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Boeing's Got Another 737 Max Oopsie

Jun. 14, 2020 4:21 PM ETThe Boeing Company (BA)98 Comments
Tim Worstall profile picture
Tim Worstall


  • It's sentiment more than anything else that is driving Boeing's stock price.
  • That sentiment has, I think, just turned again and thus I'm bearish.
  • This is not a highly analytical decision, it's more taste and feel.

Well, there are several problems along the way but I think we all know the basics. They made a plane which then crashed as a result of ill-judged - to put it politely - design decisions.

One problem, as I said some time ago, is that we don't know what the claims for consequential loss are going to be nor how much Boeing is self insuring.

The other is, well, when is the thing going to get back into the air? The longer this takes the more lost sales there are going to be. That matters. Boeing spends a fortune in getting a new design approved, profit comes from selling many items of that new design, each amortising some small part of that design cost. Lost sales aren't just lost profit, they're revenues to make the whole program profitable lost too.

Boeing(Boeing stock price form Seeking Alpha)

The new problem

This comes not from Boeing but from a release to the market by a supplier, Spirit. The Seeking Alpha reading of it:

Despite reports that Boeing (NYSE:NYSE:BA) is targeting a 737 MAX recertification flight for late June, the U.S. planemaker has been sending an opposite message to key supplier Spirit AeroSystems (NYSE:SPR).

Boeing has directed Spirit to "pause additional work on four 737 MAX shipsets and avoid starting production on sixteen 737 MAX shipsets to be delivered in 2020." The supplier also believes there will be a "reduction to its previously disclosed 2020 737 MAX production plan of 125 shipsets."

Less production in 2020 could mean the MAX timeline is slipping again or Boeing will deliver MAX jets at a slower rate than previously expected.

When a major supplier - Spirit essentially makes the fuselage - has to announce that the program is slipping then we do have to take note.

This article was written by

Tim Worstall profile picture
Tim Worstall is a wholesaler of rare earth metals and one of the global experts in the metal scandium. He is also a Fellow at the Adam Smith Inst in London and an writer for a number of media outlets, including The Times (London), Telegraph, The Register and even, very occasionally indeed, for the WSJ. This account is linked with that of Mohamad Machine-Chian: https://seekingalpha.com/user/52914142/comments

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Comments (98)

Avantier profile picture
FAA chief doesn’t believe in timelines when it comes to 737 MAX certification. Boeing should not spend a dime of investor money on this program until it gets approval from FAA. Company has around 400 aircraft waiting for delivery. It just seems this aircraft isn’t flying until the FAA chief is replaced.
Boeing, AirBus, and the airline industry will not get me back on on airplane until they install UVC light treatment in the return air ducts of their large passenger plains. I get sick from flue and colds almost every time I fly. Now when you add Covid-19 to the mix no way will I fly until they they add UVC air treatment down stream of their HEPA air filters if they have them. Airline Covid 19 approach is not proactive enough for me to get on an airplane. Cleaning surfaces between flights is a bunch of nonsense. Don't be fooled by such dumb activities. You will get it from the air when someone that is symptom free but still ill talks or coughs.

The design fix should have three sensors not two in the first place to get adequate reliability. In the nuclear industry 4 is the usual rule for the number of sensors for adequate reliability. A minor cost increase for the fix. It looks to me that at least 3 sensors will be required by the European airline regulators anyway. Just do it and get the MAX plane back in the air with UVC and electrostatic HEPA air filters being swapped out between flights. Make the air filters cleanable and thus reusable.
schizoidmantoo profile picture
A safety analysis is the first thing that should be done to determine how important the reliability of a given part or system is to the safety of the people. Boeing's safety engineers made a faulty analysis and classified system wrong. If a failure mode is classified as catastrophic, as this one should have been, then triple redundancy would have been designed in.
I suspect that in the old 737 models, a failure of an AOA sensor would not have been a big problem. But then in the 737X, the data was used for the engines to compensate for the extra power and the safety analysis was not redone from scratch.
Adding a third sensor now is expensive. Modifications to structure, Wire bundles, and software all have to be designed certified, and installed. But it should have been done as soon as the faw was found. Trying to fix it with software wa a bad idea.
The other viable option, in my opinion, was to get rid of the compensating software that tries to make it feel like an old 737 model and just retrain the pilots on the new airplane. Airlines won't like having to retrain pilots. But all the design compromises that had to go into the plane to make feel like an old 737 cost a lot more in the long run; and probably cost in airplane performance as well.
Your sentiment is right on the mark, also don’t discount passenger ( airline customer) sentiment either. Who wants to fly on an aircraft that was designed to be pilot-proof with computer controlled flight surfaces. Has your computer ever crashed??
Hudson Investments profile picture
@Tim Worstall
Your so called, stated BA problem is not a problem at all.

