Corner of Berkshire & Fairfax Message Board

General Category => Investment Ideas => Topic started by: Liberty on March 11, 2019, 06:41:32 AM

Title: BA - Boeing
Post by: Liberty on March 11, 2019, 06:41:32 AM
Doesn't look like we had a Boeing thread. Today's big story is about China and Indonesia grounding 737 MAX 8s after crashes:

https://www.reuters.com/article/us-ethiopia-airplane/china-indonesia-ground-boeing-737-max-8-fleets-after-ethiopia-crash-idUSKBN1QS15F

Stock down 10%+
Title: Re: BA - Boeing
Post by: Castanza on March 11, 2019, 07:14:33 AM
Is this juicy yet?
Title: Re: BA - Boeing
Post by: Liberty on March 11, 2019, 07:19:33 AM
Is this juicy yet?

I have no opinion either way at this point ¯\_(ツ)_/¯
Title: Re: BA - Boeing
Post by: tombgrt on March 11, 2019, 07:29:46 AM
Slightly off-topic but I was on a flight from Addis with Ethiopian Airlines scheduled to depart 2min later than the crashed plane. Small delay and news got to us when we landed. Stewardesses obviously broke down when we got out at destination. Very odd and a good reminder of the value of life, even when considering the unlikeliness of dying in a plane crash.
Title: Re: BA - Boeing
Post by: Liberty on March 11, 2019, 07:35:49 AM
Slightly off-topic but I was on a flight from Addis with Ethiopian Airlines scheduled to depart 2min later than the crashed plane. Small delay and news got to us when we landed. Stewardesses obviously broke down when we got out at destination. Very odd and a good reminder of the value of life, even when considering the unlikeliness of dying in a plane crash.

Glad you were on a different flight and all right, Tom. Life shouldn't be taken for granted. It's so unlikely that we even exist... There's an unbroken line from us through our ancestors to the very primordial first replicating RNA billions of years ago. Any of our millions of ancestors (including pre-human) dies from some infection or a club to the head or gets eaten by a predator, and we vanish. Any other egg or sperm gets through at that time, and we vanish.

Anyway, sorry to get philosophical in a Boeing thread...
Title: Re: BA - Boeing
Post by: gary17 on March 11, 2019, 10:30:29 AM
Slightly off-topic but I was on a flight from Addis with Ethiopian Airlines scheduled to depart 2min later than the crashed plane. Small delay and news got to us when we landed. Stewardesses obviously broke down when we got out at destination. Very odd and a good reminder of the value of life, even when considering the unlikeliness of dying in a plane crash.

Glad you were on a different flight and all right, Tom. Life shouldn't be taken for granted. It's so unlikely that we even exist... There's an unbroken line from us through our ancestors to the very primordial first replicating RNA billions of years ago. Any of our millions of ancestors (including pre-human) dies from some infection or a club to the head or gets eaten by a predator, and we vanish. Any other egg or sperm gets through at that time, and we vanish.

Anyway, sorry to get philosophical in a Boeing thread...

Tom - glad to hear you are not on that flight.   A bit off topic but I remember my math 101 teacher who used to tell us he has to make the course tough, because he's afraid some one us will actually become engineers and it scares him when he flies.   
Not good news for Boeing. I am a shareholder .

Liberty-  the fact we are here under such a low probability outcome would lead some to suggest we were created...  debate for another time !   
Title: Re: BA - Boeing
Post by: Liberty on March 11, 2019, 11:55:27 AM
Liberty-  the fact we are here under such a low probability outcome would lead some to suggest we were created...  debate for another time !

Created, by evolution through natural selection. Low probability events can happen (possibly frequently) in universes that have billions of galaxies that each have billions of stars with multiple planets and moons, over billions of years (with the possibly of even multiple parallel universes) on planets will thousands of not millions of ecosystem niches with slightly different local conditions... You just need a few primordial animo acids to combine into a barely adequate RNA replicator once in the chemical soup that is an ocean for the process to get started and for time and iteration and selection pressures to do their work. And the very fact that we're here wondering about it shows it's possible, it's the anthropic principle (if it hadn't happened, we wouldn't be here talking about it).

