Is Boeing a Buy Here?

[mamadogmamacat]

BA is a significant component of my "play" portfolio. However, I did decide to sell enough shares back in Jan 2019 to recover my stake less dividends. So, going fwd I'm playing BA with house money.

BA is in a cyclical industry, with approx 10 yr (8 to12) up cycles followed by approx. 5 yr flat or down cycles, mainly related to when airlines need to reconstitute their fleets. The current up cycle has 2 to 4 yrs to go. There is not a lot of competition for BA, Airbus products in all size categories are not as good or not perceived to be, and that is their only competition.

Regarding the crashes, it is early in NTSB review and international agency review, but it does seem to me to be a SW issue. Too bad for BA employees and mgmt, I do wonder if they off shored that work, and are now being burned by that decision. perhaps we will know in time.

I plan to hold BA while waiting for an expected recovery. But, I do think it has some more ways to fall, especially as this issue will stay in the news for a while, and then BA will fall or rise significantly again once the NTSB et al finishes thier work

 

[Totoro]

Good quality company? I believe so. Good price? I don't see it. Three years ago it was 1/3rd its current price, while its revenue only went up 10% or so.

High valuations of bumper profits. I can't see the easy route up from here, but certainly a long way down.

If anything, at first glance Airbus looks better (still not really great).

 

[Boho]

Planes grounded after Ethiopian Airlines crash

"Some countries — including the UK, China and Australia — and airlines are grounding Boeing 737 MAX 8 aircraft following a deadly Sunday crash in Ethiopia."

"Sen. Elizabeth Warren, a 2020 Democratic presidential candidate, is calling on the Federal Aviation Administration to ground 737 Max 8 planes in the US...'While we do not know the causes of these crashes, serious questions have been raised about whether these planes were pressed into service without additional pilot training in order to save money,' she said in a statement."

"The pilots of the doomed Ethiopian Airlines flight told air traffic control they were having “flight control problems” before the crash, airline CEO Tewolde GebreMariam told CNN’s Richard Quest Tuesday...That suggests the plane was not responding to pilots’ inputs and they were losing control of the aircraft, Quest explains."

 

[rocketjockey]

I also worked most of my career at Boeing, and accumulated "a few" hundred shares from various bonuses during my time there. With the recent stock run up this now represents "a few" percent of my NW and is, by far, the largest single equity position in my portfolio. I've been loath to sell it as I've enjoyed getting "a few" $K in dividends every year.

In all cases "a few" in the above means less than 5. My question is, how large do you allow a single equity position to get before you rebalance?

Ditto all this. 18 years at Boeing for me. I've moved money out of the Boeing Stock fund many times but it just keeps running up. Been having this same question for awhile now as well. How long to hold the Golden Goose....

 

[ExFlyBoy5]

The ramifications of this accident could be a really bad deal for BA. They have taken an antiquated airplane and put engines on it that are way overpowered (especially for the configuration of the wings being so far forward on the plane) that required a separate system that is supposed to control the tendency of the plane pitching too far up on takeoff. The Lion Air accident told this story in detail and it appears it hasn't been resolved. I have heard through the grapevine that BA released a software update within the last 24 hours to address an anomaly in the system. Oh yeah, and in a marketing deal...BA convinced the regulators that the system isn't worthy of differences training for crews flying different versions of the 737...so when the system fails, they aren't trained to correct it. The whole thing sends chills up my back....

 

[Running_Man]

Boeing has held it's stock price up by buying 18 billion of stock in the last two years and plans to buy 20 billion more, the result is an increased PE of 20 from 14 and it now has a negative book value of $3.00 a share down from positive $20 in 2013. Sales have increased 20% since 2013 while stock price has increased 500%. Nothing in the stock itself indicates the price is cheap at less than $200.

What is the effect on Boeing in a worst case 5,000 plane order cancellation and lawsuits for hundreds of deaths? It would be forced in that case to issue large amount of stock at a reduced price to settle damages. Boeing has increased it's profitability by reducing greatly R&D expense and cutting income tax expense from 33% to 10 percent which has resulted in the doubling of margins from the same basic sales. The growth in this company is vastly overstated.

