Thursday, October 23, 2014

Which Boeing Are We Talking About Again?

Boeing 787 Dreamliner troubles build (2010-2013)
(image © Graphic News)
As far as anyone can tell, Boeing loses money on every Dreamliner it produces. (Apparently the plan is to make it up on volume.)

And so it is to questions about Dreamliner profitability that some attribute the disappearance of $3.5 billion in corporate value (poof!) when Boeing stock dropped 5 points on Wednesday after its latest earnings report.

Let's be clear: the announcement was of an earnings increase. And many analysts are sanguine about the number of orders Boeing has been getting for its commercial jets.

It's just . . . no one knows when (if ever) the bet-the-future-of-the-company product, the Dreamliner, will be able to be sold at a profit. (See "Why a Boeing 787-9 Costs $250 Million" by Paul Ausick on 24/7 Wall Street)

Which Boeing are we talking about?

Lots of analysts have opinions about Boeing. The confusing thing is that the opinions tend to alternate between commercial Boeing and military Boeing.

Some analysts emphasize the commercial airline business and they like what they see:

"The Slow Death Of 4 Engine Airliners Will Play Into Boeing's Hands"

"Update: Boeing's Widebody Aircrafts Are On A Roll"

"Boeing: Expect Upside To Be Driven By Commercial Airplanes"

Sounds good . . . life is good in the commercial airline sector! But . . . then we look at analysis that focuses on Boeing's position as a military contractor and we see things like . . .

"This Rival Makes Boeing Look Overpriced" [comparison with Lockheed Martin]

"Why We Think Boeing Could Lose Out To This Sector Peer" [comparison to Northrup Grumman]

The stakes are high
The Dreamliner comes to the rescue after years of market 
share reversalsin commerical airplanes for Boeing.
 (Reuters graphic)
So . . . which is it, anyway?  Boeing good or Boeing bad?

Maybe it would help to know which Boeing we're talking about.

This Ain't No Hedge

There was a time when the business world would have bought the argument that commercial Boeing + military Boeing = diversification.  The ups and downs of military Boeing could cushion the downs and ups of commercial Boeing (and vice versa).

Today, however, investors want to see companies focus on their core business.  If there's risk-offsetting to be done, hedges can be set up by risk managers, thank you very much.

(And how does the risk-strewn field of military contracting amount to a hedge for risk in commercial aviation?)

The time has come for Boeing to be split up, so that investors can figure out what they're buying.

Related posts

Isn't the time fast approaching when Boeing recognizes that it's not just one or another of their weapons systems -- or weapons systems customers -- that's the problem? Isn't Boeing's entire defense systems division "bad Boeing"?

(See BOEING: "Breaking Up Is (Is Not) Hard to Do" )

Now that the Israeli government's killings in Gaza are front-page news -- particularly the way military aircraft is being used to mow down innocent men, women, and children -- Boeing's involvement is in everyone's face.

(See Boeing Has an Israel Problem . . . and Chicago Has a Boeing Problem)

People are talking about cuts to the military. It couldn't happen to a more deserving half of our national budget.
HOWEVER . . . we need a lot more people jumping into this debate, because the cuts being talked about are too timid . . . AND because the most dangerous and illegitimate (and frequently illegal) forms of military force are being advocated for the "efficiency" and "cost-effectivneness."

(See Talk of the Town: Shrink the Military )