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Boeing, Boing, Gone? - Blain's Morning Porridge Skip to content Financial Commentary for Smart People Boeing , sustainability , Equities , USA Boeing, Boing, Gone? Published On: October 30, 2024 Tags: Boeing , Aviation , Elon Musk Comments Off on Boeing, Boing, Gone? Blain’s Morning Porridge Oct 30 th 2024: Boeing, Boing, Gone? “Boeing is paying the ultimate price for treating aviation like it was just another business.” Boeing has just raised $21 bln of new capital – to keep the doors open. That is not a great look. It’s a saga of management and corporate failure unmatched in recent history. The consequences for global aviation are immense. I’m waiting to pick over the bones… Who might be tempted to buy Boeing? Possibly the worst company in the world. Shame. They are having a really bad year – and entirely the fault of management. In the midst of strike costing them $4 bln a quarter, a breakdown in deliveries, a space division singularly not going anywhere bold (although there are rumours Jeff Bezos is set to buy it), and some $60 bln of debt… it’s in a flat spin. That has massive consequences for global travel. Regular readers will know I am not a Boeing fan. Effectively it’s been the clearest example of what goes wrong when incompetent financialised management take over a firm. They treated it just like a dodgy PE acquisition: dumbing down the workforce, cutting costs, defocusing customers and awarding themselves massive bonuses. They brought down what was formerly one of the best engineering firms on the planet. Time for a story…. Two years ago I set out to raise money to finance a portfolio purchase of Mid-Life Airliners. I was working with one of my chums in the aircraft leasing market – I would source the finance, he would find the right aircraft. Our thesis was simple – Boeing’s escalating crisis, slowing deliveries by it and Airbus, (together the duopoly of OEMs (original equipment manufacturers)), due to new engine problems, supply chain disruptions, and a post Covid shortage of aviation engineers to build, service and maintain aircraft right through their life cycle, meant that older aircraft were undervalued and would experience strengthening demand. How right we were. Around the globe airlines are scrabbling to find the aircraft they need to meet their schedules. A shortage of aircraft is limiting supply and pushing up the price of flights. Lease rates for older, midlife planes are now some 25-33% higher than they were at the market’s bottom in 2022. Airbus reckon the world will need 42,000 new aircraft over the next 20 years – replacing less fuel efficient and older planes. However, deliveries are so low, (Airbus delivered 738 planes in 2023, while Boeing only managed 528), there are going to be ongoing shortages for decades! That’s a plus point for Boeing. It would cost billions for a new OEM to emerge to replace it – but it would come without the decades of Boeing’s baggage. Unfortunately, our Midlife Aircraft trade idea was another of these deals only Harry Hindshight saw the upside from. A number of funds liked the concept, but decided to wait and see what happened: “ our investment bucket this year is full, but next year this might be interesting.” Many of the usual coterie of aviation buyers decided the disequilibrium in aviation supply would swiftly auto revert: although prices of used aircraft were rising because of delivery delays, in 5-6 years the production situation would be normalising, just as we would be selling what would then be tired 15-20 year-old aircraft! On the basis a salesman’s job only starts when the client says no, I argued the supply issues would not be short-term, but long-term. Any plane delivered 3 years late today would have a massive knock-on effect on aircraft values for potentially decades. That’s proven to be exactly what’s happened. The omni-shambles that is Boeing has made a bad situation it worse. Doors falling off planes, a strike, and the general management incompetence that’s been Boeing’s hallmark since 1999, means it’s a complete SNAFU. After Boeing’s B-737 Maxes fell out the skies and Boeing finally fessed up to the FUBAR around its design and build quality, Boeing deliveries have crashed relative to Airbus in the critical single aisle sector. Airlines are keeping their older aircraft in service – which is expensive – and are looking for second hand planes to broaden their service proposition. While new govt-supported Saudi airlines can exert pressure to get deliveries in a year or so, a new ultra-low-cost carrier in India will be waiting years for its wings. I’m hearing about older aircraft being refitted after years in desert bone-yards. Slap some paint on.. bish, bash, bosh, good as new governor .. Among the winners have been the owners of the SuperJumbo A380s. Airbus had abandoned the programme because of slowing orders, and the fact there was no secondary market for older superjumbos. The first planes were being