Boeing Just Doesn't Fly With Me
Let's look at why the aerospace and military contractor name has a massive culture problem.
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I have told readers in the past what that Air Force Staff Sergeant told me about Boeing BA 40 years ago, as we headed down to Panama. His opinion of Boeing was not high then. The company appears to have a culture problem that has persisted. For 40 years? I don't know, but at least for several.
This brings us to the present date.
Boeing employees, represented by the International Association of Machinists And Aerospace Workers, on Sept. 13 rejected an offer of a 25% pay increase and voted to strike. Boeing, the next week, upped the pay raise to 30% over four years. Still no deal. The union has demanded a 40% increase in pay, a seat on the company's board of directors and the reinstatement of a currently frozen defined benefit plan.
A total of 33,000 Boeing employees are out on strike, and its facilities in the Seattle area are not currently operating. All while SpaceX, run by Tesla's TSLA Elon Musk, had to rescue two astronauts stranded at the International Space Station because NASA did not trust the Boeing-manufactured spacecraft that got them there in the first place, to get them back to earth safely. As recently as this past Friday, the union announced through a post on X (Twitter) that no progress had been made on Boeing's refusal to unfreeze the defined benefit plan.
Just the Beginning of This Story ...
Monday was a heck of a day for Boeing in terms of landing Defense Department contracts. We touched on this in more detail in this morning's Market Recon column, but in what was a big day for contract awards in general, Boeing landed the largest in dollar terms. On Monday, Boeing was awarded a ceiling $6.9 billion "undefinitized," fixed price incentive, indefinite delivery/indefinite quantity contract for small diameter bombs. That work is expected to be completed by Dec. 31, 2035.
Boeing was also awarded a $1.677 billion modification to a previously awarded contract, providing for C-17 Globemaster III aircraft. The work is expected to be completed by Oct. 31, 2027. Lastly, Boeing was awarded a $600 million indefinite delivery/indefinite quantity contract for Joint Direct Attack Munition and Laser Joint Direct Attack Munition testing and integration services. This work is expected to be completed by Sept. 29, 2035.
Hold Everything: More 737 Woes
Yes, Monday was a big day for Boeing as a defense contractor. Unfortunately, Boeing also manufactures civilian airliners. In fact, it used to be very good at manufacturing civilian airliners. On Monday, the U.S. National Transportation Safety Board warned that more than 40 foreign operators of Boeing 737 aircraft may have rudder components that could be a safety risk. The agency did not identify which foreign airlines might be impacted.
This announcement came after the same NTSB last Thursday, issued urgent safety recommendations to Boeing and the Federal Aviation Administration in response to the potential for a jammed or restricted rudder control system on some 737 aircraft. The rudder control components that seem to be of concern were made for Boeing by Collins Aerospace.
Collins has delivered 353 rudder "actuators" to Boeing since 2017. Collins was acquired by United Technologies in late 2018, and United Technologies was merged with Raytheon in 2020, and renamed Raytheon Technologies. Raytheon Technologies is now known as RTX Corporation RTX.
Then Came Tuesday ...
Boeing was under some pressure on Monday (-2.74%) as the problems on the commercial side seem to, for investors, outweigh the incoming increase in defense-related business. The stock showed some weakness early on Tuesday morning as well. Bloomberg News is reporting on Tuesday that Boeing is likely looking to raise $10 billion through a share sale (secondary offering) to replenish cash reserves. Any offering would still be more than a month away in all likelihood.
How strapped is Boeing? It reports in about three weeks, so the data on hand is a little stale. As of the end of June, Boeing had a cash position of $12.6 billion and accounts receivable of $12.815 billion. It has a large order backlog, but how quickly these orders can be shipped is still reliant on the cooperation of regulators and the company's own workers (who aren't working).
At that same time, Boeing had $52.904 in debt-load on the books, of which $4.765 billion is due within 12 months. Boeing also had accounts payable of $11.864 billion and $8.407 billion in pension-related liabilities on the balance sheet. It did have unearned revenue of $58.151 billion listed as a current liability. As I have mentioned in the past, unearned revenues are not true financial liabilities ... unless the company fails to deliver on the goods and/or services owed. When does this become a problem?
My Take (I'm Not Taking Boeing)
Honestly, I would not touch the stock of Boeing with a ten-foot pole. I would not invest your money in Boeing, even if I hated your guts.
What that probably long retired Air Force NCO told me decades ago, has kept me from ever doing more than trade BA. You will notice in my disclosures that I am often long a bevy of large defense contractors. Never Boeing.
Readers will notice that in early September, BA blew right through the lows of this past April. Readers will note that BA put together a rising wedge pattern from late April into late July. Rising wedge patterns, for the new kids, are patterns of bearish reversal, and wow, did that technical pattern work out like a charm for anyone who played along.
Currently, the stock's relative strength is weak, the daily Moving Average Convergence Divergence oscillator is negative with all two of the three components deep inside of sub-zero territory. The stock has not kissed its 50-day simple moving average since mid-August and has not touched its 200-day simple moving average since last winter after coming close in late July.
Diluting the equity should not help, in my opinion. The stock trades at its lows since November of 2022 this morning. I see no reason to stand in front of a cannon. We'll take a look again once the firm gets its act together. Given their history, I'm not guessing that it will be any day now.
At the time of publication, Guilfoyle was long RTX equity.
