2008 – A Complete Disaster for Boeing

Boeings 2008 Q4 results confirm the expectation that the financial situation for the company would deteriorate quickly.
As I wrote about 3 months ago:

Boeing’s numbers show us the following:
From 2005-2007 the company’s free cash flow (operating cash flow – capital expenditures) grew from $5.5 billion to $7.9 billion
This year, so far, the company has generated a free cash flow of $389 million with the two past quarters yielding negative cash flows; unless the 4th quarter yields incredibly good results the overall free cash flow number for this year will look very bleak
– A look at the most recent balance sheet shows us that the company is among the highly leveraged ones with a 6:1 debt to equity ratio
– What stands out in particular that the company maintains an accounts payable balance of $27 billion versus a shareholders equity of $8.7 billion and a cash balance of $4 billion: the company is obviously making its vendors wait, the article above mentions that a lot of work is being outsourced
– Thus Boeing heavily depends on a lot of vendors that are (1) not being paid in a timely fashion and (2) will most likely not get paid anytime soon if the current economic trend hold up and the company keeps delaying deliveries and losing cash.
I am very bearish on Boeing and expect some seriously bad news for investors shortly. Surely Boeing will also be deemed “too big to fail” by US lawmakers. Obviously, the next step will be yet another bailout request.

The annual report now shows us:

– The free cash flow for 2008 as a whole was $ -2 billion, that is down from regular numbers between $5.5 billion and $ 7.9 billion from 2005 through 2007
– The balance sheet shows us that Boeing shareholder’s equity from Q3 to Q4 08 has dropped from $8.7 billion to $ -1.294 billion. Boeing, like GM and Ford is now officially worth less than $0.00 on its books.
Please also consider Boeing Scrambles for Contracts:

(…) With the government deficit already stretched beyond sanity, how should any more money be left for new fighter jets and planes, especially under an Obama administration?

Boeing is a stock that is poised to collapse.

Since the report came out Boeing has resumed its decline in a straight line and dropped from $42 to now $33.

Please also consider the following grim news for Boeing:

US Senate bill aims to fix Pentagon arms buying:

(…)
The bill builds on past legislative efforts by Levin, McCain and other lawmakers to reform the acquisition process, but it comes at a time when the financial crisis is putting additional pressure on the Pentagon’s budget.

“The financial crisis has proven to be a really interesting forcing function,” said one congressional aide, who asked not to be named. “There just isn’t as much money to go around.”

Fundamental changes were needed to get a grip on systemic problems plaguing Pentagon procurement, said the aide, adding, “Otherwise you’re just rearranging the chairs on the Titanic.”

President Barack Obama and Defense Secretary Robert Gates say they plan to scrutinize major weapons programs, especially those that have run into cost and schedule problems.
(…)

Obama seeks to cut cost of big weapon systems:

(…) Also in Pentagon’s sights could be Lockheed Martin’s F-22 Raptor fighter jet and Boeing Co.’s Super Hornet, which some lawmakers have argued aren’t the right equipment for fighting terrorist groups. Further, missile defense has long been in doubt among Democrats, and cuts there would impact Raytheon Co. (…)

Pentagon Faces Tough Budget Choices:

(…) Mr. Gates’s vision for a leaner budget is bumping up against the military’s own assessment of its weapons needs. Air Force Chief of Staff Gen. Norton Schwartz said Tuesday the service will ask for more Lockheed F-22 Raptor fighters, though Mr. Gates has said the planned 183 jets are sufficient. But Gen. Schwartz also cut back the Air Force’s previous goal of buying 381 of the $143 million jets.

For Boeing Co., a more than $200 billion Army modernization effort, shared with SAIC Inc., is expected to come under pressure, despite success in speeding up deployment of some systems.

Boeing Gets the Boot:

On Tuesday, the news came down: Boeing’s challenge of a Pentagon award to build America’s Next Top Humvee has been definitively rejected. The Government Accountability Office denied the protests from Boeing and partner Textron (NYSE: TXT), which had challenged the Pentagon’s decision to award a trio of $60 million Joint Light Tactical Vehicle (JLTV) prototype contracts to:

  • General Dynamics (NYSE: GD) and partner AM General.
  • Navistar (NYSE: NAV) and BAE Systems.
  • Lockheed Martin (NYSE: LMT) along with BAE Systems (again).

Likewise, a joint protest from Northrop Grumman and partner Oshkosh (NYSE: OSK) got the big poke in the eye from on-high. Along with losing bidder Force Protection (Nasdaq: FRPT), it looks like they’ll be warming the bench for the next few decades as one or more of the Pentagon’s favorites rakes in the tens of billions of revenue dollars that stand to be poured into the JLTV program.

Anyone see any reason why this year and the following should be any better than 2008? I don’t. I still expect Boeing’s stock to come crashing down hard.

