Tag Archives: Boeing earnings

Boeing commercial aircraft discounts (update for 2017)

A couple of weeks ago I published a post with “My forecast of Boeing Commercial Airplanes 2017 revenues“. In that post I built a forecast of Boeing Commercial revenues based on its 2017 airplanes deliveries, orders, list prices and my estimate of the discounts Boeing applies as a relation to what it reports in the revenues vs. what it publishes as list prices.

“I’ll try to guess the figure of revenues for the Boeing Commercial Airplanes division, not so much trying to be accurate in itself, but to point in advance to the increasing of the discounts as we will see below.” (excerpt from the referred post)

My forecast for Boeing Commercial revenues was 57.0 bn$. A few days later, on January 31st, Boeing announced its 2017 results. Boeing Commercial revenues were 56.7 bn$.

Boeing Commercial Airplanes revenues full 2017

As I already anticipated,

“[…] I see that their discounts have been greatly increased in the last 2017. […]

The implied discount of my revenues forecast would be in the ~ 50% range.”(excerpt from the referred post)

With those 56,729 bn$, the 2017 Boeing list prices, its 763 airplane deliveries and 912 net orders I come to an estimated average discount for Boeing commercial aircraft of 50.4%.

Discount evolution_2017

Boeing Average Discount Evolution, through 2017.

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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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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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Boeing commercial aircraft discounts (update for 2012)

A week ago, Boeing released 2012 results [PDF, 223KB]. The company reported revenues of almost 81.7bn$601 commercial deliveries and 1,203 net orders for its commercial aircraft. All these were widely reported by the media and mean a great year 2012 for Boeing (with increases in these metrics from 20 to 30%).

Last years, I wrote in some posts 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 deduct the figure of Boeing Commercial’s sales of services. That is not directly reported but can be deducted (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 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.). [1]

Having put all the figures together, the calculation is immediate. Boeing Commercial Aircraft revenues in 2012 (49,1bn$) 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 (about 1.4bn$ from the commercial aircraft unit – calculated, not reported).

The discount figure that minimized errors last year was 41%. Using this figure, the error obtained this year in relation to Boeing Commercial Aircraft reported revenues is 7.5%, much too high. The best estimate for last years average discounts were: 41% for 2011, 39% for 2010 and 38% for 2009.

The updated figure (which minimize errors for 2012 down to 0.4%) for the discount for Boeing commercial aircraft is 45% [2].

The explanation I can find for that increase shall be linked the built-in penalties for 787 (net orders for 2012 being -12 a/c) and 747 delays (1 single net order) into revenues plus the launch of a new aircraft, 737 MAX (forced by A320neo sales success in 2011).

[1] 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.

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