So it appears not to be undervalued, maybe close to fair value if nothing occurs as a result of this and you believe in financial engineering, creativity through large purchase of the company stock to increase price with relatively flat sales levels and reduced expenses and taxes. An attractive price to me is $160- $200. There are risks on lawsuits, taxes, lack of R&D effecting future profitability and potential need to issue stock in worst case at lower than present price.

 

[Go-NoGo]

Air New Zealand is 50% own by the New Zealand government so i suspect the NZ will explore legal options on the 787 engine issues , i don't remember if they have any Max 8s

so legal issues are possible for Boeing ( i note one article suggests 8 US citizens died in the latest Max 8 crash )

Boeing does not make the engines - Rolls Royce does, and they are up the creek with issues many other airlines have with the Rolls Royce Trent 1000.

R&R has to pay Air New Zealand compensation for the 787 grounding for the engine problems.

 

[samclem]

BA convinced the regulators that the system isn't worthy of differences training for crews flying different versions of the 737...so when the system fails, they aren't trained to correct it. The whole thing sends chills up my back....

I'm not saying that Boeing has done everything perfectly, but it's important to make clear that a problem with the MCAS trim system (as experienced by the Indonesian Lion Air crew) will appear to the crew to be very similar to the (very common and very well understood) "runaway trim" situations that crews practice for all the time. The solution is the same: disconnect the autopilot and use electric trim. If that doesn't work (and you'll know right away), disable the electric trim and trim manually with the trim wheel. The 737 is very easy to fly using manual trim, and in no circumstance is the plane uncontrollable using manual trim.

My personal opinion is that Boeing could have done a better job of explaining this new trim system in their publications what caused the Air the training material they produced. But Lion Air also should have fixed the AoA sensors (correctly) when the problem first showed up (having crews fly entire trips with the stick shaker on is ridiculous.).

We'll see what caused the crash in Ethiopia, it may not take very long to know. Meanwhile, Boeing is changing the software for the MCAS. There doesn't appear to be anything fundamentally wrong with the design or construction of the 737 MAX itself, and a software fix to make things "better" seems simple enough to implement.

 

[ownyourfuture]

Boeing has held it's stock price up by buying 18 billion of stock in the last two years and plans to buy 20 billion more, the result is an increased PE of 20 from 14 and it now has a negative book value of $3.00 a share down from positive $20 in 2013. Sales have increased 20% since 2013 while stock price has increased 500%. Nothing in the stock itself indicates the price is cheap at less than $200.

What is the effect on Boeing in a worst case 5,000 plane order cancellation and lawsuits for hundreds of deaths? It would be forced in that case to issue large amount of stock at a reduced price to settle damages. Boeing has increased it's profitability by reducing greatly R&D expense and cutting income tax expense from 33% to 10 percent which has resulted in the doubling of margins from the same basic sales. The growth in this company is vastly overstated.

So it appears not to be undervalued, maybe close to fair value if nothing occurs as a result of this and you believe in financial engineering, creativity through large purchase of the company stock to increase price with relatively flat sales levels and reduced expenses and taxes. An attractive price to me is $160- $200. There are risks on lawsuits, taxes, lack of R&D effecting future profitability and potential need to issue stock in worst case at lower than present price.

Great stuff, especially relating to share buybacks. This might ruffle some feathers, but I've never liked them.

 

[samcat]

I think it is too early to tell. If I walked into a plane and it was a MAX 8, I would turn around and walk off.

 

[ExFlyBoy5]

I'm not saying that Boeing has done everything perfectly, but it's important to make clear that a problem with the MCAS trim system (as experienced by the Malaysian Lion Air crew) will appear to the crew to be very similar to the (very common and very well understood) "runaway trim" situations that crews practice for all the time. The solution is the same: disconnect the autopilot and use electric trim. If that doesn't work (and you'll know right away), disable the electric trim and trim manually with the trim wheel. The 737 is very easy to fly using manual trim, and in no circumstance is the plane uncontrollable using manual trim.

My personal opinion is that Boeing could have done a better job of explaining this new trim system in their publications what caused the Air the training material they produced. But Lion Air also should have fixed the AoA sensors (correctly) when the problem first showed up (having crews fly entire trips with the stick shaker on is ridiculous.).

