Boeing Equals Better Value

The recent headlines regarding Boeing's (BA) problems meeting their delivery deadlines has caused the stock to slide, as of this writing, to the low 95s, losing roughly 12% of its value during the previous two weeks. BA is still a solid company with good management, strong earnings, and good outlook. So, what could come of a 12-15% correction? Put simply, a wealth of opportunity.

Compare Boeing to Lockheed Martin (LMT) and you find two relatively similar, upward slanting, charts.

Many hedge funds utilize Statistical Arbitrage in order to pinpoint statistical abnormalities such as this. The typical play here would be to go long BA while simultaneously going short LMT, expecting the two to converge once again, or at the very least, continue in their trend up, with the gains from going long BA outweighing the losses from going short LMT.

If this analysis is correct, which Friday's trading has led me to believe, BA should begin to level out this week, while LMT moves lower or sideways. Friday saw BA open at 96.11 and close at 96.69, the first substantial increase in 8 days. This week we will see a close lower, but in a range smaller than Friday's.

Full disclosure: R.E. is long the BA Nov 100 Call.

Comments

[What Me Worry:]

Upper management must have found out more than they wanted about the delay, whereas they replaced the manager on the 787 .. OR .. this was a means of keeping the customers comfortable. HUM!!!

General Butchko (based on his F-15E experience experience with synchronous with Flight Contol systems with MCAIR) gambled on McAir and had certain Air Force personnel transferred off the C-17 program. He took the contract away from Honeywell - Albequerque late in the program and gave to GE - Binghamton, because Honeywell introduced yet another delay and didn't look like they would deliver the Flight Controls even in that time. He then micro-managed the program to make sure his gamble would pay off.

Honeywell did not have the system level technical smarts to do a quad asynchronous flight control system. (Throughput issues because asynchronous systems are indeterminate systems). General Butchko switched the contract to GE to build a quad synchronous system which GE did know how to build (ie...F-18 A/B).

Honeywell's experience from the C-17 era was based on employees hired away from General Dynamics - Dallas. The F-16 and prior digital flight control systems built by General Dynamics were asnchronous systems. When the F-16 experience vibration problems traced to odd sub-harmonic beat frequencies, General Dynamics wrote a AF paper and vowed never to build another asynchronous flight control system. I cannot verify if they followed through.

Synchronous makes it possible to have tighter failure detection settings with less time delays and reduces noise to the actuators.. How would you know that testing on an asynchronous system was complete since the test standard would be a probability distribution?

I have no idea what kind of flight control system the dreamliner has. It turns out, there are many ways to go digital. Some systems are determinate....some are indeterminate. The commercial mind set is not at all similar to the military mindset. We know that there will either be "hardware" or "software" issues and maybe even both. The press will eventually report on a specific issue for the delay. The reported issue will not be the real issue. The real schedule bottleneck will be something else.........



And from a former Boeing structural engineed: "Composites are no good in out of plane bending. You
have to find a shear path instead of a bending path. We are faced with this every day and the only solution
is to minimize the bending modes. They cause delaminations that destroy composite plies for strain
capability. Yes we need to worry about the composites in a fuselage structure not only for static stress but
damage and fatigue that we know little about. But time will tell. There are places that composites should not
be used, in high;ly loaded paths and that includes the fuselage structure."

Sell your Boeing stock if you still have some. I am more worried about the unknown bending modes in the composite airframe making the capture of the real control laws impossible. I have been there before on many aircraft development programs.

Conclusion: There is at least a few more shoes that are going to drop.

2007 Oct 19 04:27 PM

[What Me Worry:]

Upper management must have found out more than they wanted about the delay, whereas they replaced the manager on the 787 .. OR .. this was a means of keeping the customers comfortable. HUM!!!

General Butchko (based on his F-15E experience experience with synchronous with Flight Contol systems with MCAIR) gambled on McAir and had certain Air Force personnel transferred off the C-17 program. He took the contract away from Honeywell - Albequerque late in the program and gave to GE - Binghamton, because Honeywell introduced yet another delay and didn't look like they would deliver the Flight Controls even in that time. He then micro-managed the program to make sure his gamble would pay off.

Honeywell did not have the system level technical smarts to do a quad asynchronous flight control system. (Throughput issues because asynchronous systems are indeterminate systems). General Butchko switched the contract to GE to build a quad synchronous system which GE did know how to build (ie...F-18 A/B).

Honeywell's experience from the C-17 era was based on employees hired away from General Dynamics - Dallas. The F-16 and prior digital flight control systems built by General Dynamics were asnchronous systems. When the F-16 experience vibration problems traced to odd sub-harmonic beat frequencies, General Dynamics wrote a AF paper and vowed never to build another asynchronous flight control system. I cannot verify if they followed through.

Synchronous makes it possible to have tighter failure detection settings with less time delays and reduces noise to the actuators.. How would you know that testing on an asynchronous system was complete since the test standard would be a probability distribution?

I have no idea what kind of flight control system the dreamliner has. It turns out, there are many ways to go digital. Some systems are determinate....some are indeterminate. The commercial mind set is not at all similar to the military mindset. We know that there will either be "hardware" or "software" issues and maybe even both. The press will eventually report on a specific issue for the delay. The reported issue will not be the real issue. The real schedule bottleneck will be something else.........



And from a former Boeing structural engineed: "Composites are no good in out of plane bending. You
have to find a shear path instead of a bending path. We are faced with this every day and the only solution
is to minimize the bending modes. They cause delaminations that destroy composite plies for strain
capability. Yes we need to worry about the composites in a fuselage structure not only for static stress but
damage and fatigue that we know little about. But time will tell. There are places that composites should not
be used, in high;ly loaded paths and that includes the fuselage structure."

Sell your Boeing stock if you still have some. I am more worried about the unknown bending modes in the composite airframe making the capture of the real control laws impossible. I have been there before on many aircraft development programs.

Conclusion: There is at least a few more shoes that are going to drop.

2007 Oct 19 04:27 PM