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Boeing's big discounts could crimp profits, 24/7 analyst says

  • Discounts for new airplanes commonly are 25%-30% whether built by Boeing (NYSE:BA) or Airbus (OTCPK:EADSF, OTCPK:EADSY), but a recent UBS research note reportedly suggests Boeing has discounted some of its new planes even more.
  • Boeing is believed to be offering discounts of as much as 59% on its current 737, 54% on the 777, and 46% on the 787 Dreamliner.
  • BA is able to offer steep discounts on 737s and 777s because the planes have been in production for years and have paid back initial design and development costs many times over, but 24/7's Paul Ausick says it cannot afford such cuts on the Dreamliner because the plane has not yet amortized the full cost of development, which has been reported to be as high as $32B.
  • Boeing is reacting to comments from Airbus that the European aircraft maker can price its current version of the A330 up to 25% below the 787.
Comments (8)
  • mydogmoe
    , contributor
    Comments (449) | Send Message
     
    Last time I checked BA had a total of one competitor in the world airline market. We should all be so lucky. They also are one of the biggest defense contractors in the world. Sometimes businesses just have to cut deals every now and then. Even Don Corleone had to...
    15 Aug, 05:51 PM Reply Like
  • jimmydell
    , contributor
    Comments (17) | Send Message
     
    Agreed. And those two commercial aircraft producers will have a difficult time over the next 20 years meeting the expected demand. So all of this ink about who outsold who doesn't really matter. They'll both be fine, but choose Boeing, just sayin'.
    15 Aug, 06:16 PM Reply Like
  • morrowjeff
    , contributor
    Comments (3) | Send Message
     
    "BA is able to offer steep discounts on 737s and 777s because the planes have been in production for years ..."

     

    True, but it's not just the years. The work they started with Shingijutsu in the late 1990s, particularly in making 737 Final Assembly a moving line, coupled with dramatic reduction in offered 737 variants, has raised inventory turns by an order of magnitude. Day in, day out, 737 Final Assembly probably delivers more value than any other plant on Earth. Boeing can afford to give discounts now because they couldn't afford to give discounts in 1995 and gave them anyway. The red ink from that fiasco opened the space for leveraging Shingijutsu.
    15 Aug, 06:36 PM Reply Like
  • Lazydazer
    , contributor
    Comments (6) | Send Message
     
    Boeing also has to keep the 737NG and 777 lines full as they develop and phase in the 737MAX and 777X production.
    15 Aug, 09:31 PM Reply Like
  • fieldberen
    , contributor
    Comments (97) | Send Message
     
    This SA blurb about BA was taken directly from an article from 247wallst.com.

     

    15 Aug, 11:35 PM Reply Like
  • Rope a Dope
    , contributor
    Comments (575) | Send Message
     
    It's hyperlinked to that article.
    16 Aug, 09:07 AM Reply Like
  • alpine
    , contributor
    Comments (1104) | Send Message
     
    I feel it also says a lot about how efficient BA has become in recent years, squeezing both direct and indirect costs in almost every aspect of its manufacturing (internal and external), logistics and of course, assembly. Add to it its recent ability to squeeze more cash flow by reducing its effective tax rate (a "quiet" tax inversion is going on, but you won't know it, because no one wants to talk about it) along with a higher and higher foreign vs domestic (US) revenue base, you will see that BA will have far higher cash flows in the future than in the recent, extremely troubled past.

     

    I expect BA to double in the next 5 years, once then can eliminate Dreamliner long-in-the-tooth "teething" problems!
    17 Aug, 05:05 AM Reply Like
  • User 1874571
    , contributor
    Comment (1) | Send Message
     
    why didn't some analyst raise this In 2nd quarter earnings release presentation/? why didn't analyst ask Chris chadwick, president ofdefense,space and security why he commented,in interview aviation week june2nd ,thateverything was fine with tanker on time-on cost ? why were commercial air revenues only up 5% when deliveries were up double digits ........discounting?
    17 Aug, 11:10 PM Reply Like
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