Anyone Else Gambling on Boeing (BA)

[stephenson]

We’ll all be flying in Boeing aircraft at some point or another.

The 737 Max can be made safe, but Boeing must make amends for trying to avoid full certification of such a massively redesigned aircraft. Their arrogance and overwhelming desire for profit, and fear of Airbus.

The government also bears responsibility for failing all of us and turning over their responsibility to the very folks they are supposed to be watching.

 

[audreyh1]

We just flew a 787 Dreamliner Paris to Newark. It was very comfortable in economy+ - much more than other planes.

But when we landed the body twisting and shuddering was quite extreme. It was alarming. The whole overhead area vibrated back and forth a great deal, and you could see the center connection between overhead area and below was designed to permit a wide displacement.

 

[stephenson]

I’ve flown on 787s ... very nice airplane, indeed.

I’m not sure of the movement in the fuselage you noted.

They have been extremely reliable.

 

[6miths]

Yes I like the 787. The leg room tends to be a bit above average as configured for most international use but I find the seat padding is a little less supportive and the general construction is a bit more flimsy. The new hinging on the lavatory doors is especially annoying but I do like the new toilet seats!

 

[LRDave]

We've flown the last 5 years to Europe on Norwegian Air's 787's. I understand theirs have the engines that airlines have been having problems with. Those planes are just so nice.

I don't think the aero engine is the problem at all, per se. It was the change to the airframe to raise larger engine nacelle so that it wouldn't drag the ground, the subsequent change to the aerodynamics, the software, the instrumentation and crew training.

While fixing the software and training will happen, the 737MAX will continue to make me a little nervous.

 

[LRDave]

I’ve read that the airlines aren’t making a big fuss over the MAX problems because the idea of just one plane manufacturer is to scary to contemplate.

I'm not sure two suppliers make a market either. But the airframe industry is an odd business and relies on government subsidies to keep the producers (1, 2 or 3 or more for that matter...) afloat and profitable.

The race for the 2-aisle widebody in the 60s/70s heavily stressed Boeing, McDonnell-Douglas, GE and Pratt & Whitney, nearly bankrupted Lockheed and did bankrupt Rolls-Royce.

 

[Spock]

...
The government also bears responsibility for failing all of us and turning over their responsibility to the very folks they are supposed to be watching.

I used to work on the fuel flow controller system for a family of jet/turbofan engines and as team leader I was responsible for presenting test results to the FAA.
Only I never once saw an FAA employee. All test results were presented to the FAA DER - Designated Engineering Representative... who as a fellow employee of the same company.

 

[Chuckanut]

I'm not sure two suppliers make a market either.

+1

From what I have read a competitive market needs at least three suppliers. Two, while better than one, is not enough.

 

[stephenson]

There are several regional commercial aircraft manufacturers in the world. Other than Chinese and Russian large aircraft manufacturers, this is probably the market.

Not three big aircraft manufacturers, but enough of a market to ensure there is some level of competition.

 

[Chuckanut]

Chicago based Boeing has issues as today's latest SpaceX success shows.

Boeing got about One Billion Dollars more from the Feds than SpaceX did to develop a manned spacecraft. So far they haven't been able to get their craft to the ISS and back. SpaceX has done that and today shown their emergency escape system works in a real flight (something Boeing apparently does not have to demonstrate). I would love to be listening in when their leadership explains that after getting an extra Billion, their product still can't perform as well as one built by the lower cost guy.

Meanwhile the 737 MAX faces a few more issues.

I am sure Boeing will get the MAX flying again, and they will get their spacecraft working well. But, at some point they need to wake up. They are in danger of losing their edge. Why pay them One Billion dollars more than SpaceX? Well maybe that is what they now are best at: extracting more cash from their customers.

One must wonder.

 

[NW-Bound]

BA stock drops 5.5% today, on the company released news that the 737 Max return to service will be delayed till midyear.

 

[aja8888]

These guys are in trouble...and there's more to come.

Here's some required reading:

https://wolfstreet.com/2020/01/20/a...fund-the-surging-costs-of-its-737-max-fiasco/

The second thing to know about Boeing’s mad scramble to borrow another $10 billion is that it already has a huge amount of debt and other liabilities, and that its total liabilities ($136 billion) exceed its total assets ($132 billion) by about $4 billion as of September 2019, meaning that it has negative net equity, that the share buybacks have destroyed its equity, which is what share buybacks do to the balance sheet.