Boeing must allocate efforts and employee utilization where it is needed in order to fulfill orders in every aspect of their business.

They will re-hire workers when 737 MAX production is warranted by demand.
Your other citations are essentially old, digested news.
Reported in news after close of trading today that Treasury is "weighing" whether to earmark funds for Boeing and GE as vital industries. Does this mean good news or bad news? It could be a floor on equity. It could also mean a takeover such as with FNMA where the government could restrict management decisions. ba is in desperate need of leadership, but government intervention could lead to slow growth problems: dividend restrictions and grow slowdown in order to remain solvent . Being forced to take safer bets. All in all , looks like slower growth, lower multiplies, and lower equity valuation.
abaloneink profile picture
The title of your article is very misleading. You make it sound like there's another "new" defect. Yet you only say that because they're adjusting the production schedule of a major component, one not related to or known to have a defect, Boeing is in trouble "again." Then you say your "feeling / sentiment" is not based on any numbers or fact. What the heck kind of information are you putting out?
I don't understand this sentence: "....This is not based upon numbers, just the taste and feel of it all." Is the author saying we should invest or make decisions based on what we're feeling at that particular moment? Regarding a company like BA?? Over 5+ decades investing, successfully, and I just got a massive shiver down my spine thinking if I had done that, where I would have ended up. Sentiment is a very small part of things, but where are the cash flow numbers? We are the breakouts of different Boeing divisions and how they might/could grow and/or contract in the future?? "..Just the taste and feel of it all?" Again, I don't understand it. Lastly, why is SA censoring posts like this? Wrote this exact same thing a day ago, and SA won't post it? Huh?? I am bringing up legitimate points. As the old Wendy's commercial used to scream: "Where's the Beef?!" In other words, where's the analysis and projections that supoort any "sentiment"? As Jim Simmons taught me long ago, investing on "sentiment" will leave you a very unrewarded, poor long-term investor. And, imho, if you are investing, or deciding not to, in BA based on "sentiment" at the moment, you are missing the forest for the trees.
You'd make a great mentor.
Boeing was a great company. Then they lost their way pushing for growth at any cost. The MAX 737 is the culmination of the management failure. To try to fix a structure problem with software is a signal that this management does not get it. They are doomed to very long term decline, as the public is/will lose all confidence in them. In spite of the duopoly this is a company headed for new lows. When the vultures enter the scene and demand a new board and new management then the turnaround can begin. MAX must be re-designed and given a new name. I will begin to evaluate the stock under 100.
The Max has a Center of gravity problem. There is no fix for a CG flaw besides redesigning the aircraft. CG affects the controllability of the airplane in adverse conditions. Think about a micro bust on takeoff. The pitch up could easily stall this aircraft as you need for tail elevator than is available.

I would suspect there will be a few more have to fall out of the sky before this is over.
I'm NOT flying on any airline where the flight is a MAX jet. I will drive or take train.
avgjoe profile picture
Maybe but "gravitationally challenged" (ie, obese) passengers in the front of the plane to keep the nose down??? Problem solved. Put me on the board.
J.G. Collins profile picture
Meh..I wouldn't bet on it. Shutting down a supply chain, especially of huge builds like fuselage and cockpits, aren't something that can be stopped on a dime, simply because you have a JIT supply chain. You might be right, but I'm guessing this is probably more about clearing a backlog of inventory that's either with Boeing or with SPR than tea leaves signalling Boeing is not going back into production.

