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Boeing Costs Spiral Further In Fresh Blow

Nov. 01, 2021 10:20 AM ETThe Boeing Company (BA)68 Comments


  • Boeing revenues suggest low-end pricing for aircraft.
  • Cost growth on BCA and BDS was disappointing.
  • Debt declined, but further operational improvement is needed.
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Etihad Airways Boeing 787 at Manchester Airport.

Bradley Caslin /iStock Editorial via Getty Images

Boeing (NYSE:BA) reported its third quarter earnings on the 27th of October. Initially, shares of Boeing traded higher in pre-market only to dip slightly. Assessing Boeing’s quarterly results is already difficult with

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Dhierin Bechai profile picture
Dhierin is a leading contributor covering the aerospace industry on Seeking Alpha and the founder of The Aerospace Forum. With his Aerospace Engineering background he has a more indepth knowledge about aerospace products enabling him to cover a complex niche. Most of his reports will be about companies in the aerospace industry or airlines industry, comparing products and looking at market forecasts providing investors with unique and thorough insights. Dhierin has accumulated nearly 20 million views never failing to spark healthy and thoughtful discussions for investors and aerospace professionals.

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Comments (68)

BAC99 profile picture
Boeing's commercial aircraft division can go through chapter 11 to reduce expendable liabilities & move on.
That would work, as long as shareholders get nothing and C-suite personnel are fired....the Board dissolved as well with no carryover appointees.
@Dhierin Bechai at what phase of the cycle do you think is the aircraft industry? It seems that technology will not be able to replace people's desire to move and do things offline.
Dhierin Bechai profile picture
@Yulay Bikbulat The aircraft industry is there to stay for a very long time. Looking at the several outages over the past two years.... doing things remotely carries some risk.
Thank you for another insightful perspective on Boeing's recovery- you hit every base I consider critical, including balance sheet budget actual and BA's path forward. They have clearly suffered from mismanagement by the Board's trust in feckless executives. I am holding on as I believe $300 is possible by 2023. While the debt is worrisome, once the FAA lightens up on the congressional blame-game, they will be back in business.
waiting on china recertification. should be soon.
Finally, some light shed on the issue of the 737 Max.

Getting a Max out of inventory isn't going smoothly:

“We have to get better at delivering [737s] out of the completion center our inventoried airplanes,” Calhoun said. (Delivery of MAXes from inventory is taking about twice as long as previously expected, a knowledgeable source tells)


They had some 450 sitting there as of Dec 2020. They now have 370. Most of the 195 delivered since then have come from the production line. 2024 is the consensus for clearing out the Max's sitting in inventory.

5 years.

Which company can produce a product using borrowed money, put it into inventory and then hand it over to customers 5 years later - and still make a profit? As well, you cannot let an aircraft just sit there, it needs to be maintained.

Last reported a fairly new 777 from bankrupt Jet airways sat in Holland, IIRC - for 2 years. When it was all said and done, it got sold for $9 million and was sent to the scrap yard. List price on a 777? $400 million.

Those 450 Max's that some were saying would be a cash bonanza for Boeing, are turning into a money pit.
taplinger profile picture
@crankypants007 For $391 million I would have maintained that aircraft.
@taplinger I think that it got impounded and then it deteriorated on the tarmac. $400 mil is list price, and it was a few years old. Maybe worth $100 in good condition, depending on cycles and C/D checks.

But yes, I would have, too...
@crankypants007 Like I said, once you get on the chain of bad news the bad news tends to continue. This obviously was an incompetently managed company which makes me wonder about the assumptions they were using as in producing the max in the first place.