But yeah, let's move on!
Title: Re: BA - Boeing
Post by: Gamecock-YT on March 11, 2019, 01:17:42 PM
This is pretty powerful, former FAA chief of staff says they should ground all the MAX aircraft:

https://twitter.com/KateAFarrell/status/1105191919037173761
Title: Re: BA - Boeing
Post by: rb on March 11, 2019, 05:36:03 PM
I don't think this is that bad for Boeing. Does it make for bad press? Yes. But these sort of, let's call them teething problems, are not uncommon for new aircraft models. Off the top of my head i can think of the 787 (catching fire and fuel leaks) - did not crash, and the DC-10 (doors blowing off) - did crash. They fixed them and the companies were fine.

The fact that Boeing's stock looks pretty overvalued is another issue and probably a bigger one for investors.
Title: Re: BA - Boeing
Post by: Spekulatius on March 12, 2019, 04:08:42 AM
Hmm, the US mandates design changes for the 737:
https://finance.yahoo.com/news/morning-brief-us-to-mandate-design-changes-on-boeing-737-max-8-after-crashes-101822601.html (https://finance.yahoo.com/news/morning-brief-us-to-mandate-design-changes-on-boeing-737-max-8-after-crashes-101822601.html)

I think this will cost Boeing, directly and indirectly. It will also cost LUV, which owns the most 737 max planes.
Title: Re: BA - Boeing
Post by: Liberty on March 12, 2019, 10:36:39 AM
More groundings:

https://www.cnbc.com/2019/03/12/uk-has-grounded-all-boeing-737-max-aircraft.html
Title: Re: BA - Boeing
Post by: perulv on March 12, 2019, 10:40:43 AM
EASA suspends all Boeing 737 Max operations in Europe: https://www.easa.europa.eu/newsroom-and-events/press-releases/easa-suspends-all-boeing-737-max-operations-europe

I was actually on a 737-max yesterday, flying home from a weekend vacation. I have never been scared of flying, but during the take-off I was really nervous. I have never given a second thought to the make/model of an airplane in my life, assuming (correctly I think) that all planes and companies that fly in Europe/US etc are safe. This is of course just anecdotal, but I wonder how big long-term impact this will have, even if it turns out the two crashes are not related, issues fixed etc. Not sure how cool I will be with flying a 737-max in a month or two, if the suspension is lifted.
Title: Re: BA - Boeing
Post by: Spekulatius on March 12, 2019, 12:07:04 PM
EASA suspends all Boeing 737 Max operations in Europe: https://www.easa.europa.eu/newsroom-and-events/press-releases/easa-suspends-all-boeing-737-max-operations-europe

I was actually on a 737-max yesterday, flying home from a weekend vacation. I have never been scared of flying, but during the take-off I was really nervous. I have never given a second thought to the make/model of an airplane in my life, assuming (correctly I think) that all planes and companies that fly in Europe/US etc are safe. This is of course just anecdotal, but I wonder how big long-term impact this will have, even if it turns out the two crashes are not related, issues fixed etc. Not sure how cool I will be with flying a 737-max in a month or two, if the suspension is lifted.

Correct. I believe a lot of people will cancel or change flights once they now they are flying in a 737max plane. I think LUV will be hardest hit, since they have the most 737max planes, at least in the US. I think it will also cost Boeing a few billion to address the findings.
I am surprised that BA isn’t down more. The Stock is a high flier ( pun) and still up ~15% YTD.
Title: Re: BA - Boeing
Post by: Liberty on March 13, 2019, 08:54:37 AM
Canada:

https://www.cbc.ca/1.5054234

"Canada closes airspace to the #737MAX8, based on new information it received on Wednesday"

https://twitter.com/carlquintanilla/status/1105859314487578624
Title: Re: BA - Boeing
Post by: rb on March 13, 2019, 09:51:02 AM
I guess now they're gonna have to fix the jet.

As an aside I was surprised that Air Canada flew 737 Max to London.
Title: Re: BA - Boeing
Post by: Castanza on March 13, 2019, 10:09:03 AM
To me this whole situation is way overblown.