Besides, if Boeing is saying one thing to the markets and another to suppliers, the SEC would be all over them (no matter how good their players at the K Street cartel.)
They continue to try software fix for a structural design issue. Don’t get why they did not have a path where they redesigned the 737 max and actually fix the structural issue rather than going this sw path
MedTechBio profile picture
More execs would be fired if they admit the truth. They will be fired anyway, but this way they get drain the coffers for a little longer.
Structural issue is impossible to fix. It's called a complete new design. That said, there is no reason the existing structural design will not be as safe as any aircraft in service once is it re-certified and training complete.
wward001 profile picture
you got it!
Along with “design” you should consider “leadership” and “management” as part of the equation.
Drewstefer profile picture
The 737 MAX will be scrapped. You heard it here first.
Boeing is just trash.
Tim Dong profile picture
Not buying the "design cost" & "losses theory". This WAS NOT a "wholly new designed plane". The chances are great that they'll get the plane in the air by October.

Without the DOW, Trump is sunk & he knows it. BA is an ICONIC 100yo U.S. Global-conglomerate in aerospace, defense, security & commercial air travel. It's BEEN a MAJOR DOW component. With elections in November, Trump knows BA = DOW = Success. The DOW will NOT get there with BA languishing sub-$150 imv. The gov't will find a way to support Boeing & see it crosses the finish line with NASA, in the U.S. & abroad.
kbaba profile picture
Likely true through november but the Government doesn't have infinite sustainable power to support any stock indefinitely regardless of circumstance. The emergency continues
This is a crap company with a mountain of debt that makes a product (poorly) that nobody wants. In short, a BUY for the day traders.

Bankruptcy reorganization would have done this company (and a lot of others) a world of good, but Jerome Powell has ensured that these zombies will just wander around for a few more years, producing absolutely nothing expect debt.
Ben Gee profile picture
The US can not afford to let Boeing die.
Crap company?! They aren’t going anywhere. My position in this company is $103 and I’m riding it back up to its former glory.

Look for sales in 2021 and beyond. Or, are you one of those expert traders that completely blanked on AYTU and GNUS? 🤣
Boeing will be around many decades after you and I are pushing up daisies.
15 Jun. 2020
This is going to experience a slight dip tomorrow and then push upwards of 200 + by the end of 6/15/2020
If everything went well from the beginning, BA may be at least $450 by now. Instead the current price is $190. It means all failed factors have been chipped in. Once BA gets back it’s order, do you really think you can get BA at this price ?
Sentiment is not what you're supposed to be providing. You're supposed to provide a deeper, better analysis than what the "feelings" on Boeing are. And, the rest of those others who think their snarky little dweeby comments about a great company are worth shiitake are wrong. Boeing will fly....so will the Max.
Tim Worstall profile picture
Whether people buy or sell BA stock, in what volumes, is what determines the value of BA stock. If it ends up being sentiment that drives those purchases or sales then that's an entirely valid method of analysis, isn't it? If sentiment is driving price then to determine price analyse sentiment.....
Over the last years everyone outside the aviation industry took safety as a given. BA have now made some consumers start to take note. Knowing the short cuts and design flaws that have gradually been admitted to it is highly likely that some passengers will avoid airlines with 737max fleets, if this is done in large enough numbers then sentiment of the ultimate customer will determine the direction of the company. If this does become a reality then airlines with max fleets will either change strategy or go under, and leasing companies will suffer in the mix. Reputations are hard to win but so easily lost BA has to win its reputation back and only then will it see improvements. As for the stock it is in day trader country until the economy and BA reputation come back.
@Tim Worstall I agree that the stock price gyrations over the past 3 months have been purely sentiment driven. Both Boeing and Airbus have severe headwinds due to delayed aircraft deliveries. This won't come back for several years. In the meantime, the question to be asked of Boeing management is what is the plan going forward for launching the 737MAX replacement?
If everything went well from the beginning, BA may be at least $450 by
@saionemd "If everything went well from the beginning, BA may be at least $450 by"
And if everything went well with my life, Miss America will be my wife by now.
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