I guess these numbers reflect the cost of war with Airbus. Now that its out in the open, maybe BA can start selling airplanes for a profit.
seattletimes.com
Jets underpriced? Study adjusts
Boeing prices
by Polly Lane
Seattle Times aerospace reporter
Boeing sold its planes below its cost of producing them last year,
with average prices paid by customers ranging between 14
percent and 27 percent below list prices, a new study suggests.
The study by Paul Nisbet, aerospace analyst for JSA Research, is
an attempt to quantify Boeing's practice of discounting its
commercial aircraft to customers in its global price war with
European rival Airbus Industrie.
Nisbet's report uses a new figure disclosed by Boeing to subtract
revenues it received from such extras as training, spare parts,
engineering and modifications from its overall commercial-jetliner
sales of $35.5 billion. Those extras amounted to a $4 billion
business for Boeing in 1998, Alan Mulally, president of Boeing
Commercial Airplane Group, told industry analysts at an investors
conference in Florida last week.
Subtracting the extras enabled Nisbet to estimate for the first time
the prices that customers paid last year for the airplanes
themselves - and compare them with list prices, which Boeing has
boosted 2 percent to 10 percent since last summer.
Overall, customers paid $31.5 billion for the 559 jetliners Boeing
delivered last year, according to Nisbet's calculations. He used
that figure, coupled with previous estimates for each airplane
model, to gauge the average actual prices paid per model and
compare them with the list prices for the models.
"I was shocked at what I found," Nisbet said today. "The airline
that needs some airplanes in the short term might have to pay the
list price for quick delivery, but others are not coming close."
Not only did Boeing sell its planes at a discount, it sold them at
below costs, losing almost $600 million on aircraft sales, Nisbet
said.
Nisbet said his analysis showed that profit margins on the sale of
parts, services and other items were as high as 15 percent. With
$4 billion in sales in that area, the pretax profit was about $651
million.
With an overall profit in the group of $63 million, that means
Boeing "was $590 million in the hole on their aircraft," Nisbet
said.
While it is no surprise that Boeing has been discounting its
airplanes, as has Airbus, Nisbet's report goes further than any
previously published industry research toward quantifying the
extent of the discounting. As such, it helps to explain the financial
problems of the Boeing Commercial Airplane Group, which had a
profit margin of less than 1 percent last year.
Nisbet had no similar discounting estimates for Airbus, a
four-nation consortium that discloses far less financial data than
Boeing.
Boeing officials yesterday would not comment on Nisbet's report
or his methodology. The company does not break down
components of its aircraft sales contracts, which vary widely by
model and customer, and it often does not even disclose the value
of an airplane sale.
Previously, when analysts figured prices received for airplanes,
they included spare parts, training and other extras because those
amounts never were separated from overall revenues. The
information disclosed by Boeing last week enabled Nisbet to build
a new financial model.
His analysis shows that 737s, the smallest airplanes produced at
Renton, were sold for an average price of $30.9 million, down
more than 14.2 percent from low end of the list prices that ranged
from $36 million to $57.5 million.
The list price for Boeing's largest plane, the 747-400 jumbo jet,
ranges from $177.5 million to $187 million depending on the
configuration and features. But Nisbet figured that last year's 747
sales averaged $129.3 million per airplane, down 27.2 percent
from the lowest list price.
Nisbet also estimated the 1998 discounts for other Boeing models
as follows:
-- 757: list price, $65.5 million to $73.5 million; average price
paid, $48.8 million.
-- 767: list price, $89 million to $115 million; average price paid,
$66.8 million.
-- 777: list price, $137 million to $160.5 million; average price
paid, $113.7 million.
There are clear indications that Airbus, too, has been squeezed by
the price war. British Aerospace, a 20 percent Airbus partner,
reported a loss of $204 million for last year and said price
discounting continues to hurt financial returns. Airbus doesn't
reveal earnings or sales for the overall consortium made up of
British, German, French and Spanish partners.
Both manufacturers have struck long-term sales deals with airlines
in the past few years, deeply discounting their airplanes. Boeing
signed agreements with American , Delta and Continental airlines,
while Airbus landed deals with British Airways and other
customers.
The discounts are likely to continue to depress profits for both
manufacturers for years to come.
Seattle Times business columnist Stephen H. Dunphy
contributed to this story.
Polly Lane's phone message number is 206-464-2149. Her
e-mail address is plane@seattletimes.com |
