Profit margin on a modern Boeing jet?

Likely the real question should be what is the normal discount from list for an airline. No one pays list. The in the industry discussion is what the discount percentage is. Then when the buyer is big enough the payment terms become highly negotiable. Don't forget to look at the CPI inflator calculation for longer term buys.

When looking at the airliner Boeings remember that normally the galleys, galley equipment and seating (entertainment system for the larger aircraft) become BFE. BFE = Buyer Furnished Equipment.

Jeff

 

have you looked at a Boeing 10-K/10-Q? that might have some guidance.

but, as Jeff said, it's highly variable and probably not very high. lots of $$ in defense systems, and commercial parts/maintenance, etc.

 

That is an interesting question and should you ask Airbus, they would question your question because they said a few years ago that profit wasn't an issue but selling more airplanes than Boeing was the real issue and, " Who said that you had to make a profit anyway?" Now back to Boeing. I don't have any idea what their profit margin is on " an airplane" because it depends on how long it has been in profitable production, how well they worked out the design and DEVELOPMENT costs. how big the airplane is (the 747 caused huge problems), and in the end how well it slides into service (recurring fixes and adjustments eat profits). The variables are never ending. I don't believe that the profit margins are anywhere near 30 %. I'm going to talk to " my people".

 

look it up, old man

http://www.sec.gov/Archives/edgar/data/12927/000119312511028490/d10k.htm

looks like almost 10% before R&D costs, which is higher than I would have guessed.

 

Yes, but that includes all sorts of fixed costs. I'm guessing Jedi really wants to know the cost of goods number for a 737, and I don't think Boeing breaks that out, even at the "Commercial Aircraft" level.

In order to achieve a 10% net margin, I would guess they must be getting at least a 30% gross margin. And, I know they will discount significantly off the "list" price for large orders, etc., so the gross margin at list price is probably more like 50%-- but I imagine they don't sell many aircraft at list price.

 

I am getting between 5 and 10%. One has to narrow the the evaluation to to a specific product because of the variables associated with each program. There are vast complexities involved in building and pricing aircraft and to get a finite figure is akin to picking up a blob of mercury with a fork. Finance people can snow you under in 30 seconds when they start talking about their smoke and mirror processes...maybe like Jedi.
Kidding

 

Or a closer in a car dealership.

 

Jedi, if this helps any, several years ago.. Ouch... ok ahem... MANY years ago I was at a Zig Ziglar seminar and he was talking about the lengths you go to in order to close a sale.

He talked about one guy he had worked with who moved his family, learned golf and joined a country club just to spend time with a single prospect. The punch line was the salesman worked for Boeing and the prospect ended up ordering (something like) half dozen 747s from him.

While telling the story Ziglar said they got about 7 points on their aircraft. The number stuck with me because I thought it was just a cool thing to know. -- How accurate Ziglar was, I can't tell you, but the number seems credible to me.

And if memory serves, he said Boeing salesmen were not paid commission they were paid salary. But that was (um...) more than a few years ago.

 

Don't forget to add in the mark-up for rust-proofing and fabric protection

 

belt service is crazy expensive....they have FOUR engines!

 

Aircraft are a lot cars. Lots of up front development and tooling which are then amortized. If the product sells well for long enough the amoritization is well taken care of. If, on the other hand, the sales don't work then it is severely underwater.

A major element of the aircraft financial model is that the engines and avionics are from outsiders and are a huge percentage of the cost.

There are already stories that the 787 is going to be a financial problem in the early years. It is going to need a long and successful production run before it makes a financial contribution.

Jeff

 

It's also interesting how the engine companies see it. They sell new engines on an airliner at a loss. The airlines use up the engines and get hammered on spares costs. Kinda like the razor blade thing, give them the razor and take a pound of flesh with the blades.

In engine spares the companies typically make 300% to 400% on most mundane things. If there is no PMA competition the markup on spares can be between 500% and 1,000%! That's why you are seeing now Pratt is making parts for some GE and RR engines. This could upset the whole engine business because the first price is based on the expectation of an aftermarket that could be disrupted.

BTW at the time that I worked for RR, the company made about $100M per year. That was almost exactly equal to the profit on the Model 250 helo engine spares... The rest of RR wasn't making money, the spares profits on big engine were just offsetting what they were losing on new engines.... Sounds really crazy but that's the way it is done.

 

They are talking about building an all new 737 with next-gen engines in the next 10 years which I am sure will borrow the technology from the 787. (Announcement made today)

If they learn from the 787 world wide supply debacle they will actually MAKE money on it IF they design and build most of it in-house.

They would be delivering and making money on the 787 RIGHT NOW if they had used the OLD business model from the 777 program which is extremely popular with the customers and provides the highest profit margin for the company.