We'll see what caused the crash in Ethiopia, it may not take very long to know. Meanwhile, Boeing is changing the software for the MCAS. There doesn't appear to be anything fundamentally wrong with the design or construction of the 737 MAX itself, and a software fix to make things "better" seems simple enough to implement.

Not to deride the thread, but the Max 8 isn't having a run of good luck for being a new plane. Also, there are some factors that aren't really reported in the media. The airport they were flying out of is at 7600 feet MSL, so performance would be degraded...how much, I don't know. Also, although I haven't flown a 737 simulator so I don't know how it handles, but on the large simulators I've flown a trim runaway was about the worst thing we dealt with in the sim. Pretty much the only thing where I thought "wow, I hope that never happens in real life." Frantically stabbing for the disconnect switches while holding the yoke with all your might, and hoping you don't have to fly it for the next 20 minutes with the trim full nose down isn't a run of the mill procedure. Again not having flown a 737, it seems like sending out a memo to "just treat it like a trim runaway" falls a bit short of solving the problem.

I also attached Boeing's answer to the runaway pitch trim that they issued back in Nov of 2018.

Bottom line...I think there is an issue with the system and I personally wouldn't fly on one.

OK...thread derailment complete...back to your originally scheduled broadcast..

 

[jazz4cash]

I think it is too early to tell. If I walked into a plane and it was a MAX 8, I would turn around and walk off.

How would you know? Just curious.

 

[REWahoo]

I think refusing to fly on a Max 8 might be overkill (pun intended). But I do agree a runaway trim situation wasn't my favorite emergency maneuver in the simulator.

... is the MAX safe to fly? The short answer is yes. Why the Ethiopian pilots didn’t simply override the errant MCAS system, if in fact that’s what they were dealing with, isn’t understood. Perhaps, like the Lion Air crew before them, they were simply overwhelmed by a cascade of warnings, fault messages and unstable aircraft movements.

But disconnecting the system is, or should be, pretty straightforward, and passengers can take some comfort in knowing that MAX pilots everywhere, together with the various airline training departments, are acutely aware of the issue and how to deal with it.

https://www.usatoday.com/story/opin...h-pilot-air-travel-airline-column/3140139002/

 

[samcat]

How would you know? Just curious.

I would look at the emergency card in the seat pocket. Also you can find out the type of plane that normally flies the route. I'm not home and can't remember the website. I'll try to post it later.

You can also search on the tail number if you can see it through a window from the terminal.

We are going to Vegas on Sunday on Southwest. I was able to find out that the plane is normally a 737 700. I'll check again when we get closer as I found out today, they have MAX planes.

I don't know a whole lot about the plane but it sounds like it is a design issue. With the updrafts and downdrafts flying into Vegas, I don't want to be on one of these planes.

 

[sheehs1]

I think it is too early to tell. If I walked into a plane and it was a MAX 8, I would turn around and walk off.

Public perception could be everything in the short term. Many countries have already grounded the plane. If the U.S. does it, this stock will dive. Because they know that, it might not happen unless or until something else occurs.

I don't doubt BA will do everything it can to "fix" the issue. There is too much at stake not to. However, I sold my BA position at noon today. I had made a fair amount of money in an IRA and wasn't willing to wait and see. I can always buy it back. Maybe not at the $132 share price I got it for in 2016 but I feel better taking a non taxable profit while this unfolds.

 

[ExFlyBoy5]

I think refusing to fly on a Max 8 might be overkill (pun intended). But I do agree a runaway trim situation wasn't my favorite emergency maneuver in the simulator.



https://www.usatoday.com/story/opin...h-pilot-air-travel-airline-column/3140139002/

Continued quote from article...

Perhaps, like the Lion Air crew before them, they were simply overwhelmed by a cascade of warnings, fault messages and unstable aircraft movements.

But disconnecting the system is, or should be, pretty straightforward, and passengers can take some comfort in knowing that MAX pilots everywhere, together with the various airline training departments, are acutely aware of the issue and how to deal with it.

Yes, a cascade of problems...that is what normally happens to cause a good crew to lose an aircraft. Pretty straight forward...there is no such thing when there are a multitude of issues that happen in a very short order, close to the ground during a critical phase of flight. It should also be noted that Ethiopian pilots are regarded as some of the best trained pilots out there.

