Opinion article that author's thesis states stock buybacks and poor leadership led to the breaking of Boeing.

[Astro14]

Again, I don't know Boeing at all, or the Aerospace business - so I am playing devil's advocate to ask a question.

Who is the competition in this mid-size plane business, and can Boeing compete there?

BMW and Mercedes have both tried to foray into the economy car market. Its much bigger than there traditional market. Both have failed. GM tried it with Saturn, but legacy management and the Unions got but hurt over their success and sabotaged it.

As an investor in a blue chip, I want them to either invest in the business there good in, or give me back the money. Maybe Boeing should give investors back their money, and those investors can fund a startup for a mid-size airplane? Best way to do that would be with stock buy backs. If the investors don't start the new company - then its on them not Boeing.

We bash Elon around here a lot - and in many ways he deserves it - but he took his Paypal and Tesla money and funded SpaceX. He owns it, and runs it how he wants. He did the same with Tesla originally. Maybe your issue isn't with Boeing management, but with the US investor class, who are no longer titans of industry but 3rd generation spoiled rich kids?

Again, I am only looking at this from an investors point of view.

Read the wiki link.

The competition is Airbus, and their 320 NEO family.

If the airlines were asking for the airplane, and they were, the sales potential was there, so what does the competition product offering matter?

This is nothing like cars, and the NMA was more like an E class than an economy offering anyways.

Why do you think the 757, a 1982 design, is still being flown?

Because neither Boeing, nor Airbus, has made an airplane of that size, with the range performance to replace the 757.

But the 321 NEO XLR is intended to capture that market.

And Boeing has nothing to compete.

The 737 Max 10 has the size, but not the range, and it hasn’t been approved by regulators, after the Max crashes.

Besides, as an investor, and I do own shares, and Boeing, a few hundred, I like to invest in companies that are successful, selling their product products.

How many investors say, “ooh, I’d like to own a company that’s plagued by lawsuits, regulatory denial, and whose products have been the subject of investigations, and spectacular failures, causing hundreds of deaths“?

All the stock buybacks in the world are not enough To make up for the failure in product offering, failure in product development, and the failure to invest in the company core business.

 

[Danh]

Investment of “excess capital” is precisely what Boeing needed to do.

Boeing had a chance, to invest the “excess capital” in the business of designing and building airplanes. The New Midsize Airplane would’ve taken about $10 billion to develop.

Customers were asking for it. Customers wanted it.

Instead, the management at Boeing (not leadership, leadership implies vision, management implies extraction of profit) decided to buyback stock, line their own pockets with bonuses, and “manage” the product line.

They failed, spectacularly, when they decided to build and push the 737 MAX. Look how well that airplane has worked out for them.

Boeing is the poster child for bad decisions, for poor management, for a company that has lost their way.

Boeing New Midsize Airplane - Wikipedia

en.wikipedia.org

Seems like large BA customers like Southwest and RyanAir were absolutely not asking for new designs, being very content with a standardized fleet. Plus the Max series seems to be operationally as efficient as the A320.

Boeing was on the fence waiting for technology to evolve to the point where a very large efficiency advantage would result from a new design. Maybe they should have squirreled away resources for this event, but a premature launch may have been a very bad decision, too.

To an extent, BA was a victim of its own success with an order book that was too large to properly produce. MCAS, of course, was a screwup for the ages.

 

[SC Maintenance]

Read the wiki link.

The competition is Airbus, and their 320 NEO family.

If the airlines were asking for the airplane, and they were, the sales potential was there, so what does the competition product offering matter?

This is nothing like cars, and the NMA was more like an E class than an economy offering anyways.

Why do you think the 757, a 1982 design, is still being flown?

Because neither Boeing, nor Airbus, has made an airplane of that size, with the range performance to replace the 757.

But the 321 NEO XLR is intended to capture that market.

And Boeing has nothing to compete.

The 737 Max 10 has the size, but not the range, and it hasn’t been approved by regulators, after the Max crashes.

Besides, as an investor, and I do own shares, and Boeing, a few hundred, I like to invest in companies that are successful, selling their product products.