 

Agree that IF Boeing can learn and implement all the advancements of the 787 into the new 737 replacement then they SHOULD recoup from the debacle. I am not so sure that the solution is to return all the process to internal of Boeing it may be a case of better understanding what it takes to integrate a larger base of risk sharing partners.

One thing with the next 737 is that they should be able to create a single platform that will cover the range from the current 737-600 (sales are so low that they may just start with the -700 instead) and make a better 757 replacement than what the -900 has been.

The one thing that the 737 replacement will offer is high volume production. Less per aircraft profit though.

Jeff

 

Boeing has been utilizing risk sharing partners for decades and doing so successfully. Mitsubishi and Kawasaki have been building fuselage panels for them since the 80's with great success and providing a good product. Fuji as well.
There are suppliers from all over the world that have been providing sub-assemblies for all Boeing A/Ps (and Airbus) successfully for decades.

The key to this success is that most of the Contractors worked to a Boeing design drawn up by Boeing Engineers and were required to build to Boeing process specifications OR Boeing would review and accept the Contractors design and if it fulfilled the purpose and met spec.

When it came to the CORE strengths and aspects of the airplane design, (like the wings and empanage) Boeing kept it in-house and built in-house because of the critical nature of the assemblies.

The problem with the 787 is that the Contractors "said" they could design and deliver the product, including CORE assemblies, when in fact they did not have the capability to do so. ( and many still aren't delivering a good product even now).

In many cases the engineering was "subbed out" to a sub-contractor that had NO experience designing a new revolutionary airplane that required new processes on a much larger scale than previously tried.

The work force used at many of these contractors had ZERO background in any kind of aircraft production. This is NOT what you want when building a new technology airplane.

Basically Boeing lost control of the product by allowing this to happen.

Boeing IS pulling some critical work back in-house (not all) so they can control and improve the quality but will retain as many Contractors as possible depending on which ones perform and deliver.

I've probably said too much but this can be found in Public Domain media anyway and is moot at this point.

The good news is, the mess is being turned around by "airplane" people (finally) that have years of experience launching a new airplane.(in lieu of pie-in-the-sky bean counters).

 

Airliners and even corporate aircraft are all over the map on prices and equipment. Airliners like Southwest get a volume discount on the aircraft they buy, say 30 planes over a 4 year contract where a BBJ (Boeing Business Jet, a 737-700 body with an 800 wing on it for range) is typically made for a private owner. A BBJ price is around $55 million green, still needing paint and interior. Different engines can be utilized on the airframe and are up to the specsof the purchaser. Southwest may use GE where Air Canada may use Pratt & Whitney. Most components are proprietary and OEM service specific. They may low ball price and nail you on the service. Take a look at Jet Blue and the Airbus fiasco of 05-06. Interest free acquisitions, but gee, all those failed hot sections right after getting out of warranty.
Price is a negotiable thing, as is the service plan. You are purchasing a relationship over the life of the aircraft. It falls under FAA regulations, so it naturally is going to cost more. And you thought Ferrari had it down with the 2 and 5 year service plans

 

For the most part, Boeing sells the airplanes with base engine pricing but no seats. Prices do reflect the engines but the engine companies often have side deals with the airline for spares and service support etc that the final price paid to Boeing does not really reflect the price the airline pays in the end. GE for example sells "Power by hour" where they basically lease the engine with all non-line maintenance and spares included to the airline.

Spares support is a core business for aviation. Boeing unlike Ferrari never really goes NLA... the price just goes up to reflect how much it costs to rebuild that part. Eventually the part and maintenance costs are high enough the airplane gets scrapped.

Gross profit margins for an airplane are not really available as the real profit varies widely across the airplane collection of parts. Much like a building contractor that sells a range from fully furnished, landscaped houses to leasing bare bones condos... each deal would have its own profit calculation based on that deal, seats , no seats, leased vs non-leased, qty discount, spares support, work offsets with foreign governments (think if you buy 10 airplanes for your government airline, they will buy parts from one of your factorys, a jobs program) that you cant ball park a gross profit. Accounting for some big airplane buys runs across many many years too so thay wont be fully accounted in any given year. Some deposits paid in year one, progress payments in year 5-10, delivery payments in years 7-12, charges against the deal for spares recovery in year 12 and 15... any given airplane deal is years long and multi threaded.

its so complicated in the end that you have stick with pre tax profits for BCA to have any real sense of whats going on.

 

(€ m) 2009
Revenues 28,067
EBIT - 1,371

(€ m) 2008
Revenues 28,991
EBIT 1,815

I believe the EBIT is a pretty good indicator: above are Airbus' for 2008 (+6.3%) and 2009 (-4.9%).