- We have people with no engineering credentials saying to ground the planes (Mitt Romney)

- No evidence has been shown

- Black Box is being shipped to another "country"

- SW pilots just came out and backed the 737

- It's documented that since the LION Air crash US pilots have been briefed on changes and trained properly. It is interesting to note that individual airlines are responsible for the training and briefing. These other countries Don't have nearly the same standards as the FAA.

- People suggest the FAA is in the pocket of Boeing. I agree with this slightly, however they have grounded many of beings planes in the past. See 787 in 2013. So to me this doesn't fit the narrative.

Personally I believe the FAA is simply standing up for and behind their strict regulations, policies, guidelines, protocols, and exhaustive list of specifications. Could there be an issue? Absolutely, But there isn't anything to suggest that yet.

Either way, I'm long BA. This whole thing will blow over just like the Talc powder thing for JNJ two months ago. Plus it helps my DCA is low 200's  :)
Title: Re: BA - Boeing
Post by: sleepydragon on March 13, 2019, 10:43:49 AM
Seems to me: It’s a hardware bug fixed by software which has a new bug.
Not easy to fix but they will fix it. But they better do more testings this time.i
Title: Re: BA - Boeing
Post by: wabuffo on March 13, 2019, 11:45:34 AM
US orders all 737 Max 8,9s parked.

wabuffo
Title: Re: BA - Boeing
Post by: walkie518 on March 13, 2019, 12:17:22 PM
US orders all 737 Max 8,9s parked.

wabuffo
24 planes w/AAL... say that's 48 flights per day and each flight has 200 passengers paying $250/ride that's $876m of lost revenues over the course of the year

Southwest would lose $1.24B of revenues using the same metrics

maybe this mess lasts a quarter at worst?
Title: Re: BA - Boeing
Post by: Castanza on March 13, 2019, 12:28:10 PM
US orders all 737 Max 8,9s parked.

wabuffo
24 planes w/AAL... say that's 48 flights per day and each flight has 200 passengers paying $250/ride that's $876m of lost revenues over the course of the year

Southwest would lose $1.24B of revenues using the same metrics

maybe this mess lasts a quarter at worst?

Boeing was already working on a solution after LION Air. If this issue is the same, then I can't imagine this lasting very long. I wonder if other airlines will gouge customers on pricing due to supply/demand.
Title: Re: BA - Boeing
Post by: KFRCanuk on March 13, 2019, 12:50:00 PM
US orders all 737 Max 8,9s parked.

wabuffo
24 planes w/AAL... say that's 48 flights per day and each flight has 200 passengers paying $250/ride that's $876m of lost revenues over the course of the year

Southwest would lose $1.24B of revenues using the same metrics

maybe this mess lasts a quarter at worst?

Two flights per day per plane seems low. In the US I would expect 6 to 8 flights. Canada 2 to 5.
Title: Re: BA - Boeing
Post by: walkie518 on March 13, 2019, 05:34:28 PM
US orders all 737 Max 8,9s parked.

wabuffo
24 planes w/AAL... say that's 48 flights per day and each flight has 200 passengers paying $250/ride that's $876m of lost revenues over the course of the year

Southwest would lose $1.24B of revenues using the same metrics

maybe this mess lasts a quarter at worst?

Two flights per day per plane seems low. In the US I would expect 6 to 8 flights. Canada 2 to 5.

ok, triple the number then divide by 4 and that's a better number...
Title: Re: BA - Boeing
Post by: doc75 on March 13, 2019, 05:44:25 PM
US orders all 737 Max 8,9s parked.

wabuffo
24 planes w/AAL... say that's 48 flights per day and each flight has 200 passengers paying $250/ride that's $876m of lost revenues over the course of the year

Southwest would lose $1.24B of revenues using the same metrics

maybe this mess lasts a quarter at worst?

Two flights per day per plane seems low. In the US I would expect 6 to 8 flights. Canada 2 to 5.

ok, triple the number then divide by 4 and that's a better number...

