The world outside Camelot has some ugly monsters approaching Boeing's Castle.
The following article outlines three Boeing rough spots developing outside its walls in the Northwest stretching clear to Chicago's golden vaults. Not all is well at Sundown out beyond Camelot. Use the link above or read the article by,
Sep 26, 2013, 10:42 am EDT | By Susan J. Aluise, Aviation, Auto & Transportation Writer
"What do you say about a stock like Boeing (BA) which has soared to record heights and delivered a one-year return of 75%? Savor that gourmet meal in first class, but buckle up in case of turbulence.
Boeing (BA) shares have outperformed even the highest hopes in 2013, soaring 75% in the past year. This defense/aerospace giant has flown through a series of storms that would have crashed lesser companies: chopped defense budgets with a side of sequestration, a record four-month long grounding of its flagship 787 Dreamliner and increased competition from its European rival Airbus (EADSY).
But while Boeing has weathered those storms with apparent ease, investors should remember the time-tested adage: “Past performance is no guarantee of future returns”. And from that perspective, now’s a good time to be cautious.
Here are three signs Boeing could be headed into turbulence now:
Inexplicably Losing the South Korea Fighter Jet Deal
South Korea rejected Boeing’s bid for an estimated $7.7 billion contract to build 60 fighter jets on Tuesday, shocking the markets. The move even surprised BA, which had been the sole remaining bidder after Lockheed Martin’s (LMT) F-35 and Eurofighter’s Typhoon came in over budget.
South Korean military leaders nixed Boeing’s bid for F15s, noting that even with the upgrades, the F-15 did not meet their needs. They noted that South Korea needed a true “fifth-generation fighter” with advanced capabilities, particularly in light of the threat posed by North Korea’s nuclear weapons capability. Now, BA’s hopes of extending F-15 production until 2020 are greatly diminished — and LMT’s F-35 is back in the hunt, too.
The bigger issue, however, is that any lost international defense business is bad news for BA — international sales account for 30% of the company’s defense revenue.
Airlines Are Losing Patience With Dreamliner Glitches
Boeing’s first variant on its Dreamliner — the larger 787-9 — might have flown a trouble-free maiden flight last week, but the “teething troubles” keep coming for the 787-8s currently in service. Norwegian Air Shuttle summoned BA’s senior management to Oslo on Wednesday to explain glitches with its two new Dreamliners.
The airline grounded one of its 787s last week because of problems with the cockpit oxygen supply; another Dreamliner had to leave behind 70 ticketed passengers in New York because a hydraulic pump problem caused a weight limitation. What makes these glitches different from other “teething problems”? In a break with the typical airline-manufacturer code of silence, Norwegian Air has taken the fight public. “We have not had the reliability that we had expected from brand new planes, so something must happen, fast,” company officials said last week. “Clearly Boeing has not had good enough operative quality control.”
Those are code phrases for serious compensation — a tactic that if successful, will have other 787 operators lining up to imitate. It also could steal the thunder of the new 787-9 and raise questions about how realistic production targets are for BA’s jets — including major new launches like the 737 MAX and the 777X.
Airbus Sales Are Soaring in Asia
If Airbus had deliberately wanted to pour salt into Boeing’s wounds, it couldn’t have picked a better time to announce $15 billion worth of aircraft orders to Asian carriers.
On Wednesday, Airbus announced several deals including a $6 billion, 70-plane order from companies in China alone. The lion’s share of the orders were for A320 series narrow-body aircraft — which will include the A320neo, Airbus’ fuel-efficient workhorse jet that directly competes with BA’s 737 MAX.
These deals are particularly significant because Asia is the fastest-growing air travel market, and existing and start-up carriers will need to buy tens of thousands of new aircraft in the coming two decades.
Bottom Line
Let’s be clear: Boeing is not poised on a precipice. Its fundamentals are strong, and there’s a lot to like about the way the company has thrived despite the slings and arrows of 2013. That said, there are too many storm clouds on the horizon for this stock to escape turbulence indefinitely.
