Tag Archives: discounts

My forecast of Boeing Commercial Airplanes 2017 revenues

Next January 31st, Boeing will hold an earnings conference where it will announce its Q4 and full 2017 year financial results, including the revenues of each of its units.

Three weeks ago, on January 9th, Boeing already issued a press release where it announced its deliveries and orders for 2017, mainly:

  • 763 commercial aircraft delivered (including 529 of the 737 family, or 136 787).
  • 912 net orders (after cancellations) (including 745 of the 737 family).

The release mentions “912 net orders, valued at $134.8 billion at list prices“, however those list prices are discounted, nothing new, and with an estimate of that discount 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.

Where can we find Boeing list prices? Boeing host them in their site, these have just bee raised 10 days ago about 4% (see this comment about it). The previous prices dated from March 2017, when Boeing raised them again, that time by about 2% from its 2015 prices (untouched in 2016). To compute 2017 revenues and estimate of discount I use 2017 prices, not the latest ones.

If Boeing didn’t apply those discounts, the value of the 763 aircraft delivered in 2017 would yield revenues of above 118 bn$. To come to a ballpark figure, I will take the latest figure of discounts that I had calculated with 2016 and earlier figures, being the latest ~46%.

Discount evolution_2016

If I plug that discount into the 2017 list prices of the fleet mix of the 763 commercial aircraft that Boeing delivered we would come to a figure of revenues of 62.1 bn$. However, see below what was Boeing’s own guidance in their Q3 earnings release:

2017 Q3 Financial Outlook

Boeing’s 2017 Financial Outlook at Q3 2017 earnings press release.

At three months to the year end (Q3), they forecast between 760 and 765 deliveries, which turned in 763. At the same time they pointed to revenues between 55.5 – 56.5 bn$… and not above 62 bn$. I believe they will exceed their own estimate, but not by 5 bn$, that is why I see that their discounts have been greatly increased in the last 2017. They must have had a bad time in escalating prices of aircraft sold years ago, delivered in 2017 but with escalation conditions much lower than ongoing list prices.

With all these ingredients… my forecast is: 57.0 bn$.

Some comments to it:

  • My forecast is a bit more optimistic than their upper bracket (56.5) which may be slightly conservative.
  • The implied discount of my revenues forecast would be in the ~ 50% range.

(1) See here a couple of such forecasting revenues exercises that I did for Boeing’s 2014 and 2015 revenues.

(2) See here the latest detailed calculation of discounts that I posted in 2015.

 

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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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Odd examples of price discounts

A quick post to share a couple of odd examples of price discounts based on quantity that I recently found:

Mugs prices at the Museum Espace Air Passion.

Mugs prices at the Museum Espace Air Passion.

The advertisement clearly indicates that preferential prices are given from the 3rd mug. Let’s see: the first and second sell for 7€ each. The 3rd one comes for an extra 4€. So far, so good. Then the 4th mug is sold for another 7€… (!?) where is the preferential pricing? The fifth and subsequent mugs come for extra 5€ each. See it graphically below:

Mugs' prices.

Mugs’ prices.

Think of a group of friends wanting to pool their purchase to lower the cost. If three friends had already decided to buy a mug, they would pay 18€, or 6€. If then came a fourth friend saying that she also wanted to join the group to buy a mug cheaper than the single one for 7€, the other 3 would have an incentive to reject her, as they would then have to pay 6.25€…

Let’s see this other example.

Flight prices at the Aeroclub du Sarladais.

Flight prices at the Aeroclub du Sarladais.

It comes from the colleagues at the Aeroclub du Sarladais. Here there are prices for short flight excursions. They offer 3 different flight durations with different prices for 1, 2 or 3 passengers. If more than 1 passenger flies, there is a discount. As there are several options, I prefer to use a table rather than a graphic to show what caught my attention:

Flights prices.

Flights prices.

In this case, in two of the cases, the marginal price to be paid by the 3rd passenger is more expensive than that to be paid by the 2nd passenger (I highlighted them in red). However, the oddity is not so striking as the average price to be paid by 3 passengers is always cheaper than the one to be paid by 2 passengers, thus, there is no economical incentive for 2 friends rejecting a 3rd wanting to join them in the experience of flying (good!).

I also found a more subtle issue with the pricing per minute for the 30 minute flights. Let’s see it with the flights for 1 passenger:

  • 15′ sell for 45€, that is 3€ per minute.
  • 20′ sell for 55€, that is 2.75€ per minute.
  • 30′ sell for 80€, that is 2.67€ per minute.

So far, so good, however, if you look at the marginal prices of the added flight time:

  • 20′-15′ = 5′, for 55€- 45€ = 10€, that is 2€ per minute.
  • 30′-20′ = 10′, for 80€- 55€ = 25€, that is 2.5€ per minute. Why are these minutes more expensive? 🙂

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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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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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