If Boeing can't get those planes out of inventory they have a major loss to add to the huge amount of debt they've already assumed.
Boeing will eventually be back in the 400s. The world has demand for flying and there just aren't that many companies who produce jets like Boeing. I will hold and buy more if it falls. Under 200 is a steal.
Wow, Dhiern, even you are starting to sound sort of depressed. Until there is a fundamental leadership change, I don't see any significant turnaround.
Dhierin Bechai profile picture
@retiredboeingeng I do? Maybe it is the season change that does it ;)
As far as I recall for the past two years I have been highlighting platform problems and the problems in the management and executive ranks. Those problems have not resolved and I have major doubts that this CEO is even close to fit to take Boeing to the next level.
@Dhierin Bechai it seems like BA’s CEO is still just trying to stop the bleeding with no new ideas on how to pull out of this slump. The impact on BA by the lack of quality control in previous years has been astounding.
@Dhierin Bechai We both certainly agree Calhoun has no idea how to lead an engineering centered company. I have my own ideas as to why he pushed Dennis out and put himself in, but I'll keep those to myself.
ZeissGirls profile picture
People say that Tesla, which makes cars, is a high-tech company worth a trillion in market value, while aircraft manufacturer Boeing is just an industrial stock. I don't understand the market.
@ZeissGirls It all comes down to leadership and vision.
Go to the Bellagio and watch the roulette wheel. All you need to know.
@ZeissGirls It's a good point. Stocks are driven by two things: 1) expected earnings or cash flow, and 2) valuation. Valuation is driven primarily by investor expectations for future growth of earnings/CF, the higher the expected growth, the more they will pay for the stock. Investors see/hope/expect TSLA to grow at a much faster rate than BA, and therefore are placing a much high multiple (Price/Earnings ratio) for what they will pay for TSLA's earnings vs BA's earnings. Investors have to decide for themselves what is a reasonable P/E. Right now, investors are really paying up for TSLA's future earnings, which creates risk for the stock if TSLA can't achieve those earnings. In the case of BA, investors are not paying up much for future earnings and expectations for the stock are low. This can create a good buying opportunity, i.e. buying "low" when the stock is out of favor and P/E valuation is low.
BAC99 profile picture
Boeing can polish their SMS
BAC99 profile picture
Accurate & reliable data analysis at a respectable speed maintains a technical advantage.
BA has some issues to improve on, but has had good new contract news over past 2 months. It appears a big part of price decline over past several months has been "organized crime" (market makers/big brokers) using "Bernie Madoff exception" (which allows market makers to "naked short" any stock) to attack and manipulate Boeing stock and loot retail investors. If Congress/SEC outlaw the BM exception, then Boeing stock should skyrocket quickly. If not, it still should go up - just at a slower pace.
@olson21d BM ran a Ponzi scheme…….like BA
cjanin profile picture
Drip, drip, drip… this is not the end of the story…
As long as BA keeps rudderless as to fixing its issues, things will keep going from bad to a bit worse to really bad…
Commercial is way worse than numbers reflect….Product line looks like the hole part in the Swiss cheese, abysmal execution, obsolete designs (except for 2 products with a limited TAM), throw in oil >$100, Max’s will need to go at a real deep discount for any one to take on a frame that was already uncompetitive 2 generations ago…
The rest of the business is not much better… keeps going thanks to the tax payer….
It takes miles to bring a train to a halt, but it eventually comes to a halt…
Green Elmo a.k.a. User 48289781 profile picture
@cjanin ' Max’s will need to go at a real deep discount for any one to take on a frame that was already uncompetitive 2 generations ago…"

Assuming the MAX's are now de-bugged, please tell us what is uncompetitive about the 737's airframe. Be specific. Just saying, "It's an older design" won't suffice.
@Green Elmo a.k.a. User 48289781
What is uncompetitive about it is that it's a half-century old. It is not a 757 replacement, which airlines need, and it doesn't have the operating economics of stretched A220. Airbus has an entire family of more modern aircraft that can be custom tailored to airline's needs. Boeing went to the well once too often with the tired 737 platform. They spend billions to develop composites with the Dreamliner.... Time to leverage that technology to create something to compete with the Airbus Neo aircraft.
@holdandforget that is there next step once they get through the current quagmire they are in. It will take a few years. This is also what is holding the stock back. I think they will get through this, but it will take time.
if everything would fine the price would be another.
BA sooner or later will solve the issues. take a risk.
Ba is an amazing company. The only aerospace outfit this is also a train wreck.
@jeffk100 Yah, that tanker aircraft is working out so well for the military. As is the crew capsule for the Space division.

