Boeing Heading the Way of GM?
The market is celebrating the likely end of Boeing's (BA) strike by ramping up its share price from a low of $40 to yesterday's closing price of $49.80.
Unfortunately, for Boeing, the bad news has just begun.
Boeing's dismal Q3 earnings (see conference call transcript) only captured the first three weeks of the strike. That leaves all of October without commercial aircraft work, a loss that is estimated to cost $100 million in revenue every day. This amounts to another $3 billion in lost revenues over October. If the proposed contract is ratified, machinists reap large pay increases, a promise of job security, and no relief for Boeing's burgeoning health care costs.
Moreover, Boeing still faces difficult negotiations with its engineering and technician union. The company, already burned for a two month strike, is in a tough spot. Another strike would be devastating. The engineering union is in the driver's seat. Expect significant concessions which will hit Boeing's bottom line.
Boeing's balance sheet in Q3 did not look robust. Its $56 billion in assets includes $3.5 billion in goodwill (nothing of use), $2.2 billion in intangibles (ditto), and $6.5 billion in pension plan over funding (not a good fall back). Take away those and you get $44 billion.
Meanwhile, their very real $46 billion in liabilities should get steeper. Remember that they didn't solve their cost problems - health care costs, payroll - those get worse. At the same time, they bled cash this October. It's a very good thing that Q3 did not end October 31. I suspect a great deal of their $4 billion stash reported on their Q3 balance sheet is gone.
Before the strike, the financial community was worried about Boeing. Those problems still exist. The only change is that Boeing is in a worse position. The 787 is further delayed (2009? who knows). Every country is in crisis mode. Airlines may cancel orders or negotiate lower plane prices. How badly will Boeing suppliers be disrupted by the strike and delays? A new administration probably will cut their military orders.
Boeing, like GM and Ford (F), has been torched by its unions. Much as has happened to Ford and GM, Boeing is going down the path of increased payroll costs in the face of a deflationary economy. Boeing's balance sheet is eroding. While nowhere near as bad as those of Ford and GM, it's starting to look weak. Boeing's Q4 balance sheet should show further deterioration both on the asset and liability side, not a good thing to be going into a worldwide slowdown.
Disclosure: Author holds a short position in BA, no positions in GM or F
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This article has 22 comments:
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Tommy G
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1 Comment
Oct 30 06:23 AM-
Pilot_151
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10 Comments
Oct 30 07:29 AMBoeing is a great company and they will come back after this strike is over. I can also see that you're just echoing the crap that others have written, because it is not costing them $100 million per day on the bottom line. It might be costing them $100 per day in deferred revenue, but that revenue is still backlogged. And whatever profit has been lost now will be factored in later when the revenue is restored. So you can pay me now or pay me later, but the revenue will still come it.
Yes the new administration will cut the spending and yes the other countries are in the same crisis, but we are talking about 6 to 10 years worth the orders that might shrink. And so if there are some cancellations, big deal, it only pushes older orders forward. Having said that, the airline fleets are getting too old to fly, so they're going to have to replace these planes sooner or later. So at the end of the day, we're going to see nothing more than the great shuffle of the already large backorders.
I missed buying a truckload several weeks ago, so if you do manage to push the price down and destory a few lives along the way, I can still get in on a great company at a bargin price. I will make more money than you can think of in a short sell because I'm long on this stock Because this stock will be back strong next year.
So do all of us a favor and go stick your head in the pile of crap you shovel and don't write another article until you get your head out of your ....
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Chuck
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72 Comments
My Website
Oct 30 08:44 AMMust be trying to scare old grandma's into selling.
Boeing is no where near GM.
Again, it needs to be reiterated,
What a load of Crap.
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Gordon42
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4 Comments
Oct 30 08:54 AM-
SuePublic
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1 Comment
Oct 30 09:12 AM-
James1213
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2 Comments
Oct 30 09:21 AM-
THE WH0LE TRUTH
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1 Comment
Oct 30 09:59 AM-
Drill&Fill
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3 Comments
Oct 30 11:56 AMYou folks want to see greed in America, just look at our CEO's in this country.
What the union workers at Boeing wanted to keep from going on strike is a drop in the bucket for Boeing's bottom line.
The real cause of the strike is the fact that a lot of major parts for all comercial planes were getting later and later in their delivery to the company from the vendors. You can't deliver planes without galleys. Nobody wants them that way!
It's just like it was in '95. I worked the factory back then and was forced to steal parts from planes 6 stations back, just to get the plane at the door out of the door. I did that for months before the strike and I know I wasn't the only one who had to. After we came back to work the overtime that had to be worked was like getting hit by a sunami.
I'd be willing to bet when the work force goes back to work there will be parts stacked to the rafters again, just like '95.
Best of luck to those in 751 and SPEEA.
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oldman
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68 Comments
Oct 30 04:18 PM-
You Bet
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3 Comments
Oct 30 06:27 PM-
You Bet
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3 Comments
Oct 30 06:31 PM-
Deumlaokeng
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8 Comments
Oct 30 06:45 PM-
flyboeing
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2 Comments
Oct 30 07:44 PMThat about says it all. A sad attempt by a short seller to drive the stock price down. Boeing's not losing money if it's deferred. They will be back to record earnings soon with their record backlog. The furure looks bright for Boeing. Look like the anonymous author is taking it in the shorts, hehe!