FWIW: Air Canada has 24 Max 8's and reportedly handle 9000 to 12000 passengers per day (quote from an AC spokesman in an article I read earlier today).   
Title: Re: BA - Boeing
Post by: augustabound on March 13, 2019, 06:21:22 PM
To me this whole situation is way overblown.

- We have people with no engineering credentials saying to ground the planes (Mitt Romney)

FWIW, our Minister of Transportation in Canada is a former NASA astronaut.
Title: Re: BA - Boeing
Post by: walkie518 on March 14, 2019, 07:54:26 AM
US orders all 737 Max 8,9s parked.

wabuffo
24 planes w/AAL... say that's 48 flights per day and each flight has 200 passengers paying $250/ride that's $876m of lost revenues over the course of the year

Southwest would lose $1.24B of revenues using the same metrics

maybe this mess lasts a quarter at worst?

Two flights per day per plane seems low. In the US I would expect 6 to 8 flights. Canada 2 to 5.

ok, triple the number then divide by 4 and that's a better number...

FWIW: Air Canada has 24 Max 8's and reportedly handle 9000 to 12000 passengers per day (quote from an AC spokesman in an article I read earlier today).

that verifies the 2 KFR noted

less certain about US figures then? 
Title: Re: BA - Boeing
Post by: Spekulatius on March 14, 2019, 04:55:35 PM
Anyone went through BA‘s 10-k with a fine comb? Interesting read - their accounts payable exceed their receivables by far and advanced billings finance their 80% of their inventory. (60% of the annual revenue. $120B in purchase obligation (probably long term supply contracts. if a major program blows up, the CFO‘s job could become very interesting quickly, it seems.

Looks like they can float their inventory through offloading the balance sheet to their suppliers and getting advances from their customers, which means they generate more cash flow when they ramp up. The reverse should be true when business slows down.

Then they use „program accounting“ as I learned from another forum, probably to smooth out earnings. All this you can buy for 22x earnings. Interesting.

Maybe I am über sceptical as they sure have done this for quite some time.
Title: Re: BA - Boeing
Post by: Gamecock-YT on March 17, 2019, 11:07:39 AM
Flawed analysis, failed oversight: How Boeing and FAA certified the suspect 737 MAX flight control system

https://www.seattletimes.com/business/boeing-aerospace/failed-certification-faa-missed-safety-issues-in-the-737-max-system-implicated-in-the-lion-air-crash/


Quote
Both Boeing and the FAA were informed of the specifics of this story and were asked for responses 11 days ago, before the second crash of a 737 MAX last Sunday.
Title: Re: BA - Boeing
Post by: Liberty on March 19, 2019, 01:51:08 PM
Sully op-ed:

https://www.marketwatch.com/story/capt-sully-sullenberger-where-boeing-and-the-faa-went-wrong-in-this-ugly-saga-2019-03-19
Title: Re: BA - Boeing
Post by: cherzeca on March 19, 2019, 04:13:59 PM
isn't Boeing=J&J Tylenol?  wait it out, then assess whether discount justifies buying?
Title: Re: BA - Boeing
Post by: Spekulatius on March 19, 2019, 06:24:05 PM
isn't Boeing=J&J Tylenol?  wait it out, then assess whether discount justifies buying?

Except that BA is expensive to begin with (still trades around 20x earnings) and the potential downside scenario that’s more than a slap on the hand is nowhere priced in. If it were going for 12x earnings,  I would be all over it, but for 20x, I gladly watch this from the sidelines.
Title: Re: BA - Boeing
Post by: LR1400 on March 19, 2019, 09:15:45 PM
Why do people hold stocks as a long term investment when there are
liquid markets for shares on a daily basis?

Seriously.

I continue to doubt buy and hold for businesses placed in an auction house.