But I hear they are making a killing in selling their real estate
Good overview. However, the summary comments: "Boeing is getting there but the pace at which things are happening is what I consider to be problematic." Yes, there have been some disappointments, but given the magnitude of what BCA has been through in the past couple of years, any recovery would/is bound to be bumpy and messy, which it is, and they are still digging their way out of this. BA's financial improvement/recovery will take several years and there will no doubt be further bumps along the way. The "glass half full" view for BA is, IMO, more along the lines of 1) MAX deliveries have recovered materially, 2) airline industry traffic has improved, 3) BA's cash flow is improving substantially (and should be positive in Q4) which will ultimately4) improve BA's financial position. With respect to BA stock, it offers good value at current prices for investors who can look out 2-3 years. The time to buy cyclical stocks like BA is when the news is bad, the stock is down and out, and everybody hates it, like now.
@truckster lets also keep in mind that the glass that is half full is also refillable...
@Allison Marie Keep further in mind that if you don't continually add water to a half full glass, it will evaporate
Interesting and informative DB.
You can understand why they seek higher prices on the model 10 and why Ryanair were surprised as they hoped to buy at rock bottom prices.
Ryanair claimed this would help Boeing to rebuild production levels but as seems clear, this is not a problem, as the problem is pricing with a huge need to get prices higher.
Djreef1966 profile picture
Cost pressures are everywhere. Who don’t see this coming?
Very informative article. Thank you again
You can see a lot of this being reflected in the share price. Where a lot of companies are higher than they were before Covid regardless if their earnings show it - Boeing is still stuck well below (50%) their pre-Covid share price. There is a lot to fix but with the majority of issues and doom being priced in, I think it’s a screaming buy for that reason. Will it take time to turnaround, yes, but I expect ~20% share price growth per year for the next 3x years as long as they don’t run into any more black swan disasters.
@Tdog88 hopefully no more skeletons will fall from the proverbial closet… fingers crossed
Moats and Income profile picture
@Tdog88 BA is more like OXY…two companies that were hit by double black swan events. Both had to eliminate the divvy and watched their share prices crater.. Since, both have recovered well and are positioning themselves for full recovery and reinstating divvies…
One thing I've always found to be a truism of high validity, is that companies for whom things are going right tend to see things continue to go in the right direction. Conversely, when things are going wrong they tend to keep going wrong. Boeing is a great example of this, the exertions of its many apologists notwithstanding. So we have problems with the 787, ongoing problems with the MAX, huge debt levels which many on these boards seem to ignore not to mention it's many embarrassing failures with its NASA program. Now we have the worst thing to go along with high debt levels which is shrinking margins. Putting it simply, it means Boeing has to sell many more planes to pay off the debt. It also means buyers no longer place a premium on the Boeing brand the way they used to. The situation is getting worse and worse and if one of two things happens this could be curtains for Boeing... If we go into another serious and protracted recession and or if a competitor comes in from left field with a better plane at a lower price. I'm not saying it's curtains for Boeing but I'm saying it's much closer to curtains for Boeing than many people seem to credit.
Meanwhile where is the 797 which was promised for the end of this year?
taplinger profile picture
@whlangeman Take a premier company and turn it over to senior management focused on share price vs. quality. Then a perfect storm of crashes, 787 problems, NASA problems, and the pandemic. An epic turnaround is needed focused once again on quality.

The day management saw that Ethiopia Air crash and said Hope that doesn't happen again instead of going full steam to remedy the cause was the day that management team needed to be sacked.
Green Elmo a.k.a. User 48289781 profile picture
@whlangeman Boeing is too big to be allowed fail entirely.

The airlines don't want AirB to have a monopoly on airline aircraft.

Some other big firm acquiring Boeing or at least BA's space and defense projects is a possibility. NOC is one possibility ... or how about Musk or Bezos? ( Joking there. )
Buybacks are more important.
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