Boeing : Buy the dip on this Airplane Maker ?
The MNC.
$Boeing(BA)$ a name that is synonymous with commercial airplanes is an American multinational company, with a diverse product range.
It designs, manufactures, and sells:
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Airplanes.
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Rotorcraft.
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Rockets.
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Satellites, and missiles worldwide.
In its hey days, it was (a) a blue chip stock and (b) among the largest global aerospace manufacturers.
Interestingly, it is the (1) 4th-largest defense contractor in the world, based on 2022 revenue and (2) the largest exporter in the US by dollar value.
Fall From Grace.
The company definitely has seen better days. (see above)
At its peak on 27 Feb 2019, it traded at $425.2888 per share.
On Tue, 15 Oct 2024, it ended trading day at $152.35 per share, that is -64.18% off its peak.
How did it end up in such a dismal state ?
It certainly wasn’t an overnight affair but consistent erosion of its brand equity.
Root Causes.
(1) 737 MAX Crashes and Grounding (2018-2019):
Two fatal crashes involving the 737 MAX led to a worldwide grounding of the 737 MAX fleet.
This caused massive financial losses, damaged Boeing's reputation, and resulted in increased regulatory scrutiny.
(2) COVID-19 pandemic:
The Covid-19 pandemic caused a significant reduction in air travel demand and the global aviation industry was severely impacted.
This led to reduced demand for new aircraft, cancellations of existing orders and deferrals, all negatively affected Boeing's revenue and cash flow.
My thots: I think don’t need to look so far to know the impact Covid-19 has rained onto Earth.
Even, national carrier Singapore airlines $SIA(C6L.SI)$ has utilized many financial instruments to shore up cash to tide it over the different periods:
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March 2020 - Rights issue. $5.3 billion raised.
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March 2020 - Bridge Loan from DBS Bank.
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March 2020 - Cost-cutting measures: pay cuts for management and layoffs.
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June 2020 - Mandatory Convertible Bonds. $3.5 billions raised.
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June 2021 - MCB 2nd tranche. $6.2 billions raised.
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Asset Sales: SIA sold and leased back aircraft to generate immediate cash flow.
(3) Supply Chain.
The Covid-19 pandemic led to supply chain disruptions that affected Boeing's production and deliveries. These disruptions contributed to financial losses and delayed the recovery of the 737 MAX program.
(4) Quality control issues:
Ongoing problems with various aircraft models, including the 787 Dreamliner, have (a) eroded investor confidence, (b) raised concerns about Boeing's manufacturing processes and (c) quality control.
Leading to increased costs (of production).
(5) Management changes:
Boeing has experienced several leadership changes and internal turmoil in recent years. (see below)
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James McNerney (2005-2015): Retired after a decade-long service.
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Dennis Muilenburg (2015-2019): Ousted due to the 737 MAX crisis and subsequent handling of the situation.
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Dave Calhoun (2020-present): Currently serving as CEO. Stepping down in December 2024 for failing to plug the 737 MAX issue.
These disruptions have raised concerns about the company's corporate governance and strategic direction.
(6) Ongoing regulatory scrutiny:
The FAA and other regulators have increased oversight of Boeing's operations, potentially slowing down certifications and approvals for new or modified aircraft.
Boeing has faced numerous legal battles and regulatory scrutiny, including investigations and fines related to the 737 MAX crashes and other issues, adding to financial strain and uncertainty.
(7) Recent Mid-Air Blowout Incident (2024):
In January 2024, an Alaska Airlines 737 MAX 9 experienced a mid-flight incident when a door plug blew out.
This reignited safety concerns and led to temporary groundings of some 737 MAX 9 aircraft, further damaging Boeing's reputation and potentially impacting future orders.
The latest incident also led to the ouster of CEO Dave Calhoun by year end.
Time To Dip-Buy ?
With Boeing stock price having fallen by -64%, is it time to monitor & consider buying into this ex-blue chip stock ?
I think “No” for 2 main reasons.
(1) On-going Labour Strike.
The labor strike at Boeing started because the previous contract between the company and the International Association of Machinists and Aerospace Workers (IAM) expired on 6 Sep 2024.
Without a new agreement in place, workers were no longer bound by the terms of the expired contract.
The negotiations for a new contract have been ongoing since the expiration date, but the two sides have been unable to reach an agreement on key issues such as wages, benefits, and job security.
As of 13 Oct 2024, according to a new analysis by Anderson Economic Group shared with CNN, the costs suffered as a result of the strike is nearly $5 billion.
Eventually when the strike ends with a new contract signed, the financial impact on Boeing would have created an abyss so deep that one wonders if the plane maker will be able to climb out from it.
On a macro scale, the strike will impact:
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US’s GDP for 2024.
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The aerospace supply chain and production.
(2) Credit Crunch.
The month long & counting labour strike is causing serious problems. The company plans to get $35 billion to pay what it owes.
Not doing so may cause Boeing’s debt to be downgraded by credit agencies to junk; something it can ill afford.
On 16 Oct 2024, Boeing said it’s considering shoring up its coffer by:
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Issuing $25 billion in (a) shares or (b) debt over the next 3 years.
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Taking a new $10 billion credit agreement with US banks - $Bank of America(BAC)$, $Citigroup(C)$, $JPMorgan Chase(JPM)$ or Goldman Sachs(GS)$.
In a released statement, Boeing said the two steps are necessary to support the company’s access to liquidity.
The remedial action is not without repercussions though.
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Issuing new stock would be a blow to Boeing’s long-suffering shareholders, diluting the value of their holdings.
A credit downgrade would be worse for everyone because it makes borrowing more expensive, thwarting incoming CEO Kelly Ortberg’s effort to help Boeing recover.
Accumulated Debt.
As per Reuters, Boeing already has an outstanding debt of $11.5 billion maturing through 01 Feb 2026.
Bank of America, Senior analyst, Ronald Epstein expects the company’s estimated cash flow burn of $3 to $5 billion in H2 2024.
The on-going strike has already crippled Boeing’s commercial jets production and Epstein estimates the company is losing $50 million a day.
To minimize the bleeding, Boeing will lay off around 17,000 employees or 10% of its workforce.
Until the strike ends and production resumes, Boeing will continue to burn cash like Singapore’s 7th month hungry ghost festival.
Boeing’s future is looking dim (currently) from where I am, here in Singapore.
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Do you think now is a good time to get some Boeing shares ?
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Do you think the labour union should include a clause in the revised contract for a cut of total revenue as variable bonus in workers’ salaries instead of asking for absolute terms ?
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