XWB
in service - 11 years
Posts: 16,115
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Post by XWB on Jan 22, 2018 10:08:59 GMT 1
I assume that Tom Enders means the the point, were single frames produce more revenue than cost. Thus adding positive cash to the cash flow, resulting in higher FCF. I did not mention Boeing at all. |
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mjoelnir
in service - 2 years
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Post by mjoelnir on Jan 22, 2018 10:31:18 GMT 1
I assume that Tom Enders means the the point, were single frames produce more revenue than cost. Thus adding positive cash to the cash flow, resulting in higher FCF. I did not mention Boeing at all. I did not mean that you mentioned Boeing. But when there is this talk at Boeing they can not talk about profit and loss because they throw those calculations to the wolfs with their program for cost accounting, so they go talking about cash flow. But cash flow does not describe profit or loss break even points, because cash flow is a mark of liquidity not profit or loss. And cash flow does not take those cost factors in consideration that do not influence cash flow. So you can get positive cash flow before you make a profit or you can make a profit before you get a positive cash flow. (the first case when you amortize investments, the last case when you do investments and activate them) So I do not understand describing a point that is set up and describe in the profit and loss system with gripping to the cash flow calculation, especially at Airbus who do not muddy the waters with deferring cost. |
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philidor
in service - 6 years
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Post by philidor on Jan 22, 2018 13:33:39 GMT 1
He clearly referred to program break-even, thus A350s adding positive cash flow. Addition of positive cash flow happens long before programme break-even, with cash-flow break-even. Cash-flow break-even happens as soon as the sales price of each newly-produced frame matches or exceeds its own direct production costs. Accounting break-even happens as soon as the sales price of each newly-produced frame matches or exceeds its total costs. Total costs include direct costs as above, plus indirect costs. The latter mainly include : - amortisement of programme investments (industrial buildings, tooling, test frames ...), which are written down over their expected useful life ; - overhead costs which are a share of general company costs ; I don't know whether in Airbus' accounting methods research and development costs are included in overhead or are in part considered as programme-specific costs. Even when accounting break-even is reached, early production losses usually have still not been offset. That is why programme break-even is a much higher threshold : it happens when the cumulated programme revenue (the cumulated revenue from all sold frames) matches or exceeds their total cumulated cost of production (including the cost of the earliest frames). Anyhow, if Enders has been correctly quoted as predicting programme-break-even in 2019, then this is going to be a fantastic achievement from Airbus. Unfortunately, these may not be his own words. He may have said that the programme is set to break-even in 2019, only referring to cash-flow break-even, which would be a far less stellar achievement. |
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philidor
in service - 6 years
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Post by philidor on Jan 22, 2018 14:27:17 GMT 1
I edited my post above for better clarity.
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XWB
in service - 11 years
Posts: 16,115
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Post by XWB on Jan 22, 2018 14:31:31 GMT 1
Airbus could not hide it any longer:
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Baroque
in service - 2 years
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Post by Baroque on Jan 22, 2018 16:45:03 GMT 1
There are two types of break-even that frequently come up in discussions in these parts:
- Production break-even is achieved when the cost of producing a single frame matches the revenue earned from its sale.
- Programme break-even is achieved when the entire project becomes cash positive. I.e. its related development costs and other sunk costs have been recouped.
If Enders did mean programme break-even here, that will be a really formidable achievement to do it in under 500 frames compared to its peer programme, the 787, which needs what, 1300 frames to recoup all of its development costs?
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Post by kevin5345179 on Jan 22, 2018 17:05:41 GMT 1
There are two types of break-even that frequently come up in discussions in these parts: - Production break-even is achieved when the cost of producing a single frame matches the revenue earned from its sale. - Programme break-even is achieved when the entire project becomes cash positive. I.e. its related development costs and other sunk costs have been recouped. If Enders did mean programme break-even here, that will be a really formidable achievement to do it in under 500 frames compared to its peer programme, the 787, which needs what, 1300 frames to recoup all of its development costs? a lot of technology was inherit from A380 program I'm expecting 777X's program break even will be much faster than 787 (assumption is if they can sale enough ....  ) |
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philidor
in service - 6 years
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Post by philidor on Jan 22, 2018 18:28:53 GMT 1
Production break-even is achieved when the cost of producing a single frame matches the revenue earned from its sale. In most cases, 'production break-even' is used as a synonym of what I called 'cash-flow break-even' (= matching direct costs, a break-even in cash-flows). It may however alternatively be used as a synonym of what I called 'accounting break-even' (= matching total costs, a break-even in total costs). If Enders did mean programme break-even here, that will be a really formidable achievement to do it in under 500 frames compared to its peer programme, the 787, which needs what, 1300 frames to recoup all of its development costs? I agree that if programme break-even is achieved as early as 2019, that will be a formidable achievement. The 787 'accounting block' (1300 frames) cannot, however, be used for comparison, since that is not a predicted break-even number : deferred production costs have probably allowed the 787 programme to contribute to Boeing's profit for a number of years, whether break-even had been achieved or not. |
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mjoelnir
in service - 2 years
Posts: 4,089
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Post by mjoelnir on Jan 22, 2018 20:04:51 GMT 1
He clearly referred to program break-even, thus A350s adding positive cash flow. Addition of positive cash flow happens long before programme break-even, with cash-flow break-even. Cash-flow break-even happens as soon as the sales price of each newly-produced frame matches or exceeds its own direct production costs. Accounting break-even happens as soon as the sales price of each newly-produced frame matches or exceeds its total costs. Total costs include direct costs as above, plus indirect costs. The latter mainly include : - amortisement of programme investments (industrial buildings, tooling, test frames ...), which are written down over their expected useful life ; - overhead costs which are a share of general company costs ; I don't know whether in Airbus' accounting methods research and development costs are included in overhead or are in part considered as programme-specific costs. Even when accounting break-even is reached, early production losses usually have still not been offset. That is why programme break-even is a much higher threshold : it happens when the cumulated programme revenue (the cumulated revenue from all sold frames) matches or exceeds their total cumulated cost of production (including the cost of the earliest frames). Anyhow, if Enders has been correctly quoted as predicting programme-break-even in 2019, then this is going to be a fantastic achievement from Airbus. Unfortunately, these may not be his own words. He may have said that the programme is set to break-even in 2019, only referring to cash-flow break-even, which would be a far less stellar achievement. One should not mix up cash flow with revenue and cost. When production cost matches revenue you have a break even point. At that time you can have negative or positive cash flow. Cash flow does not measure all cost factors or revenue factors, only those that have an influence on cash positions. So if you amortise your production tools or infrastructure and divide that on the produced frames for example, that will have influence on cost but not on cash flow. So a declaration of positive cash flow from a program does not have to mean that revenue is higher than cost, only that incoming cash is more than outgoing cash for that program. |
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Post by Shadow123 on Jan 24, 2018 15:55:34 GMT 1
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