Title: Re: BA - Boeing
Post by: Liberty on March 20, 2019, 04:47:39 AM
https://www.cnbc.com/2019/03/20/lion-air-boeing-737-saved-by-off-duty-pilot-a-day-before-crash-report.html

Yikes
Title: Re: BA - Boeing
Post by: robface on March 21, 2019, 08:14:23 PM
Current thoughts --> Short Boeing for simple reasons:
- Boeing's product development failed to product a competitive plane which its company was betting on
- $600Bn of orders at risk vs. market cap of about $210Bn --> PV of the $600Bn meaningful still even if a smaller portion get cancelled
- Reputational impact will shift more sales to Airbus
- Boeing's dealing of the whole situation has lacked ownership and accountability and raises questions on profits vs. safety / cutting corners
- Airbus will benefit
- Target Price $300 per share
Title: Re: BA - Boeing
Post by: Liberty on March 22, 2019, 06:10:34 AM
https://www.cnbc.com/2019/03/22/indonesias-garuda-canceling-its-order-for-49-boeing-737-max-jets.html
Title: Re: BA - Boeing
Post by: Castanza on March 22, 2019, 06:26:18 AM
Current thoughts --> Short Boeing for simple reasons:
- Boeing's product development failed to product a competitive plane which its company was betting on
- $600Bn of orders at risk vs. market cap of about $210Bn --> PV of the $600Bn meaningful still even if a smaller portion get cancelled
- Reputational impact will shift more sales to Airbus
- Boeing's dealing of the whole situation has lacked ownership and accountability and raises questions on profits vs. safety / cutting corners
- Airbus will benefit
- Target Price $300 per share

My question is does AirBus have the ability to absorb large amounts of orders and efficiently produce them? They are already backlogged with 7k+ planes.

https://www.airbus.com/aircraft/market/orders-deliveries.html

Boeing also has other planes. Not just the 737. Lufthansa ordered 40 787's the day after the Indonesia crash occurred.

https://newsroom.lufthansagroup.com/english/newsroom/lufthansa-group-orders-40-state-of-the-art-boeing-787-9-and-airbus-a350-900-long-haul-aircraft/s/8e28b9e1-a775-4fee-8ea5-391be31d4600

Sure companies could cancel and we undoubtedly will see come choose to do so. But is it a bit premature to assume all 600bn worth of orders are at risk? I think most companies would (especially the ones at the from of the line) would be willing to work with Boeing on this issue. The R&D team is obviously going into hyper drive to correct the issue at hand. You can also assume they are going beyond what is required to root out other potential issues.

These backlogs can take years to fill. I can't picture airlines jumping ship if their order is due soon. How many companies could afford to take a new number and go to the back of the line? What happens if Airbus has an issue with one of their planes in the next year or two?

But a short position in the near term could be profitable, especially if a few people abandon their orders.
Title: Re: BA - Boeing
Post by: 5xEBITDA on March 22, 2019, 07:00:40 AM
Current thoughts --> Short Boeing for simple reasons:
- Boeing's product development failed to product a competitive plane which its company was betting on
- $600Bn of orders at risk vs. market cap of about $210Bn --> PV of the $600Bn meaningful still even if a smaller portion get cancelled
- Reputational impact will shift more sales to Airbus
- Boeing's dealing of the whole situation has lacked ownership and accountability and raises questions on profits vs. safety / cutting corners
- Airbus will benefit
- Target Price $300 per share

All that bad stuff and you think downside is less than -20%? Sign me up to go long in that case.
Title: Re: BA - Boeing
Post by: Gamecock-YT on March 25, 2019, 07:22:39 PM
https://www.nytimes.com/2019/03/25/business/boeing-simulation-error.html

In Test of Boeing Jet, Pilots Had 40 Seconds to Fix Error

During flight simulations recreating the problems with the doomed Lion Air plane, pilots discovered that they had less than 40 seconds to override an automated system on Boeing’s new jets and avert disaster.
Title: Re: BA - Boeing
Post by: Spekulatius on March 26, 2019, 04:27:21 AM
Current thoughts --> Short Boeing for simple reasons:
- Boeing's product development failed to product a competitive plane which its company was betting on
- $600Bn of orders at risk vs. market cap of about $210Bn --> PV of the $600Bn meaningful still even if a smaller portion get cancelled
- Reputational impact will shift more sales to Airbus
- Boeing's dealing of the whole situation has lacked ownership and accountability and raises questions on profits vs. safety / cutting corners
- Airbus will benefit
- Target Price $300 per share

