Boeing Wichita Woes: A Strange Coincidence? (BA)

Apr.18.06 | About: The Boeing (BA)

I don't generally write about companies that I don't own and have no intention of buying, but I couldn't resist a short note on Boeing (NYSE: BA) today.

As I said, I'm not a Boeing investor -- it's true that the company has had tremendous success in the last year with their new Dreamliner, but I missed that runup and I don't generally like the boom and bust BA has been through over the last several years, and for most of my portfolio I prefer to avoid huge companies. If I were to invest in commercial aerospace right now, it would be in Embraer (NYSE:ERJ), a Brazilian airplane manufacturer that I've followed for a long time (put them on my wish list back in August) and probably should have bought long ago.

But I can't resist an interesting coincidence, and there were two stories that stood out about Boeing today.

First, the Washington Post ran a very disturbing story about Boeing's big plant in Wichita, Kansas. Basically, whistleblowers are saying that parts for the 737 from a particular supplier routinely did not meet specifications, and that assembly line workers were pressured to ignore the shortcomings of the parts and force them to fit the airframes they were assembling. This issue has been percolating for six years, but I hadn't heard anything about it before. The reporting by the Post is very well done, and it's a disturbing article for those of us who are nervous enough about flying even without thinking about whether the assembly line worker had to throw in a few extra rivets in the wrong place that weren't part of the design.

I have no idea whether or not this is really a big deal, safety-wise, though it gives me the heebie jeebies. It's in court now and probably will be for ages, I imagine, and Boeing conveyed that they were certain that any problems that might have existed on the airframes would have been caught by quality control after they were shipped to Washington for assembly. Boeing did have some sort of settlement with the parts supplier, but they didn't admit to any safety related problems, nor did the article say that any specific planes with problems have been noted in maintenance checks.

And I wouldn't have noticed the second article if it hadn't been for the fact that I read the first one earlier today.

The Post article: Whistleblowers point out significant problems at Boeing's big Wichita airframe plant.

The second article, from the AP out yesterday evening: Boeing to lay off about 900 Kansas workers.

Boeing is planning to lay off about 25% of the employees at that same Wichita airframe plant. And as interesting is the fact that they're apparently repurposing the plant to work on different products -- instead of the 737s the whistleblowers noticed problems with a few years ago, they'll be focusing on defense work, widebodied 747s and similar specialty products for the military. (To be honest, it's completely possible that they haven't worked on 737s there for years, I only know what I read in these two articles.)

If that's a coincidence, it's an odd one. This morning, a major page one story calls attention to serious problems at the Wichita plant. This afternoon, Boeing officially announces major layoffs and restructuring at that plant (without, of course, mentioning the previous problems or the lawsuits). Good fodder for conspiracy theorists, if there are any about. I don't expect this will impact BA on Wall Street unless something dastardly is proven, but if there are Boeing investors out there that follow the company more closely than I do, I'd be curious to hear if there's more of a back story here.