And Boeing must get a handle on the Dreamliner glitches now or risk customer goodwill — and future orders. The Sword of Damocles is not suspended over BA Chairman and CEO James McNerney’s head yet … but it will be if he can’t find a way to stop the bleeding.
As of this writing, Susan J. Aluise did not hold a position in any of the aforementioned stocks."
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Excellent talking and discussion points. I don't want to spin this as a no problem issue with logical sounding and plausible rational from a Boeing point of view. Facts are facts and the organization must address these concerns objectively and soundly.
The loss of the F-15 is a public image defeat in Boeing's military and defense end. It was a bonus to have the F-15 Silent eagle under consideration but is a harbinger of things to come with an old military frame even with upgraded systems going against the troubled F-35. A scaled down F-35 may be better than an enhanced F-15 SE. That is Korea's answer! They are willing to wait for fifth-generation fighters than use a much-studied replacement from the F-15 stable. The F-15's shorter delivery time is not as important since the US Navy fleet hangs out near Korea with its finest until the cows come home.
Epic Teething Problems for an Epic Airplane. I don't know what else to add here for the discussion. Yes, the Dream-Liner problems are a disappointment for both customers and Boeing. No excuses here for realizing the inherent risks of quantum technology leaps coming true. Boeing had hoped that due diligence carries the day inside Camelot. But does its suppliers exercise the same capital investment for gaining those same assurances of shared risks? Both Boeing and its suppliers are busy at the fix-it board making the 787 fly every day much to the chagrins of its paying airline customers. That is that reality outside Camelot's walls, customer disaffection with glitches is a bad taste of soured grapes from Camelot's vineyard.
Finally those pesky China orders, I knew the day would come when Airbus would crack the Great Wall of China with NEO. It comes back to Capitalization value is better than the economy of operation in a close horse race. Someday, no matter how well prepared the product is, the customer goes another way. The NEO is competitive even though I believe the Max is a better aircraft. Ryan Air bought 175 737 NG's for quick delivery and a low price ignoring the Max. Why, because the cost of money is lower for the NG selling at a lower price, outweighing buying the more expensive Max and placement in-line would be shorter in receiving one. What about the long NEO line, China just got into at this time? Answer: Price is worth the wait, Airbus must have offered China a price it couldn't refuse in light of waiting for aircraft much later. The later time slot pleased the customer and was in no need of instant gratification of having NEO. This is not just rational to appease Boeing thinking,, it is the reality outside the castle walls.
It’s the three purchasing principals: price, price, and price; Plus what can you do for me. It’s not a testament to who has the best airplane or the best fuel economy. It’s a result of the backroom deal who played it best. Boeing and Airbus are played against each other, for the benefit of China. All the crowing frame builders make on every deal, is a smoke screen for the financial reality behind closed doors.
Back to Camelot and Boeing, whether it’s a trend line for turbulence or an accumulation of intersecting news events that run contrary to Boeing's Camelot state of mind, the troops of both Boeing and Airbus are engaged in the Market Place Wars. The customer always wins when they get what they want, much to the disappointment of the other guy. The other guy, this week, is Boeing. Next week it may be Airbus. The main thing Boeing has become relevant again in the world’s largest game. China needed this Airbus order to get what they want from Boeing. Split orders are littering the battlefield in the Market. Like 25 to 787 vs 25 A-350 to the same customer and so forth. Leverage is the only tool for victory for the customer because they too have competitors.
The admonition above from the investor article brings into view big business, and rightly so. I agree with the outlook as it brings back to reality the turbulence of the marketplace, innovation has a price as well as stale product (F-15) and that reality hangs heavy at times when your competitor makes a march on the market, not because of product, but because of a price. That summary is true for both Airbus and Boeing. The strongest castle wins in the game of reality.