My question is does AirBus have the ability to absorb large amounts of orders and efficiently produce them? They are already backlogged with 7k+ planes.

https://www.airbus.com/aircraft/market/orders-deliveries.html

Boeing also has other planes. Not just the 737. Lufthansa ordered 40 787's the day after the Indonesia crash occurred.

https://newsroom.lufthansagroup.com/english/newsroom/lufthansa-group-orders-40-state-of-the-art-boeing-787-9-and-airbus-a350-900-long-haul-aircraft/s/8e28b9e1-a775-4fee-8ea5-391be31d4600

Sure companies could cancel and we undoubtedly will see come choose to do so. But is it a bit premature to assume all 600bn worth of orders are at risk? I think most companies would (especially the ones at the from of the line) would be willing to work with Boeing on this issue. The R&D team is obviously going into hyper drive to correct the issue at hand. You can also assume they are going beyond what is required to root out other potential issues.

These backlogs can take years to fill. I can't picture airlines jumping ship if their order is due soon. How many companies could afford to take a new number and go to the back of the line? What happens if Airbus has an issue with one of their planes in the next year or two?

But a short position in the near term could be profitable, especially if a few people abandon their orders.

I don’t think Airbus has any way to replace BA in the foreseeable time. Airbus would need to more than double their capacity and the airlines have a huge vested interest in BA airplanes (supporting infrastructure, training etc) , as well as an interesting in keeping at least two suppliers. BA will remain here for the foreseeable future.

I could see pot. A lot of damage to BA however. The 737 max family is one of BA most important airplanes and was 256/800 planes delivered last year or about 32%. It is also a huge part of their backlog. If the reputation of this airplanes becomes tainted, then I could see airlines pulling orders, suing BA for damages etc. and BA being forced to redesign the airplane quickly, resulting in huge cost, writeoff of exist8ng inventory and probably an extra writeoff due to BA project accounting (which appears to aversg production costs over the expected life of a program). I could easily see the stock being worth less than $200/ share in a worst case scenario.

Another risk I see is that BA becomes a prime target for retaliation if the trade war really escalates. It’s one of the biggest US exporters, so if you want to hit back when this spirals out of control, curtailing orders to BA would be one way to do it.

On the other side,  China for example could be tempted to increase order just to reduce the trade deficit or show high profile goodwill (and a huge $ amount headline order) if the trade negotiations are at least somewhat successful, which I think is the more likely scenario.
Title: Re: BA - Boeing
Post by: Liberty on April 20, 2019, 12:05:18 PM
https://spectrum.ieee.org/aerospace/aviation/how-the-boeing-737-max-disaster-looks-to-a-software-developer
Title: Re: BA - Boeing
Post by: bobp on April 22, 2019, 07:16:22 AM
Great article. Scary.
""the nacelles will cause the 737 Max at a high angle of attack to go to a higher angle of attack. This is aerodynamic malpractice of the worst kind....
 An airplane approaching an aerodynamic stall cannot, under any circumstances, have a tendency to go further into the stall. This is called “dynamic instability,” and the only airplanes that exhibit that characteristic—fighter jets—are also fitted with ejection seats."

Sounds like Boeing chose a software fix rather than ejection seats.

https://spectrum.ieee.org/aerospace/aviation/how-the-boeing-737-max-disaster-looks-to-a-software-developer
Title: Re: BA - Boeing
Post by: Liberty on April 25, 2019, 07:24:48 AM
Interview with a Boeing whistleblower who talks about cultural issues at the company that could affect safety:

https://www.nytimes.com/2019/04/23/podcasts/the-daily/boeing-dreamliner-charleston.html
Title: Re: BA - Boeing
Post by: IceCreamMan on April 30, 2019, 07:04:17 AM
Why Airbus isn't pouncing on Boeing's 737 MAX turmoil

https://www.reuters.com/article/us-airbus-boeing-strategy-analysis/why-airbus-isnt-pouncing-on-boeings-737-max-turmoil-idUSKCN1S51SI