An issue that I think is overlooked by many is that today's pilots fly very automated airplanes. This is all fine and dandy...until something happens that they are not aware of. It's difficult to program simulator scenarios that address/present some of these anomalies since there can be so many variables that makes them hard to replicate.

 

[samclem]

The airport they were flying out of is at 7600 feet MSL, so performance would be degraded...how much, I don't know. Also, although I haven't flown a 737 simulator so I don't know how it handles, but on the large simulators I've flown a trim runaway was about the worst thing we dealt with in the sim. Pretty much the only thing where I thought "wow, I hope that never happens in real life." Frantically stabbing for the disconnect switches while holding the yoke with all your might, and hoping you don't have to fly it for the next 20 minutes with the trim full nose down isn't a run of the mill procedure.

The plane was quite a distance from the airport and radioed that they were coming back, so field elevation shouldn't be a factor.

Runaway trim does get your attention, especially when it is a surprise. The Lion Air crew apparently never lost the ability to trim the plane using electric trim, they did it many, many times before they inexplicably stopped. At any point they could have simply turned off the electric trim and used the very effective manual trim wheel. Some aircraft types don't have this option, and runaway trim is a more dangerous situation.
We don't yet know that the crash in Ethiopia had anything to do with the MCAS. The eyewitness statements ("trailing white smoke") are not consistent an MCAS problem, but eyewitness reports at a crash scene are often inaccurate. We'll know more very soon.

 

[OldShooter]

I'm not too interested in speculation on causes yet. I read several stories saying that people on the ground reported unusual noise, fire and stuff coming out of the rear of the airplane. This kind of report is not the most reliable but these were people under the approach/departure path that saw and heard airplanes every day.

It may (ungrounded speculation here) be that an explosion in a baggage compartment damaged the elevator controls somehow. A malfunctioning elevator could easily make controlled flight impossible.

 

[REWahoo]

An issue that I think is overlooked by many is that today's pilots fly very automated airplanes. This is all fine and dandy...until something happens that they are not aware of. It's difficult to program simulator scenarios that address/present some of these anomalies since there can be so many variables that makes them hard to replicate.

Good point. A far cry from the aircraft I flew back in the 70's...

 

[traineeinvestor]

Still looks a little expensive to me.

In addition to valuation concerns, I am not sure if I can quantify the effect of the short term financial damage this will cause or the longer term brand damage (if any). In particular, I have no idea how long it will be before the planes are cleared to fly again in a number of countries, whether Boeing will have to compensate affected airlines and whether this could end up being politicised in the current trade-war environment (which is a very hot topic in my part of the world at the moment).

Will pass.

 

[target2019]

Waiting for price at $300.

 

[Denverite]

I'm not too interested in speculation on causes yet. I read several stories saying that people on the ground reported unusual noise, fire and stuff coming out of the rear of the airplane. This kind of report is not the most reliable but these were people under the approach/departure path that saw and heard airplanes every day.

It may (ungrounded speculation here) be that an explosion in a baggage compartment damaged the elevator controls somehow. A malfunctioning elevator could easily make controlled flight impossible.

Yes. The observed smoke trail/fire could mean any number of things, including terrorism. That too is ungrounded speculation but no one knows with certainty at this point.

The black boxes are apparently being sent to another country for analysis. Those recordings (if they are usable) should answer the main questions.

 

[Boho]

NY Times: "President Trump announced that the United States was grounding Boeing’s 737 Max aircraft, reversing an earlier decision by American regulators to keep the jets flying in the wake of a second deadly crash involving one of the jets in Ethiopia."

 

[Aerides]

Boeing just came out themselves and recommended global grounding, out of "an abundance of caution."

 

[ExFlyBoy5]

And the FAA ordered immediate grounding.

"Investigation of the crash...developed new information from the wreckage concerning the aircraft's configuration after takeoff that, taken together with newly refined data from satellite-base tracking of the flight path, indicates some similarities between 'this accident and the Lion Air accident' that warrant further investigation of the possibility of a shared cause for the two incidents that needs to be better understood and addressed."

https://www.faa.gov/news/updates/media/Emergency_Order.pdf