Boeing's Bad Balance Sheet May Doom It 24 comments
an article to
-
Font Size:
-
Print
- TweetThis
Much has been written about Boeing's murky future. Will its customers cancel orders? Will the 787 ever be delivered? What new production snafu will happen next? However, little has been mentioned about its crumbling balance sheet.
In two previous articles, I wrote about Boeing's weakening financials (Boeing Can't Afford Another Strike and Boeing Headed The Way Of GM?) and predicted a miserable Q4. Boeing did not disappoint. Its balance sheet saw tremendous asset destruction this quarter. Below are a series of graphs depicting the blow-up.
Short term investments went from $2.3 billion to practically zero. (See graph Short Term Investments).
Pension plan assets tumbled from $5.9 billion to nothing. (See graph Pension Plan Assets).
In the meantime, inventory climbed from $9.6 to $15.6 billion on the halt in commercial plane production. (See graph Inventory).
...while goodwill and other intangibles rose from $5.2 to $6.3 billion (not much to hold onto). (See graph Goodwill and Other Intangibles).
The liability side grew. Pension plan liabilities soared from $1.2 to $8.4 billion. Ouch! (See graph Pension Plan Liabilities).
All in all, tangible equity dropped from $2.7 to a minus $6.8 billion, a sad $9.5 billion loss. (See graph Tangible Equity).
Boeing goes into 2009 with a weak balance sheet. It needed its cash, investments, and pension plan assets, all victims of strikes, production misteps, and a falling stock market. Those cushions are now gone. It faces a large $7 billion debt.
Moreover, it now faces a whole new problem in the form of an $8.4 billion pension liability that dwarfs its debt. So far this year, Boeing has lost $9.5 billion in tangible equity. That's not how you want to enter one of the most trying times in our nation's economic history.
Disclosure: Short BA
Related Articles
|
-
The Seeking Alpha 100
See allThe top 100 stock
market authors
selected for publication
Seeking Alpha 100 » -
Fastest Climbers
Authors with the largestSee all
increase in followers
in the last 7 days
Fastest Climbers » -
Top Commenters
Top commenters,See all
as ranked by their peers
Top Commenters » -
Top Instabloggers
The 100 most active
Instabloggers.-
1
David Fry
-
2
TraderMark
-
3
Don Dion
-
4
Cliff Wachtel
-
5
Mike Havrilla
Top Instabloggers » -
1
-
Top StockTalkers
TopSee all
StockTalkers.
Top StockTalkers »
Note above remark is a swing of $13 billion in the pension plan.
The future for BA is dimmer in great part because it has lost a vast amount of its assets. For those of us who have followed this company, it's pretty sad. Back, in 2005, tangible equity was $8.5 billion.
Now it's in the hole $6.8 billion. That's $15.3 billion in damages in 4 years! Who else could wreck so much equity and prosper?
As to the future? Negative free cash flow, currency issues. higher salaries and health costs (from strike), customers walking or renegotiating contracts after BA's failure to deliver, decreased air travel, quality issues with fasteners, likely more 787 delays, pension plan pressure, all should create more than their share of problems for BA.
As far as the cash situation, didn't Boeing make several acquisitions in the last quarter, thus using up some of their stash of cash? And wouldn't those acquisitions have just shown up as other assets on the balance sheet instead of cash?
This piece comes across as not too well researched or insightful. And from a serious analyst perspective, the author's use of only two data points is just plain silly.
Where are those acquisitions on the balance sheet? More goodwill, intangibles, and plants.
As to 2 points, the market usually compares year over year earnings. This is a comparison to year over year equity, its breakdown into components of the asset and balance sheet.
www.google.com/search?...
The balance sheet pension asset or liability is equal to the difference between pension assets and the actuary’s estimate of pension liability plus or minus the unrecognized (unamortized) portions of past and prior service costs, actuarial/experience gains or losses.
In other words, pension assets - liabilities are apples to apples.
On Feb 12 01:17 PM Stephen Rosenman wrote:
> Tatertot: I wanted to dramatize the collapse of BA's assets in one
> year. The market totally ignored the balance sheet. It will take
> a herculean effort to repair the balance sheet. Also the investing
> public ignored the looming problem BA faces with its new pension
> plan problems: pension plan assets went from $5.9 billion to a $8.4
> billion liability. Someone needs to fire the guy in charge of the
> pension plan.
Opa-opa: This is a discussion about the balance sheet. However, looking at the above drops in tangible equity, it seems clear that BA has not been able to use its sales to keep its balance sheet in order.
The union is exactly the same as UAW or worse.
They never LEARN. The STRIKE last year was a
deadly BLOW to Boeing. What a timing to have
a strike. They have to pay for their stupidity for sure.
Next, the IAM strike is not a cause of worry about Boeing's long term outlook, it is a symptom.
Boeing's management gambled in a game of chicken, knowing it could settle at the beginning with the terms it offered later. The cost to the shareholders was a bleed of cash, at a time when cash would become king.
What were we told the benefit would be? You can look it up, but as i recall Mr. Scott Carson the benefit was to be management flexibility. In the end, it is the shareholder who got bent over.
The area of concern for Boeing is its management's team inability to execute against its back log. And it ain't just the 787.
www.rbogash.com/boeing...
The serious watch issue for this stock is management accountability. Until this company finds a way to pull its late, over cost projects in line watch how many times the responsible parties get promoted and re-assigned.
Next.... how many armchair quarterbacks would smile and clap if a manufacturing executive today floated a proposal to spread design and manufacturing around the globe? And if you have some good model to manage today's currency risk, please post it.
"Pension plan assets tumbled from $5.9 billion to nothing"
Do you mean how much the pension plan is overfunded? It's my understanding that the master trust for the union and the non-union pension plan at Boeing was at $53B, overfunded by a couple (5+) billion dollars until the financial collapse.
Did you mean to say that the cash position of the pension plan is at zero? My cash position in my 401k is also at 0%, because now is the time to buy. I'd be fine with that, as long as you provide a clarification.
Your statement is factually incorrect and misleading. Are you providing misinformation to provoke hysteric “short sale” behavior? In the world of fact based journalism, you should provide a recant.
Its defined benefit plan had $42.47 billion in assets as of Sept. 30, according to Pensions & Investments data. The company didn’t release the year-end number."
pionline.com search "Boeing"
There is a big difference between Pension Fund Assets going to zero (or negative) and the over-funding going to negative. With stock prices cut in half in six months it is not a surprise that the excess in Pension Funds is no longer available.
What would have really helped is an analysis of how the damage to balance sheet might force Boeing to raise capital at significantly depressed equity price levels. Further is there any indication that Boeing's ability to raise debt is impaired (CDS spreads widening, ratings falling etc.)?
As always, the bureaucracy seems determined to cut the muscle to spare the fat. I work in IT, and a 7-10% reduction in head count was mandated -- despite the fact that we are already short-handed!
Make no mistake: critical production systems WILL suffer as a result. Sadly, I must say that I think BA's stock price will sink even further. Perhaps it will make Boeing an attractive takeover target for someone who WILL manage it competently.