How many investors say, “ooh, I’d like to own a company that’s plagued by lawsuits, regulatory denial, and whose products have been the subject of investigations, and spectacular failures, causing hundreds of deaths“?

All the stock buybacks in the world are not enough To make up for the failure in product offering, failure in product development, and the failure to invest in the company core business.

But this is actually my question. If Boeing can't build a 737 and get it certified, then what makes anyone think they can build a new, long range version of a 757 and get it certified?

Also, I thought they sun set the 757 because no one wanted to buy them? I still drive my old truck, but I wouldn't buy a new one like it - doesn't fit my family needs today. However I believe you if you say there is demand for it. Boeing just may not be the company to fill that demand?

I realize that the car business and airplane business are different - it was just an example. I could have used other examples of companies foraying into markets they have no particular competitive advantage in and failing, even though there a household name. Like Microsoft's foray into selling computers, or when Amazon tried getting in the hotel booking business.

 

[Wrenchturner44]

I am generally not for buybacks, but it seems everyone thinks there evil. There not.

Companies can do 4 things with there profits.
1) They can pay back debt. Not always a great idea, dependent on the yield and current value of that debt.
2) They can pay dividends. Many investors don't want dividends - since its taxed as annual income vs long term gains.
3) They can invest in the company. This is the right thing to do - assuming they have something worth investing in. But if they don't, its just a waste of money then.
4) They can buy back stock.

Not saying there aren't companies that shouldn't be buying back stock but are, but its not evil in all cases. If they have no great use case for the money, better to buy back stock than waste it throwing it at unproductive projects.

Although Number 2 is factually correct, I do not think that is true of many investors as you say. Just ask Warren Buffet. Dividends can be used to not only create income for investors but investors can also take that income and reinvest it into the same investment or a different one. At this stage of my life my preference for dividend paying investments takes precedence over growth ones, because I am enjoying the extra income that they produce.

 

[Astro14]

But this is actually my question. If Boeing can't build a 737 and get it certified, then what makes anyone think they can build a new, long range version of a 757 and get it certified?

Also, I thought they sun set the 757 because no one wanted to buy them? I still drive my old truck, but I wouldn't buy a new one like it - doesn't fit my family needs today. However I believe you if you say there is demand for it. Boeing just may not be the company to fill that demand?

I realize that the car business and airplane business are different - it was just an example. I could have used other examples of companies foraying into markets they have no particular competitive advantage in and failing, even though there a household name. Like Microsoft's foray into selling computers, or when Amazon tried getting in the hotel booking business.

Absolutely they can do it.

The 787 is one of the best selling airliners in history. It’s all new technology. It had its teething problems but fundamentally. It is a triumph of modern engineering.

Boeing could have, and initially did plan to have, taken the new technologies of the 787 to build a midsize airplane that would absolutely crush the competition. Midsize airplane with the efficiency of the 787, the range and passenger size of the 757.

But that requires vision.

It requires a bold commitment to engineering and action.

The current C-suite pile of risk averse, profit-minded, managers, lack that vision, lack that commitment.

They cared only about fluffing up stock returns to line their own pockets. They did not care about recapturing market share, they did not care about the future of the company.

They merely want to do extract as much money as possible from the cash cow that they were handed.

 

[SC Maintenance]

Although Number 2 is factually correct, I do not think that is true of many investors as you say. Just ask Warren Buffet. Dividends can be used to not only create income for investors but investors can also take that income and reinvest it into the same investment or a different one. At this stage of my life my preference for dividend paying investments takes precedence over growth ones, because I am enjoying the extra income that they produce.

Most stock holders - the ones that actually vote their shares and not hold them in a 401K ETF - are the top 10%. If they issue dividends those people pay their topline tax rate on that income in that year. No way around it. Most have no interest in paying taxes on a dividend. They would rather they buy back and raise the value of the stock, which they will cash out in 10 years - and have gotten the benefit of compound tax free investment and can take the tax payment at their time of choice.

Warren buffet doesn't hold the stock, Berkshire does. For Berkshire its revenue like any other, so "he" doesn't have this issue.