scrapped, despite being only a decade into expected 30 year service lives, when the delivery crisis in larger twin aisle aircraft stared. Suddenly it became clear that was nothing to replace them. Emirates had been expecting to replace them with B777x, but they are still not flying. Instead, the Dubai airline started a renewal programme to rebuild its older A380s. Holders of the equity notes on these aircraft could have lost everything, but are now whole. There is now crisis across the whole airline sector as aircraft fleet expansion plans have proved undeliverable. One upside is Ryan Air’s Mick O’Leary tearing his hair out in frustration as Boeing fails to keep up with his capacity and new route plans. It’s a joy to behold, O’Leary spitting feathers. It’s almost worth the collapse of commercial aviation to watch him in angry tirade mode. Earlier this week Boeing sold $21 bln of new capital (it could rise to $25 bln on the Greenshoe option) in stock and new pref shares. The money will stave off immediate crisis (its haemorrhaging cash due to the strike), and there is the threat of a credit downgrade. Remind me…. This is a company that squandered all its profits and raised debt to spend $60 bln and more on stock buybacks… Now its scrabbling to raise new capital about 50% lower than where it bought it? Classic Sell Low / Buy High strategy – how are any of the C-Suite still in work? Now there are a host of recommendations that Boeing is buy at these levels. No. It is not. It’s still in crisis – and could stay that way for decades, a lame duck that’s only in the frame because its position as a monopoly supplier means there is literally no alternative. I read one report stating the problem was with the B-737 Max “ Cash Cow ”. Please. The Boeing Max is a plane nobody really wants, (certainly not passengers), but it’s the only alternative is the more modern A320/321, where the outstanding orderbook is 8750 aircraft (and only 540 were delivered last year!) The Max was a satisficing design, stretching a design that’s as old as I am, with unsuitable engines and a fly-by-wire unstable flight system Boeing didn’t tell pilots about. 346 victims of corporate murder. Airlines want modern, fuel efficient, designs. If there was an available replacement to the Max – Boeing would be unable to give them away. A fundamental problem is Boeing don’t have any money to develop a replacement. That only changes if someone with deep pockets buys them….. (Are you thinking what I’m thinking….?) As a keen student of Boeing – I have my doubts Boeing will ever truly recover from its current crisis on its own. A few months ago I wondered out loud if Boeing might have turned a corner – new management, and a return to core values. I flirted with a small position. Mistake. We live and learn. I’m watching for a new bottom.. and listening to the rumour mill about good-firm/bad-firm structure and rationalisation. Sadly, and despite puff pieces, the new management look as incompetent as the last. They’ve managed to embroil themselves in a Labour fight they simply can’t win. Boeing depends on one thing, and one thing only – the quality of its workforce to deliver safe aircraft. That workforce is striking and if/when they go back the management wants to sack half of them – slashing 33,000 engineers in a company already under delivery and quality constraints to 17,000. How will that clear the order backlog? When a company is forced into a $22bln capital raise to keep the doors open, it’s clearly not going anywhere fast – which, to be fair, is the sole reason to be in air travel… There is nothing on the horizon to suggest things will get better. It has no aircraft types anyone really wants. It feels like they’ve given up trying to fix the loss-making B-787 Dreamliner programme – Airbus A350s now dominate that space, delivering twice as many aircraft. The B777x is 6 yrs late and could face more years of stringent regulatory checks before it qualifies for service – that’s a problem unique to Boeing, payback for when it effectively captured its regulator, the FAA. Its share of military deliveries are cited as many analysts as critical to Boeing’s future – but I dispute that. Its major programmes are old – like the Super Hornet. The future of defence, as I outlined last week is going to be about Big Tech and Def Tech…. not the old “Primes” of the 1970s Military Industrial complex. Peter Thiel, owner of Planatir and investor in new defence Tech, is rumoured to be on line for a role in a Trump administration. Anyway… if nothing else.. Boeing, boing, gone is a nice little distraction from the UK Budget and US election.. If Elon Musk really wanted to do something useful, he could deliver on a comment he made years ago: “ Boeing took $20bln and 10-years to improve the efficiency of their planes by 10%. That’s pretty lame. I have a design in mind for a verticle liftoff supersonic jet that would be a really big improvement.” Buying Boeing would be chump change for Musk, with the additional ben