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richandmer
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35 Comments
Oct 30 08:08 PMYes, many CEOs are getting too much money, but that is peanuts compared to what worker costs are amounting to. When a worker retires, the costs of that person continues for another 30 - 40 years or longer. Companies just cannot afford those costs.
Boeing will ultimately die unless the workers and unions get a clue as to what they are doing. Asking and demanding job security just won't work.
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One who knows IAM
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1 Comment
Oct 30 09:34 PM-
keelbeam
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1 Comment
Oct 31 04:45 AMare the ones who are responsible for their weak positions today. Management sat on their asses pumping out the same garbage automobiles for years. For example. True story : I bought a brand new 1979 Z28 Camaro in the summer of 1979, I was 21 years old. What a piece of crap that turned out to be! Anyone that has ever owned one knows that the paint peeled off the windshield moldings within the first 6 months. Then, the body striping started to peel everywhere, the interior center console cracked, the engines had flat cams in the 305's and 350 motors within 20-30K miles. I found bags of spare parts from the factory in my trunk after I had brought the car home with 10 miles on the odometer. By the way, look around and see how many 70's era Camaros are on the road. Not many. Most were in the junk yard long ago.
My point is that since the early 70's, the American automobile manufacturers sat back and watched the Japanese run us over with their innovative designs and most notably, their quality improvements. The work force could have been non union and the garbage design and quality automobiles would have still been the same. If you're building a lousy product with poor engineering design, poor durability, and lousy quality, how can you place the blame a union work force? At Boeing, the same is true as far as management is concerned. The Boeing Company management is as bad as it gets from the top down. The Boeing Cmpany management loves to compare themselves with Toyota or has a desire to become like Toyota.
The problem is that they are going about the transformation incorrectly. The transformation is purely a cultural transformation and cannot and should not be "forced" or "schedule driven" as it is currently today. Management should let the employees closest to the work make the decisions. However, they are unable to let go of their miccro-management ways of yesteryear and allow this to take place.
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Roy M.
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355 Comments
Oct 31 05:46 AMBut the high price and quality of American cars disappointed the younger generations. In Europe and Asia, worker strike is almost unheard of. and workers loyalty is extremely high, almost like a family. But not here, throughout the last 60 years, all we heard were STRIKEs, all the time and all over the damn place. If I were to run GM or Ford, just have the Koreans or Chinese make the car and put the label on it. Why not, look at the many products such as TV, Microwaves, chiars, radios, cameras, toys, etc etc, all made overseas. Workers must know, without the hens, you won't have eggs. Simple.
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Roy M.
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355 Comments
Oct 31 05:54 AM-
jamookey
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26 Comments
Oct 31 12:04 PM-
drawing retirement
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2 Comments
Oct 31 02:24 PMA boat can be built by one person. A ship cannot.
So while the Wright boys had a great idea it was soon outside the scope of their own abilities. So what do you do? You partner up with other like minded souls who have talent, skills, and desire to bring forth the best product in those disciplines.
Somehow the Wharton school types got the notion that because they were up in the office overlooking the manufacturing they must know the processes better than the others on the team. And MBA folks while not belonging to SOPWAMTOS, Society of People Who Actually Make Their Own Shit, (thanks to soulcraftbikes.com ) they were convincing in their powerpoint presentations. And when not dazzling with brilliance were indeed baffling with bullshit. Again, Peter Drucker's admonishing to pay attention and respect to all three supports of the successful business, i.e. product, customer, employee is a key to continued success. Boeing embraced the Toyota principle but soon abandoned it to Condit's scheme to grow the company to double digit profits. And so here we are well down that path and without bearings to find our way to a new level. The men and women who know the difference between a 707 and a 747-8 are in this manufacturing process for love and money. Boeing is most fortunate and has nurtured an educated and highly motivated work force. And reciprocally the people who work with Boeing are fortunate to have the company in their town.
I saw the shipyards in this nation dwindle to a special needs industry because of government interference and a myopic focus on the cheapest labor pool in the country. A labor pool that was cheap because it had only marginal skills, talent and desire. I don't want the suits of this large systems integrator to screw it up for us partners who have our heart, souls, intelligence and future dreams integrated into our company.
Now where's the spellcheck when ya need it?
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Roy M.
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355 Comments
Nov 01 03:07 AM20 years ago, not too many people knew about AIRBUS. Right now AIRBUS is almost equal to Boeing. They are getting more business than they can handle, so is Boeing but the difference is, AIRBUS is surpassing Boeing in delivery, service, price, and labor management. We all know that when workers don't have loyalty and keep demanding and asking for the sky, that business will eventually fold up. That's exactly what happened to GM and many big industries. Not only that, law suits, high tax, politics, all contributed to many business collapse.
China is now selling smaller commercial jetliners to Eastern European countries and Africa. In time, they will catch up too. Just like the car business, didn't take Japan that long to overtake American cars. A lesson everyone should remember.
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Ed O in PA
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11 Comments
Nov 03 09:10 AM