Related Posts:

Boeing Scrambles for Contracts

Reuters writes

Boeing Co (BA.N: Quote, Profile, Research, Stock Buzz) on Monday filed a protest with the Government Accountability Office about a $1.1 billion contract for next-generation weather satellites won by Lockheed Martin Corp (LMT.N: Quote, Profile, Research, Stock Buzz) on December 2, a company spokeswoman said.

“Based on the information that we received, we felt that we had a superior product under the disclosed evaluation criteria,” Boeing spokeswoman Diana Ball told Reuters.

The contract, awarded by NASA and the National Oceanic and Atmospheric Administration (NOAA), calls for Lockheed to build two Geostationary Operational Environmental Satellite R-Series, known as GOES-R, and includes options for two additional spacecraft.

Chicago-based Boeing filed the protest with the nonpartisan congressional agency on Monday, meeting a five-day deadline to ensure a stop-work order against the program.

The five-day clock begins when a losing bidder receives a detailed briefing from the awarding agency about why it lost the bid. Boeing received its briefing last Wednesday.

The GAO has the authority to review government acquisition decisions and recommend corrective actions, including termination of contracts if they are deemed improper.

Ball said Boeing took the step only after careful consideration. Boeing rarely filed contract protests in the past, but it prevailed with a protest last June against a $35 billion contract for new refueling aircraft initially won by Northrop Grumman Corp (NOC.N: Quote, Profile, Research, Stock Buzz) and Europe’s EADS (EAD.PA: Quote, Profile, Research, Stock Buzz).

In that case, the GAO upheld Boeing’s protest, and the Pentagon later decided to scrap the competition and let the new administration redo the entire process.

Protests have become far more common against Pentagon contracts in recent years as the number of defense deals available to bidders has declined, and their relative size has increased.

Ron Sugar, chief executive of Northrop, which had also bid for the program, declined comment on whether his company would also file a protest. He spoke at the Reuters Aerospace and Defense Summit on Monday.

Northrop officials were briefed about the contract loss last Thursday, which means it must file a protest by Tuesday to ensure a stop-work order against Lockheed.

Northrop filed a protest last month against a set of U.S. Army contracts for prototypes of vehicles that could replace the U.S. Humvee fleet in a deal valued at up to $40 billion.

Defense analyst Loren Thompson described the contract loss as bad news for Boeing, given that it also recently lost out to Lockheed on a Global Positioning System satellite contract.

Boeing needed to reevaluate its financial investment in the space sector, but probably could not exit the business completely since it had several long-term classified contracts with the U.S. government, he said.

I already described the dire situation Boeing is in. The fact that Boeing sees no other way than to scramble for government contracts by legal means shows how desperately the company needs the money. If thay had other profitable activities going on, they wouldn’t be spending all this time for administratve bureacuratic work.

With the government deficit already stretched beyond sanity, how should any more money be left for new fighter jets and planes, especially under an Obama administration?

Boeing is a stock that is poised to collapse.

Related Posts:

Boeing in Trouble

Marketwatch.com says Boeing may further delay 787 Dreamliner:

The online edition of The Wall Street Journal, citing unnamed sources, reported that Boeing officials are expected to announce later this month that first deliveries of the jet may not occur until as late as summer 2010.
Development of the jet has been hampered by a strike by the International Association of Machinists and Aerospace Workers that “forced Boeing to shut down its Seattle-area assembly lines for almost all of September and October,” according to the report.
In addition, the high volume of work on the project being outsourced has also created problems, according to the report.
In April of this year the story was:
“Our assessment for this delivery schedule is the culmination of detailed industrial engineering studies, on-site visits, partner negotiations … and at the end of the day, good old-fashioned management judgment,” Boeing’s Pat Shanahan said.
Boeing’s numbers show us the following:
From 2005-2007 the company’s free cash flow (operating cash flow – capital expenditures) grew from $5.5 billion to $7.9 billion
This year, so far, the company has generated a free cash flow of $389 million with the two past quarters yielding negative cash flows; unless the 4th quarter yields incredibly good results the overall free cash flow number for this year will look very bleak
– A look at the most recent balance sheet shows us that the company is among the highly leveraged ones with a 6:1 debt to equity ratio
– What stands out in particular that the company maintains an accounts payable balance of $27 billion versus a shareholders equity of $8.7 billion and a cash balance of $4 billion: the company is obviously making its vendors wait, the article above mentions that a lot of work is being outsourced
– Thus Boeing heavily depends on a lot of vendors that are (1) not being paid in a timely fashion and (2) will most likely not get paid anytime soon if the current economic trend hold up and the company keeps delaying deliveries and losing cash.
I am very bearish on Boeing and expect some seriously bad news for investors shortly. Surely Boeing will also be deemed “too big to fail” by US lawmakers. Obviously, the next step will be yet another bailout request.

Related Posts: