post I wanted to update, if necessary, the figure I calculated for the average discount of Boeing.

Most of the necessary information can be found in its website. Boeing list prices can be found here.

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

Last year deliveries can be found in the report of financial results (or here). From there we can also deduce the figure of Boeing Commercial’s sales of services. That is not directly reported but can be deduced (all Boeing services-related sales are reported as well as Boeing Capital Corporation division and Boeing Defense’s “Global Services & Support” unit)

As in the previous years’ post:

  • 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.). (2)

Having put all the figures together, the calculation is immediate. Boeing Commercial Aircraft revenues in 2014 (59.99bn$) are the sum of:

  • the discounted prices times the delivered aircraft in the year (including possible penalties from delays),
  • 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 (this year’s calculation includes 737 MAX and 777X orders),
  • plus services revenues (about 0.7bn$ from the commercial aircraft unit – calculated, not reported).

The discount figure that minimized errors last year was 47%. Using this figure, the error obtained this year in relation to Boeing Commercial Aircraft reported revenues is -0.2%. The best estimate for last years average discounts were: 47% for 2013, 45% for 2012, 41% for 2011, 39% for 2010 and 38% for 2009.

The updated figure (which minimize errors for 2014 down to -0.2%) for the discount for Boeing commercial aircraft is 47% (3).

Boeing Average Discount Evolution, through 2014.

Boeing Average Discount Evolution, through 2014.

The discounts seem to be stabilized around 45-47%.

This discount figures and their evolution reflect that Boeing’s list prices and their continuous increases cannot be enforced in the contracts nor in escalation formulas.

Final note: I received a comment suggesting to review whether the discounts are in effect on Boeing side or in the engine manufacturers side. Unless we had the information of actual contracts, there is no way to calculate that from published information. Nevertheless, whether Boeing or engine manufacturers, the fact is that there is discrepancy of up to 47% between what Boeing announces as their list prices for commercial aircraft and backlog figures (in volume) and what it actually receives as income (revenue).

(1) Find here what is becoming a “body of knowledge” on Boeing discounts: estimates calculated for 20132012, 2011, 2010 and 2009; a review of the French portal Challenges.fr of aircraft discounts prior to Le Bourget airshow of 2013; a Bombardier’s CEO statement on what is known in the market as the Boeing discount; Boeing Commercial Airplanes president Ray Conner speaking about the more aggressive pricing they are being forced to offer.

(2) Three years ago, I received a comment from the analyst Scott Hamilton on the level of downpayments. He mentioned they could reach up to 30%. I tried this time to compute the calculation using that input, though the figures of discounts to be applied each year to minimize errors would have to be even higher, close to 60% (!), thus I stayed with the 3% used in the above-mentioned published paper to stay on the conservative side. On the contrary, if we assume that downpayments have no influence in the revenue recognition (as another comment indicated last year), but only in the cash flow, the discount figure would slightly decrease (about 1%). The issue is not so much the size of the downpayments, whereas how much of those, if any, are recognised as revenues.

(3) I find this trend of continuous increases in Boeing discounts in line with bothChallenges.fr report and Ray Conner’s mentions of aggressive pricing last year, both referred to in note (1).

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My forecast of Boeing Commercial Airplanes 2014 revenues

In the previous years I have been estimating the discounts Boeing applies to its list prices of commercial aircraft. You can see here the result of last year estimate (based on 2013 figures). The results I arrived at are that Boeing has been increasing its discounts in the recent years, and that in 2013 they topped ~47%.

Boeing Average Discount Evolution, 2013.

Boeing Average Discount Evolution, 2013.

With this post I wanted to take a step ahead and put the model to the test by using it for forecasting what will be Boeing Commercial Airplanes revenues for the year 2014.

As of today, January 15th, these have not been announced yet. In Boeing’s investor relations website you can see that the 2014 earnings conference call will take place on January 28th.

How will I reach to my forecast?

  1. See here Boeing (net) orders for the year 2014: 1,432 aircraft among all models.
  2. See here Boeing deliveries in the year 2014: 723 aircraft among all models.
  3. See here Boeing 2014 list prices.
  4. See in the above curve the average discount I will use: 47% (unchanged from past year, this is a hypothesis that will be put to test with how accurate the forecast turns out).
  5. See here [PDF, 841KB] Q3 2014 earnings press release. I use it to see how were faring in 2014 Boeing Commercial Airplanes services, deducing it from the reported Sales of Services, Boeing Capital and Global Services & Support. Up to end September 2014, the services figures were declining in comparison to 2013 figures. I will assume the global figure to follow the same proportional decline; arriving at ~589m$ for Boeing Commercial Airplanes services (remember, this figure will not be actually explicitly reported).

With all these ingredients… my forecast is: 60.2bn$ (1).

In the 2014 Q3 report you can see Boeing’s own guidance for year-end figures:

Boeing's 2014 Financial Outlook at Q3 2014 earnings press release.

Boeing’s 2014 Financial Outlook at Q3 2014 earnings press release.

Some comments:

First, you can see that my forecast (60.2bn$) is a bit more optimistic than Boeing’s own outlook 3 months ago, 57.5-59.5bn$ (2).

Second, in the 2014 Q3 release, you can see the revenues up to end September (below). In them, you can see that up to then, revenues of Boeing Commercial Airplanes had increased 13% in relation to 2013 (12.66% to be more precise). My forecast is a bit more optimistic here as well: at year end the increase in revenues will be +13.6%.

Boeing Commercial Airplanes revenues Q3 2014.

Boeing Commercial Airplanes revenues Q3 2014.

Final comment: if Boeing managed in 2014 to command better prices on delivered aircraft, the figure will be even higher. If the figure is lower than the 60.2, and in line with their forecast, it’ll mean that the market is forcing Boeing to apply ever higher discounts to their published list prices.

I am now looking forward to January 28th and Boeing’s earnings call!

++++++++

Update on February 11th:

As announced, Boeing published on January 28th its full 2014 results [PDF, 838KB]. Which were the Boeing Commercial Airplanes revenues?

Boeing Commercial Airplanes revenues full 2014.

Boeing Commercial Airplanes revenues full 2014.

That is 59.99bn$, or 206m$ short of my detailed forecast of 60.196bn$. This means that I missed with my forecast by a 0.3%, not bad. Even better taking into account that the main discrepancy have been the lower level of services under the commercial airplanes unit.

The result, as my intuition went was above the upper limit of the bracket Boeing gave as guidance for the full year in the 2014 Q3 report, 57.5-59.5bn$ (see note (2)).

(1) To be more precise the forecast from the model is 60,196m$.

(2) If my forecast turns out correct some may be tempted to say that this is the usual trick played by CFOs: to present better figures than expected.

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Boeing discounts detailed calculation, 2013 vs. 2012

Last years I have published in the blog  some posts (1) dedicated to show what was my estimate of the average discount Boeing applies to its commercial airplanes. I included in those posts the rationale used for the calculation. Find here the post related to the calculation of the discount based on 2013 data of Boeing Commercial Airplanes revenues, deliveries and list prices.

In this post, I wanted to show in detail a simplified table (2) with the calculation comparing 2013 simplified result versus 2012:

Boeing discount detailed simplified calculation: 2013 vs. 2012.

Boeing discount detailed simplified calculation: 2013 vs. 2012.

In the table above, you may find for both 2013 and 2012 Boeing reported deliveries per model and Boeing published list prices per model (3) and Boeing Commercial Airplanes reported revenues.

What is then estimated? Boeing Commercial Airplanes services revenues (deduced from financial reports reported information), Boeing Commercial Airplanes platforms revenues (derived from the previous figure) and the average discount; this is calculated from the difference between estimated BCA platforms revenues and what should have been that figure had the airplanes been sold at list prices.

Results: average discounts of above 46% in 2013 and above 45% in 2012.

(1) Find here what is becoming a “body of knowledge” on Boeing discounts: estimates calculated for 2013201220112010 and 2009; a review of the French portal Challenges.fr of aircraft discounts prior to Le Bourget airshow of 2013; aBombardier’s CEO statement on what is known in the market as the Boeing discount; Boeing Commercial Airplanes president Ray Conner speaking about the more aggressive pricing they are being forced to offer.

(2) I refer to this table as “simplified” as it excludes from the calculation the potential influence on yearly revenues (note, not cash flow) of down payments linked to orders received in then-year versus orders received in previous years for aircraft delivered in then-year.

(3) Two assumptions are needed: 737-800A transfer prices from BCA to Boeing Defense Space & Security for the P-8 (for simplicity assumed to be the same as the 737-800 price) and for the 737-based business jets (for simplicity assumed to be the same as the 737-900ER).

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Boeing commercial aircraft discounts (update for 2013)

Few days ago, Boeing released 2013 results [PDF, 841KB]. The company reported revenues of over 86.6bn$648 commercial deliveries and 1,355 net orders for its commercial aircraft. All these were widely reported by the media and mean a great year 2013 for Boeing (with increases in these metrics from 6 to 8%).

Last years, I wrote in some posts (1) what was my estimate of Boeing discounts: the relation between what is announced by the press, what appears in its list prices and sometimes as backlogs and what it is indeed computed into the profit and loss account. In this post I wanted to update, if necessary, the figure I calculated for the average discount of Boeing.

Most of the necessary information can be found in its website. Boeing list prices can be found here.

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

Last year deliveries can be found in the report of financial results (or here). From there we can also deduce the figure of Boeing Commercial’s sales of services. That is not directly reported but can be deduced (all Boeing services-related sales are reported as well as Boeing Capital Corporation division and Boeing Defense’s “Global Services & Support” unit)

As in the previous years’ post:

  • 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.). (2)

Having put all the figures together, the calculation is immediate. Boeing Commercial Aircraft revenues in 2013 (52.98bn$) are the sum of:

  • the discounted prices times the delivered aircraft in the year (including possible penalties from delays),
  • 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 (this year’s calculation has been again a bit tricky as it included 737NG deliveries and 737 MAX orders),
  • plus services revenues (less than 0.3bn$ from the commercial aircraft unit – calculated, not reported).

The discount figure that minimized errors last year was 45%. Using this figure, the error obtained this year in relation to Boeing Commercial Aircraft reported revenues is 3.9%, much too high. The best estimate for last years average discounts were: 45% for 2012, 41% for 2011, 39% for 2010 and 38% for 2009.

The updated figure (which minimize errors for 2013 down to 0.2%) for the discount for Boeing commercial aircraft is 47% (3).

Boeing Average Discount Evolution, 2013.

Boeing Average Discount Evolution, 2013.

The explanation I can find for that increase shall be linked the built-in penalties for 787 plus the introduction of the new 787-10 with increased discounts for the launch customers.

(1) Find here what is becoming a “body of knowledge” on Boeing discounts: estimates calculated for 2012, 2011, 2010 and 2009; a review of the French portal Challenges.fr of aircraft discounts prior to Le Bourget airshow of 2013; a Bombardier’s CEO statement on what is known in the market as the Boeing discount; Boeing Commercial Airplanes president Ray Conner speaking about the more aggressive pricing they are being forced to offer.

(2) Two years ago, I received a comment from the analyst Scott Hamilton on the level of downpayments. He mentioned they could reach up to 30%. I tried this time to compute the calculation using that input, though the figures of discounts to be applied each year to minimize errors would have to be even higher, over 50% (!), thus I stayed with the 3% used in the above-mentioned published paper to stay on the conservative side.

(3) I find this trend of continuous increases in Boeing discounts in line with both Challenges.fr report and Ray Conner’s mentions of aggressive pricing last year, both referred to in note (1).

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Commercial airplanes discounts review

Last week, ahead of the start of the Le Bourget air show, the French portal Challenges.fr, published an article “Le vrai prix des avions d’Airbus et de Boeing” with an interesting graphic showing a comparison of the prices after discounts of commercial aircraft both of Boeing and Airbus.

Find the graphic below:

Commercial aircraft discounts according to "Challenges".

Commercial aircraft discounts according to “Challenges”.

In order to make the graphic, Challenges quotes as sources the consultants of “ASCEND Worldwide” (which has the industry-reference database of world commercial aircraft fleets) and unnamed companies (airlines such as American, Delta or Southwest, as per declaration of analysts quoted in the article).

I have published in this blog yearly estimates for the average discount that Boeing applies to its aircraft. Find here the latest of that blog posts. In that post I arrived to an estimated average discount of 45%. Thus, when I read the article by Challenges I first thought “too high, to be average prices”. I thus run the reverse calculation: departing from Challengesmarket prices” I calculated what would have been Boeing Commercial’s 2012 revenues (1).

Boeing 2012 deliveries and net orders.

Boeing 2012 deliveries and net orders.

Boeing prices as per Challenges (767 added with the same discount as the 777-300ER).

Boeing prices as per Challenges (767 added with the same discount as the 777-300ER).

Boeing Airplanes revenues "as per Challenges".

Boeing Airplanes revenues “as per Challenges“.

Having run the numbers, I find the estimated value of 2012 revenues for Boeing Airplanes as too low (44bn$ vs. the reported 49bn$) using aircraft “market prices” as published by Challenges, as I first thought. I guess that the figures that Challenges published refer to the higher discounts having recently been applied, to the biggest customers making the biggest orders, such as those mentioned in the article (American, Delta or Southwest).

Thus, I would not take them as average or market price, those are the prices that a few can get.

(1) A couple of considerations must be made: Challenges does not publish any market price for 767s (the same discount of the 777-300ER was used), and does publish only one price of 737NGs or 777s; thus the result will not be very accurate.

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