It also means that every dime in “cash” and “cash equivalent” listed on the balance sheet is borrowed. And this is about to get a whole lot worse. In October 2019, Boeing had already obtained a new credit line of $9.5 billion, which about doubled the size of its existing credit line. Credit lines serve as liquidity backup.

And now Boeing is scrambling to pile “$10 billion or more” in new loans on top of it.

 

[Asabino]

I've had BA made my profits, and moved on. Too many quality stocks to fool around with BA. I'll buy again when it starts stabilizing and when the stock is consistently moving back up.

 

[Starsky]

I'm predicting they will have to scrap the 737 completely and replace it with a different engine design that doesn't require software intervention to fly safely. This is far from over and will become a customer issue, not necessarily an engineering one. I don't see any airlines wanting to take delivery at this point - frequent flyers know what plane they are flying on - and I'm sure they have a potent class-action suit if they really wanted...

They are ripe for a takeover once they can stop the bleeding. It would be interesting to see Boeing rebranded as Lockheed...or Tesla.

 

[rrppve]

I'm predicting they will have to scrap the 737 completely and replace it with a different engine design that doesn't require software intervention to fly safely. This is far from over and will become a customer issue, not necessarily an engineering one. I don't see any airlines wanting to take delivery at this point - frequent flyers know what plane they are flying on - and I'm sure they have a potent class-action suit if they really wanted...

They are ripe for a takeover once they can stop the bleeding. It would be interesting to see Boeing rebranded as Lockheed...or Tesla.

I’ll take that bet. How should we handle and what stakes would you like to wager?
Boeing will eventually get the MAX flying again almost regardless of the cost to do so. It’s a core reputation issue.
A prior poster mentioned the whole issue of raising the aircraft due to the larger engines. Boeing was forced into this because Airbus announced the A320neo. The difference in airplane height was key, as it was a lot easier to adapt the A320 to the larger, more efficient engines that both aircraft utilize and drove the improved operating economics of both the A320neo and the 737 MAX.
The big change will be the required simulator training for pilots to become type certified on the MAX. This will be a significant cost to the operators and Boeing due to penalties in the contracts. One of Boeing’s major marketing points was that only minimal additional training would be required for MAX pilots beyond that required to be 737 type certified. The marketeers drove the MAX development program, not the engineers, and Boeing is now paying the price.

 

[BeachOrCity]

I remember having this conversation with a fellow investor back in October who thought Boeing was a good buy then.
All I remember saying was the stock had not pulled back to 2018 levels before all of this happened and given the risk with the 737 the stock price needed to fall A LOT to compensate for that risk.

The stock is 330 now. It was under 150 in 2016 when they had none of these problems or losses related to the 737.

Why would anyone pay more than double for the stock today than it was worth in 2016? !!!!!

 

[bonvoyage]

I foresee an expensive taxpayer funded bailout for Boeing

 

[Chuckanut]

I doubt if they will scrap the 737. It's a good plane. The MAX version may be rebranded - perhaps the 757Redux, or something like that.

I hear that the Air Force is still not happy with the KC-46 tanker.

Then we have Boeing's failure to successfully complete a demonstration mission of their StarLiner spacecraft, while SpaceX, which was paid 1 billion dollars less for a similar spacecraft, is now getting ready for their first manned launch.

Chicago based Boeing has a lot of work to do.

 

[brett]

My sense is that there is more unpleasant news coming for Boeing-financial and otherwise.

 

[Montecfo]

Not gambling but have initiated a position which I am looking to add to. New CEO says new target is midyear. He has good reason to be conservative.

 

[Starsky]

I’ll take that bet. How should we handle and what stakes would you like to wager?
Boeing will eventually get the MAX flying again almost regardless of the cost to do so. It’s a core reputation issue.
A prior poster mentioned the whole issue of raising the aircraft due to the larger engines. Boeing was forced into this because Airbus announced the A320neo. The difference in airplane height was key, as it was a lot easier to adapt the A320 to the larger, more efficient engines that both aircraft utilize and drove the improved operating economics of both the A320neo and the 737 MAX.
The big change will be the required simulator training for pilots to become type certified on the MAX. This will be a significant cost to the operators and Boeing due to penalties in the contracts. One of Boeing’s major marketing points was that only minimal additional training would be required for MAX pilots beyond that required to be 737 type certified. The marketeers drove the MAX development program, not the engineers, and Boeing is now paying the price.

