Boeing Cleared for Takeoff 17 comments
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The Boeing Company (BA) has been making headlines for the wrong reasons lately. First, came word of unspecified delays in rollout of the new-generation 787 “Dreamliner”. BA has notified two early 787 customers--British Airways and Virgin Atlantic--that the preliminary delivery date of early 2009 looks unlikely, as the manufacturer must redesign the area where the wing meets the fuselage. Furthermore, Boeing was stunned to lose its bid to replace the U.S. Air Force’s [USAF] in-flight tanker fleet to its European rival.
The $35 billion contract for the USAF tankers--which many considered an almost certainty for Boeing to win--was also highly politicized. Boeing management raised national security questions about the USAF awarding large contracts to a foreign company, particularly during a domestic economic slowdown. "Our team has taken a very close look at the tanker decision and found serious flaws in the process that we believe warrant appeal," said Jim McNerney, Boeing’s Chairman, CEO and President. "This (appeal) is an extraordinary step rarely taken by our company, and one we take very seriously."
Clearly the $35 billion dollar project would have been a nice addition to Boeing’s sales, but even without that deal the fundamentals underlying BA look fairly attractive. Consensus analyst estimates still predict 12.5% sales growth in 2009. Estimates also show a rise in EPS in the neighborhood of 20% to $7.14 per share from $5.97, which continues the strong earnings growth that Boeing has enjoyed since 2003.
Boeing has increased its dividend each of the last five years as well, which is a good sign of management’s confidence in the company’s financial strength. Perhaps the most telling aspect of the recent success of the company’s management is its ability to consistently grow Return on Equity [ROE]. ROE was a bit below average 5 years ago at just 9% but has steadily grown and to 44% last year.
So, combine a few negative news stories about BA with a generally weak market so far in 2008 and it is easy to understand how the stock is off more than 12%. Were it not for the underlying strength of Boeing, the stock’s swoon could have been much worse. There are stocks that are more undervalued than BA in the market, but it is a purchase candidate for investors with a 3-5 year time frame, when Ockham’s valuation methodology has a rational price target for Boeing in the range of $90-$93 a share.
Disclosure: None
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This article has 17 comments:
If I was Boeing CEO, I would put the company up for a take over, maybe the Chinese or french will bid for it.
Then let the Guys in Washington give the approval.
The customer (USAF/Pentagon) gave Boeing the RFP and along the way rigged the RFP scoring to favor Northrop/EADS.
The incoming SoD Gates bowed to pressure from McCain to change the language in the RFP to allow EADS--who was being sued for illegal trade subsidies--to even submit a bid.
As far as I can tell, the whole process was rigged by political appointees, who intentionally threw the award to please a future political candidate for President.
As far as Boeing's future prospects, the new 787 Dreamliner is a superior product and is sold out until at least 2015.
I think there will be politcal pressure to freeze the money for the contract award. It's just too far out and radical to give jobs and military technology to our Euro friends, especially when there's a looming recession/depression right here at home--where those jobs will be desparately needed in the next few years.
The French & German governments used their VETO power in NATO to stop Boeing from selling C-17's to the peace keeping forces because they are selling NATO A400M's.
Speaking of A400M's. Pratt & Whitney won a fair competition to build the engines for that airframe. The French government stepped in and said OH NO those engines WILL be built by a French Company leading to a 2 year delay and stripping P&W from a lucrative contract.
When Airbus was going to sell 6 of their factories the EU stepped in and stopped Spirit AeroSystems from being able to purchase any of those factories. They want them sold to European companies.
Where will the profits go? That's right Europe. Where will the technology transfer go to? That's right Europe. Those barrel sections will be stuffed with everything that was done in- that right Europe. The politicians have put a nice bow on this package but the truth is if the mount of USA JOBS was real EADS would not be talking about moving work out of the EURO-ZONE!!!!!!!!!!
CAN YOU SAY PROTECTIONISM!!!!!!!!!...
Now it is time to look into the politics that involved EADS and their partner by name only Northrup Grumman and the gift that was given to them.
Mr. McCain did not want to allow the subsidy decision or risk of that decision to be mentioned. They are already subsized by their government in the for of non-repayable loans if the plane doesn't make a profit (can you say A380 it will take@ 400 planes to be profitable. With less than 200 planes on order I do't see this loan being repayed. The same can be said of the A340-500 & -600. Nothing like free money.
This is a company from Europe, yes there will be a final assembly plant in Alabama (and Alabama workers have proved to be a skilled workforce) but just how much work will be done there. They state that there will be 1000 jobs for the Tanker & 300 jobs for the freighter. The rest of the jobs that they tout are already in the supplier base and will not create NEW JOBS just sustain old ones.
