Boeing faces decade-long challenge in recouping 787 costs
Sunday, November 27, 2011 | 12:01 am
How long will it take the Boeing Co. to work off the costs of developing the new 787? In September, Boeing handed over the first Dreamliner, more than three years behind schedule. And last month, company executives revealed the magic number: 1,100 jets. The company estimates it will take more than 10 years of production to reach this mark.
In today's print edition, we created a graphic representation of those 1,100 airplanes and where they fall on the production calendar to help you visualize the challenge ahead for workers in Everett and South Carolina. It's posted to the right as a PDF for download.
What follows is the description from that chart.
The program's deferred costs, pegged at $9.7 billion at the end of September, will continue to grow until Boeing finishes developing the next version of the Dreamliner, the 787-9.
Recovering that cost of developing and producing the airplane efficiently depends on how quickly Boeing can increase the production rate to 10 787s per month by the end of 2013 at the factories at Paine Field in Everett and in Charleston, S.C.
Boeing workers and suppliers must quickly become more proficient at assembling the 787. This is a common phenomenon in manufacturing -- the more you do something, the better you get at it. In the case of the most complicated mass-produced product in the world, Boeing estimates, it won't be until sometime in 2015 when the revenue from each plane actually exceeds the cost of building it.
Boeing has 821 orders for the 787. That gets the company most of the way to recouping the program's costs, but not all the way. It's assumed the company will have no trouble selling more airplanes for delivery in 2019 and beyond.
Boeing spreads the total cost of an airplane program over a long period of selling and building airplanes -- in the case of the 787, about 10 years and 1,100 deliveries. Chief Financial Officer James Bell says that's roughly equivalent to the period of recouping the costs of the 777. But Boeing didn't need to deliver nearly as many 777s over those 10 years to cover costs as it will 787s. Boeing delivered fewer than 500 777s in the first 10 years of production.
In today's print edition, we created a graphic representation of those 1,100 airplanes and where they fall on the production calendar to help you visualize the challenge ahead for workers in Everett and South Carolina. It's posted to the right as a PDF for download.
What follows is the description from that chart.
Accumulating costs
The program's deferred costs, pegged at $9.7 billion at the end of September, will continue to grow until Boeing finishes developing the next version of the Dreamliner, the 787-9.
Recovering that cost of developing and producing the airplane efficiently depends on how quickly Boeing can increase the production rate to 10 787s per month by the end of 2013 at the factories at Paine Field in Everett and in Charleston, S.C.
Learning curve
Boeing workers and suppliers must quickly become more proficient at assembling the 787. This is a common phenomenon in manufacturing -- the more you do something, the better you get at it. In the case of the most complicated mass-produced product in the world, Boeing estimates, it won't be until sometime in 2015 when the revenue from each plane actually exceeds the cost of building it.
Order book
Boeing has 821 orders for the 787. That gets the company most of the way to recouping the program's costs, but not all the way. It's assumed the company will have no trouble selling more airplanes for delivery in 2019 and beyond.
Break even
Boeing spreads the total cost of an airplane program over a long period of selling and building airplanes -- in the case of the 787, about 10 years and 1,100 deliveries. Chief Financial Officer James Bell says that's roughly equivalent to the period of recouping the costs of the 777. But Boeing didn't need to deliver nearly as many 777s over those 10 years to cover costs as it will 787s. Boeing delivered fewer than 500 777s in the first 10 years of production.
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