Saturday, April 25, 2015

787 production cost still increasing but at a slower rate as deliveries become more streamlined.



There was a little drama as I work up Thursday morning to an email from Google Blogger saying that they had deleted my blog.  A number of readers emailed me about it and a forum topic on airliners.net was created.  Here's the story.  Bloggers automated systems accidentally flagged the blog a TOS (Terms of Service) violator for phishing.  Well nothing can be further from the truth about this blog or my intentions.  I appealed to Blogger to restore the blog which they had thankfully done but for a few hours I was faced with the disheartening possibility of loosing my archived blog posts though the 787 tables were unaffected and are still accessible if you had the URL.  Lesson learned - I'm going to back up my blog posts.  Now back to our regularly scheduled programming!

The 787 program made progress on the delivery front but it continues to be a drag on Boeing’s financial results.  Notably, deferred production cost increased during the 1st quarter by $793mm to $26.9bn and increased 787 deliveries dragged down operating margins for BCA from 11.8% to 10.5% (because of the continued high cost of producing each 787 vs. the actual cash they have bought in is negative).  While Boeing is still struggling to drive down 787 production cost, they expect to see a net profit on each unit produced sometime late this year and also reported that 787-8 unit costs over the last 190 787-8 deliveries declined 30% while 787-9 unit cost declines 25% over the first 20 deliveries.  Boeing says that they expect deferred costs to start declining soon after they achieve rate break to 12/month which is expected to take place in late 2016.  Greg Smith, Boeing's CFO said:
When you look over that time frame (fourth quarter 2014 to 1st quarter 20015), we have seen improved performance. In particular, I noted on the 787-9, is they're coming down the learning curve in a very aggressive manner. And I think that goes to the lessons learned off the 787-8 in getting those into the production system. So that introduction of that airplane is going very well. And as you know, that will be close to half of our deliveries this year. So that smooth introduction is important.
Looking at 787 production at Everett and Charleston, it does appear that Boeing is making a drive to reduce assembly times as well as time to delivery.  In reviewing the 787 tables we can see that the time in final assembly in Charleston is about 42 to 46 days while in 40-24 the assembly times is around 37 to 39 days.  In 40-26 the final assembly times is much shorter..around 30 days.  Post assembly times are also improving with Charleston airplanes taking about 40 to 50 days from the end of final assembly to delivery.  At Everett the time is now ranging from 45 to about 75 but the more realistic time frame is about 60 days. Overall both locations are taking about 90 to 110 days to assembly, test, fly and deliver 787s though it appears that the numbers are trending down, particularly in North Charleston.  Of course, delivery times is also driven by customer needs so while Boeing may be ready to deliver, the customer may not be.

A silver lining is that 787 deliveries thus far are more evenly spread out this month rather than being bunched up at the end of the month as is generally the case with 787 deliveries.  This can only help reduce cost in the program as Boeing doesn't have to spend more money in overtime at month end trying to make deliveries to customers thus bunching up the aircraft deliveries in the last few days of the month.  I do expect at least 5 more deliveries this month including 2 to American Airlines.  To date Boeing has delivered 266 787s, 38 787s in 2015, and 8 in April.  22 787-9s were delivered thus far and I expect that the number of 787-9 delivered, which are higher margin aircraft, should increase dramatically this year.  

Obviously Boeing deliveries numbers have been impacted by the production issues at Zodiac especially deliveries to American and Etihad.  No doubt 787 delivery numbers would have been stronger without the Zodiac issue.  Boeing doesn't expect the Zodiac problem to impact their delivery numbers for this year but the issue will persistent until the end of the 2nd quarter after which it is assumed that Zodiac would have its act together.

Lastly, Boeing's order book took a temporary hit when United Airlines, as expect, converted 10 787-9 to 777-300ER.  Additionally, American Airlines deferred 5 787s that were to be delivered in 2016 to 2017(4) and 2018(1).  American will now take 13 787s this year (3 already delivered), 8 in 2016, 13 in 2017 and 8 in 2018.  United is expected to take 11 more 787-9s by the end of the 1st quarter of 2016.

787 Full Production Table
787 Build Location By Operator 
787 Build Location By Customer

15 comments:

Bob Franklin UK said...

The production and delivery tables have changed font size ? Got bigger, and are very hard to read on a tablet, you can't shrink them? Bob Bristol Uk

Uresh said...

I didn't change the font size on the tables.

Piotrek_ said...

N806AA is inside EMC BayAW (paint)

Andrew Boydston said...

I applaud you Uresh. Great due diligence. I need to do the same as soon as I figure out how to back up my mess I have posted. All Things 787 is an integral part of my research and analysis. It would be like doing the high wire act without a net. Props and Kudos for your fine and often quoted blog. Cheers and congratulations for "All Things 787".

Uresh said...

Thank you Andrew, I appreciate the kind words!
Uresh

edenpark said...

Hello Uresh, I think Oman Air have selected Trent 1000 engines according to the RR website

Uresh said...

Thank you!

Daetrin said...

Why have there been no B-1 flights in a long while? It seems strange with so many May deliveries that there hasn't been an Everett B-1 flight in a long while. I would worry that May will mean a lot of OT for the mechanics.

4330462c-e338-11e3-9abe-000bcdcb2996 said...

Do you know lines 288 and 290 were delivered before 255 and 268?

Uresh said...

yes, see the spreadsheets.

Andrew Boydston said...

Question: Boeing.com shows a deduction of -11 for the year against 35 ordered bringing the net total 24 YTD for 2015. I know of the 10 787-9 converted into 777-300-ERs with United. What is the eleventh deduction or the extra -1 that I can't account for, otherwise I show 1095 net total orders on the 787 books. Having one more deduct per Boeing.com makes a -11 787 adjustment. Using that Boeing number of -11 the total net ordered should be at 1094. I show 1095 787 net orders. Just curious?

4330462c-e338-11e3-9abe-000bcdcb2996 said...

I meant to ask why were they delivered first? Stupid auto correct in my phone.

Mike Sullivan said...

AA deliveries were delayed due to seat issues. AA/Boeing decided to bite the bullet on the 2 earlier planes so that later deliveries would be less affected. - I believe there are more costs/delays if the seats cannot be installed at the proper time in the build process.

larmeyers said...

I copied the link below from FlightAware/Flightglobal regarding a new FAA order to prevent a potential electrical malfunction for all 787 operators. Pretty unlikely scenario, though.

http://www.flightglobal.com/news/articles/faa-orders-new-787-electrical-fix-to-prevent-power-failure-411794/

Rob said...

Air Tahiti is buying two 787-9 and leasing two more!