Berkshire's largest holding is Apple, that pays out a very tiny dividend - like half a percent. Apple also bought back $77B in shares in 2023, so warren obviously doesn't hate buybacks either - its Berkshires largest holding.

Some people buy stocks specifically for the dividend - ie retirees who want income while preserving their capital. Some don't.

Its a big depends, on both the investor and the company.

 

[Wrenchturner44]

Most stock holders - the ones that actually vote their shares and not hold them in a 401K ETF - are the top 10%. If they issue dividends those people pay their topline tax rate on that income in that year. No way around it. Most have no interest in paying taxes on a dividend. They would rather they buy back and raise the value of the stock, which they will cash out in 10 years - and have gotten the benefit of compound tax free investment and can take the tax payment at their time of choice.

Warren buffet doesn't hold the stock, Berkshire does. For Berkshire its revenue like any other, so "he" doesn't have this issue.

Berkshire's largest holding is Apple, that pays out a very tiny dividend - like half a percent. Apple also bought back $77B in shares in 2023, so warren obviously doesn't hate buybacks either - its Berkshires largest holding.

Some people buy stocks specifically for the dividend - ie retirees who want income while preserving their capital. Some don't.

Its a big depends, on both the investor and the company.

Your point is what is what is the investor's motivation on owning the stock in the first place. I agree with that. My POV is that I want the income given my age and stage in life. I own growth stocks as well, and I use dividend income in some cases to actually buy growth stock shares. My point again is it depends on what your desire is for owning the investment in the first place.

 

[SC Maintenance]

Your point is what is what is the investor's motivation on owning the stock in the first place. I agree with that. My POV is that I want the income given my age and stage in life. I own growth stocks as well, and I use dividend income in some cases to actually buy growth stock shares. My point again is it depends on what your desire is for owning the investment in the first place.

Yes, exactly. However the original article this thread is about sites stock buy backs as one of the route problems with Boeing. Now I don't know much about Boeing, but I own XOM, and have owned APPL, and both do extensive buybacks and both are considered the best run companies in there sector and both make a ton of money. Buy backs haven't held them back from properly running their business.

Lots of people throw around stock buy backs - not just in this case but in general - including some of our head idiots in charge, as being a route cause of a problem, but there not. If they have a management problem then buy-backs are periphery. Buy backs are one of the most effective ways for well run companies with great cash flow to return money to shareholders.

 

[SC Maintenance]

Absolutely they can do it.

The 787 is one of the best selling airliners in history. It’s all new technology. It had its teething problems but fundamentally. It is a triumph of modern engineering.

Boeing could have, and initially did plan to have, taken the new technologies of the 787 to build a midsize airplane that would absolutely crush the competition. Midsize airplane with the efficiency of the 787, the range and passenger size of the 757.

But that requires vision.

It requires a bold commitment to engineering and action.

The current C-suite pile of risk averse, profit-minded, managers, lack that vision, lack that commitment.

They cared only about fluffing up stock returns to line their own pockets. They did not care about recapturing market share, they did not care about the future of the company.

They merely want to do extract as much money as possible from the cash cow that they were handed.

I would be interested in your opinion of why it seems they can't build the 737 then. Again, not my area of expertise, so I am truly interested in what you think the route cause of the problem is on that - if they can build a mid size airplane but can't build a 737?

 

[fdcg27]

Stock buybacks are a fool's errand. If a company has a billion USD in cash on its balance sheet, whether it holds that cash, uses that cash to pay dividends or uses it to buy in outstanding shares of stock, the equity value of the company remains unchanged. This is a somewhat contrary concept, but it's no more than simple arithmetic.
Also, if Boeing is to remain a going concern in the commercial airliner market, it's going to have to develop new models, both a NSA and a MOM aircraft are needed sooner rather than later.
IMHO, Boeing's current production woes are the unintended result of excessive cost cutting. Sometimes you really do need additional bodies to provide additional layers of quality assurance.