We talk about the scandal from the original tanker deal. The people that were involved in that went to prison and the CEO resigned. In this scandal we have John "Anti-Boeing" McCain making phone calls and sending e-mails so that the requirements for the KC-X will be changed to allow EADS to bid. Let's not talk about the 4 staffers that worked for companies that lobbied the Senate, Congress and Pentagon on EADS behalf. These people lobbied for EADS and are currently on McCain's Presidential Election staff. His finance chairman is still working for the lobby company that is lobbying for EADS AND working for McCain at the same time. No conflict there!!!!
McCain brags on the campaign trail how he saved the taxpayers billions of dollars. I don't see it and he isn't showing any true numbers. The original deal was 100 tankers for 20 billion dollars. That works out to 200 million a copy. The new deal is 179 tankers for 40 billion. That works out to 223 million a copy. I see a 10% increase in the cost. In the original deal our warfighters would already be getting some of those planes. Who knows when they will get them under the new deal
McCain has been extremely negative about letting the Air Force buy more C-17's when the military truly needs them. Our troops will wait for a C-17 to be available rather than use a C-5 because they are unreliable. The Air Force has to have 2 C-5's available for any one mission because of reliability The Air force has to make sure that they can do what's necessary. Putting new engines on the old warhorses is not the solution. Making the best of the C-5's airworthy and buying NEW C-17's is the only reasonable answer. Even the C-17's have more hours on them than they were suppose to at this time in their life span and some of them should be replaced. If we shut down the C-17 line in Long Beach and find out that we do need more airlift who are we going to have build them? The French? We must keep this line alive!!!!!!
How do you reward the EU for all their protectionism and down right dislike for the USA??????????
GIVE THEM A 40 BILLION DOLLAR CONTRACT............TH... HOW
A country that doesn't produce/manufacture durable goods ........
WELL IT JUST CANNOT EXIST
Where will the profits go? That's right Europe. Where will the technology transfer go to? That's right Europe. Those barrel sections will be stuffed with everything that was done in- that right Europe. The politicians have put a nice bow on this package but the truth is if the mount of USA JOBS was real EADS would not be talking about moving work out of the EURO-ZONE!!!!!!!!!!
It has nothing to do with sour grapes. These facts were out there and anyone paying attention knew about them. Do you think that taking work away from P&W after a fair competition, not selling to Spirit and blocking C-17 sales to NATO was fair? And should we reward them with taxpayer dollars for doing so? I think not. Would you call all the protests that have been launched against contracts that Boeing won sour grapes? CSARX- KC135 mainteance. You can say Boeing lost but did John McCain help in that loss? He wrote the letters and sent the e-mails altering the requirements. Was this a fair competition with these new requirements? And if it was, did Boeing Management go in with a bravado attitude that ultimately did them in? It sounds like that is what hurt them in the UK competition.
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www.businessweek.com/g...
From the above article:
Although each of these deals had unique elements, taken together they foreshadowed some of the difficulties Boeing now faces in the U.S. As a hungry newcomer, EADS was more willing to make concessions to win customers. For example, in Britain it agreed to assume much of the financial risk in building the planes, and then lease them to the government.
Boeing, accustomed to traditional procurement contracts, never offered such an arrangement, consultant Beaver says. The U.S. aerospace giant had worked on other British military programs, notably the C-17 transport plane, "which was handled by a different part of Boeing and has been very successful because they understood the culture," Beaver says. But "the tanker people appeared not to understand the British market."
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Actually one of my favorite sayings is:
Hey there upper management. Remember that speech that you gave your employees about this being a GLOBAL MARKET. Just before you laid them off. Well dig out that speech (you will find it in the bottom left drawer under all your junk food). Go into the men's room where ther is plenty of light and a big mirror (don't forget your glasses). Now read that speech to yourself because you have just been outssourced in this global economy!
That the Air Force decided to change the RFP in order to increase the attractiveness of one of the bidders is the real cause behind Boeing's loss. They requested a replacement for its current tanker aircraft and then saw an opportunity to get a tanker and freighter at the same time. It is not the first time the USAF has shown it has an "add on disease" by obligating itself to buying too much technology or capabilities - most of which, in this case, can never be operated at the same time nor is it needed as they can be achieved by other means.
Now Boeing is protesting, thereby delaying even further a long overdue upgrade in the nation’s capacity to refuel its warplanes. In a fit of pique, Boeing has decided that petty political infighting takes precedence over the interests of our men and women in uniform.