A Boring Or Banging Year Ahead For The Dreamliner?

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In this short analysis AeroAnalysis will have a look at what Boeing expects for 2016 for the Dreamliner and what implications this has for the numbers and figures we came up with in my previous pieces. The full analysis can be found here.

Development deferred costs 2016

From Boeing’s earnings call transcript a few useful pieces of information can be deducted, namely:

  1. The program became cash positive
  2. Deferred costs are likely to grow at the same rate in Q1 2016 as it did during Q4 2015
  3. Year-over-year the deferred balance is likely to be flat

Especially from the latter 2 statements some useful information can be derived.

Dreamliner 2016

Using Boeing’s statement about the deferred costs in Q1 and the year-over-year costs, the curve from Figure 1 can be constructed. AeroAnalysis expects that Boeing will be able to deliver 30 airframes in Q1, just like it did in Q1 2015. This means that the deferred costs per airframe are expected to be $6.7 mln, slightly worse than in Q4 2015. This primarily is caused by naturally low deliveries in the first quarter.

For the second quarter negative cash flow is estimated to be $2 mln per unit, followed by a positive cash flow of $1.8 mln and $5.4 mln in the third and fourther quarter of 2016

Conclusion

>Boeing is on track to reach 12 per month production by mid-2016

> First steps towards bringing deferred costs to zero will be made in the second half of 2016

Required average cash flow is 8 times higher than what I expect Boeing to generate on a per unit basis in Q4 2016

While the accounting block is big, there seems to be little margin for error. One way to give itself some more breathing space is by increasing the accounting block, but this will likely create a shock wave for Boeing shares. Other ways to actively reduce costs is by trying to ramp up production earlier than by decade-end or try cutting on expensive materials where possible.

The full analysis can be found here.

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