 

[wpod]

What Boeing managed down to Boeing isthe current management style of most of the management do in most of the corporations

IMHO, Boeing's current production woes are the unintended result of excessive cost cutting. Sometimes you really do need additional bodies to provide additional layers of quality assurance.

Quality is very expensive.

 

[goingplacesanddoingstuff]

Could the bad management behavior be exacerbated by the fact that the US government likely sees Boeing’s solvency as vital to national interests, and would therefore provide a safety net?

 

[edyvw]

There is too much emphasis in this discussion about article, not HBO piece that article talks about.
HBO piece is so far the best assessment of Boeing situation. Stock buybacks are just one part of the story.

 

[Danh]

Stock buybacks are a fool's errand. If a company has a billion USD in cash on its balance sheet, whether it holds that cash, uses that cash to pay dividends or uses it to buy in outstanding shares of stock, the equity value of the company remains unchanged. This is a somewhat contrary concept, but it's no more than simple arithmetic.
Also, if Boeing is to remain a going concern in the commercial airliner market, it's going to have to develop new models, both a NSA and a MOM aircraft are needed sooner rather than later.
IMHO, Boeing's current production woes are the unintended result of excessive cost cutting. Sometimes you really do need additional bodies to provide additional layers of quality assurance.

Actually, stock buybacks reduce equity. The accounting entry is to credit cash and debit shareholder’s equity. It also reduces shares outstanding so can increase earnings per share.

 

[fdcg27]

Actually, stock buybacks reduce equity. The accounting entry is to credit cash and debit shareholder’s equity. It also reduces shares outstanding so can increase earnings per share.

If these two journal entries balance, as they must, then there is no change in the value of the concern. It's merely a matter of moving a number from the top to the bottom.
EPS may increase or may not, since the cash would have been parked in interest yielding instruments.

 

[Danh]

If these two journal entries balance, as they must, then there is no change in the value of the concern. It's merely a matter of moving a number from the top to the bottom.
EPS may increase or may not, since the cash would have been parked in interest yielding instruments.

Liabilities same, assets lower ergo shareholder’s equity lower. And increased EPS is a typical motivator. Buybacks are generally done when there isn’t a better way to deploy excess cash: dividends, acquisitions, development of new products, etc.

But I agree Boeing made an error by placing too much emphasis on making shareholders happy at the expense of preserving its long-term dominance.

 

[fdcg27]

Liabilities same, assets lower ergo shareholder’s equity lower. And increased EPS is a typical motivator. Buybacks are generally done when there isn’t a better way to deploy excess cash: dividends, acquisitions, development of new products, etc.

But I agree Boeing made an error by placing too much emphasis on making shareholders happy at the expense of preserving its long-term dominance.

Upon reflection, you're right.
But a company in Boeing's business has plenty of need to invest in its business rather than to waste retained earnings buying back outstanding shares.
I can think of two programs that have turned into disasters through a lack of proper investment upfront.

 

[fdcg27]

Could the bad management behavior be exacerbated by the fact that the US government likely sees Boeing’s solvency as vital to national interests, and would therefore provide a safety net?

Boeing hasn't exactly covered itself in glory in its defense and space programs in recent years.

 

[y_p_w]

Boeing hasn't exactly covered itself in glory in its defense and space programs in recent years.

They’re still a top 5 worldwide defense company. I guess part of it is continued maintenance.

Granted I think they were hoping to win the JSF program, and the end of Super Hornet production can’t be good for their bottom line. Still, it’s going to be around for a while. There’s a lot of stuff they’re doing that isn’t as high profile, like making cruise missiles and drones (like the MQ-25).

 

[fdcg27]

They’re still a top 5 worldwide defense company. I guess part of it is continued maintenance.

Granted I think they were hoping to win the JSF program, and the end of Super Hornet production can’t be good for their bottom line. Still, it’s going to be around for a while. There’s a lot of stuff they’re doing that isn’t as high profile, like making cruise missiles and drones (like the MQ-25).

The problems with the tanker program have been absurd given that Boeing built the 767 for decades and has built tankers for a few more.
Legacy Boeing would have never allowed this to happen.