Boeing employee: “This airplane is designed by clowns, who are in turn supervised by monkeys,”

They started with a fundamentally flawed design. The engines don't fit right. They're too big for the plane.

I'll bet you I'll never fly in one. Would you fly in one if you had a choice?

 

[Spock]

I doubt if they will scrap the 737. It's a good plane. The MAX version may be rebranded - perhaps the 757Redux, or something like that.

I hear that the Air Force is still not happy with the KC-46 tanker.

Then we have Boeing's failure to successfully complete a demonstration mission of their StarLiner spacecraft, while SpaceX, which was paid 1 billion dollars less for a similar spacecraft, is now getting ready for their first manned launch.

Chicago based Boeing has a lot of work to do.

While everybody is preoccupied with the 737MAX, nobody is watching what is (not) happening with the KC-46. This contract was "awarded" (under rigged terms) 9 YEARS AGO, the first aircraft was delivered just short of 1 year ago and then the USAF halted deliveries in April 2019 due to construction tools and debris laying loose in areas of the plane where they could cause damage. As of today the tanker still can not re-fuel some aircraft, specifically the A-10.
And this was supposed to be a low risk program because it was based on an existing platform, the 767.

Back to the 737MAX, it is Boeing who is suggesting that based on their experience the MAX will return to flight mid-year-ish. However the FAA released a response to that saying "We have set no timeframe for when the work will be completed."

Meanwhile Bank of America is quoted as saying ""we are increasingly fielding concerns from investors regarding the likelihood that the Boeing 737 MAX never returns to service."

 

[RetireBy90]

Well, looks like it maybe some time before this can make a profit or break even. Got some more and my cost is now about $350. Pays $8.22 dividend, currently 2.6% of 2.3% on my $350 cost. I originally target a return to $420 price, but now $400 seems more reasonable. About 30% increase from current price. Will only return about 15% from my purchase price over say 18-24 months. Not such a great investment, but then it was a gamble.

 

[bobandsherry]

I remember having this conversation with a fellow investor back in October who thought Boeing was a good buy then.
All I remember saying was the stock had not pulled back to 2018 levels before all of this happened and given the risk with the 737 the stock price needed to fall A LOT to compensate for that risk.

The stock is 330 now. It was under 150 in 2016 when they had none of these problems or losses related to the 737.

Why would anyone pay more than double for the stock today than it was worth in 2016? !!!!!

Just looking up a couple quick figures....

You fail to realize that company profit have grown. Net Income was up 108% for from 2016 to 2018 and diluted EPS was up almost 130% as well. So using diluted EPS growth, $150 share price in 2016 would be $345.

And with BA being a largely a duopoly, they enjoy a lot of latitude with customers moving to another brand (Airbus). If commercial aircraft was a totally competitive market BA stock price would have been much more severely punished. Will be interesting to see what 2019 results are, that could weigh heavily further on price, now under $310, so could see hitting under $300 if results are a total disaster.

 

[BeachOrCity]

Just looking up a couple quick figures....

You fail to realize that company profit have grown. Net Income was up 108% for from 2016 to 2018 and diluted EPS was up almost 130% as well. So using diluted EPS growth, $150 share price in 2016 would be $345.

...umm the stock was at $316 on Dec 28th 2018 (not 2019). It is basically about there now. Since then they have incurred billions in losses due to the crashes and grounding with no certainty what so ever when and if (small risk) the plane will fly again.

And as for profit increases?? ... 12 month profits ending Sept 2019 have completely eliminated that increase and then some. Additionally they are NOT done taking charges and seeing the impact of the 737 issues.

This whole episode is going to tie their hands for years, specifically their ability to do what was going to be the MMA (757ish replacement). It will also crimp additional max orders when (if?) it gets airborne again. So basically they have their defense business (still going well), and a hampered commercial aircraft business going forward. The 777 and 787 will continue to do well, but Airbus's A350 limits their ability to completely dominate in either segment.

I just can't see why anyone would think this company should be about the same share price as it was at the end of 2018 given the 737 issues, risk, and uncertainty.

Good luck!