From: M.J.Jennings@amtp.cam.ac.uk (Michael Jennings) Organization: University of Cambridge DAMTP Date: 04 Oct 95 22:57:23 References: 1
View raw article or MIME structure
In article <airliners.1995.1533@ohare.Chicago.COM>, Karl Swartz <kls@ohare.Chicago.COM> wrote: >The "Heard on the Street" column in the Oct. 27 WSJ (p. C2) has an >article on Boeing, debating whether or not Boeing's current stock >price is too high. Various interesting views. The part I found >most interesting was a comment that the 777 will make more money >for Boeing in real dollars than the 747 -- a pretty remarkable >notion considering the 747 has been the most profitable airliner >program ever, and unlike the 777 has been without a direct compet- >itor for its entire life. > That depends to some extent depend on how you do the accounting. Boeing came close to sending itself bankrupt whilst getting the 747 into production. Assume that all this money is a loan to the program at the prevailing interest rate. The 747 didn't receive that many orders in its first few years, at least partly due to the early 1970s oil shock. By our accounting, the program's 'debt' grows (in real terms) through that period. Thus the number of aircraft sold after ten years to make the program profitable is much greater than the number that needs to be sold after five years to make the program profitable overall. By this way of measuring, delays and cost overruns have an enormous effect on overall profitability, much more than many people would expect. By this reckoning, it is easy to show the 747 program taking a very long time indeed before becoming profitable. Of course the 747 is a cash cow of staggering proportions for Boeing today but, still, the problems at the start of the 747 program have a big effect on its overall profitability. On the other hand, the 777 has been built on schedule and essentially to budget. Boeing has received lots of orders for aircraft to be delivered in its crucial early years. Therefore, the program becomes profitable much faster, and its 'cash cow' phase lasts much longer. And of course, the aviation market is much bigger today. I feel that competition or no competition, Boeing will ultimately sell many more 777s than the total production run of the 747. Michael. -- Michael Jennings Department of Applied Mathematics and Theoretical Physics The University of Cambridge. email@example.com Disclaimer: the opinions presented here are mine alone, but they should be yours too because they're right.