Friday, July 12, 2013

As Globalization Collapses Boeing Thinks It Has Airbus Boxed In

Recently at the Paris Air Show Boeing arrogantly stated that it believes it has Airbus by the tail.   This is similar to the kind of arrogance Airbus displayed back in 2000.  One of my long-time theses on here is that globalization is collapsing.  If that happens, air travel will implode.  Permanently.  Boeing is likely on the cusp of a major wakeup call.  It’s the same type of wakeup call that Airbus experienced in 2000 at the peak of the Internet bubble.   I remember thinking in 2000 when they launched the massive A380 that has the ability to seat over 800 cattle, that the top had to be in.  That plane has been a big bust that will never pay for itself.   Airbus could never even exist without massive European government subsidies.

Boeing is an engineering powerhouse in spite of the fiascos it had with its 787.  Those issues were because of the massive incompetence of senior management in their meddling with world-leading engineering and production systems.   The method through which plane subsystems were sourced from around the world was a clusterf*ck of massive proportions that is typical of the bureaucrats who created globalization.  Half a dozen years ago, the Wall Street Journal or New York Times, I can’t remember which, had a full page article on the mess Boeing management had created with the outsourcing of the 787 design and production process.  Boeings engineers and technicians clearly articulated to management before this endeavor was undertaken that it would end in disaster.  A little bit of I told you so that resulted in massive launch delays that certainly cost the company more than it ever conceived it would gain by spreading subsystem design and assembly around the world rather than controlling it through rigorous engineering processes already in place within Boeing.

Boeing still has teething problems with the 787.  While I am not privy to the extent of the engineering issues they are experiencing, I have to wonder where this all ends given the management-created mess Boeing engineers had to clean up.  Did they finally right all of the issues that wrong-headed management decisions created?  Regardless, I can’t believe a twin engine jet was granted transatlantic flight routes so early into production.  Today, a 787 apparently returned to Heathrow after starting its transatlantic flight.  I think I’ll take the subway, thank you. 

Right now Boeing’s stock is trading at a multiple of 64x enterprise value to levered free cash flow.  That is insanely staggering.   It’s almost unbelievable but typical of the massive bubble we are in.   This company is priced at a level that is probably about 8-10x what the average stock was valued at in 1929 before the market collapsed 95%.   If global demand for Boeing’s products drops substantially, and that includes its massive corporate welfare program of the military-industrial-police state overproduction, Boeing investors are going to be handsomely rewarded with obliteration. 

posted by TimingLogic at 7:28 PM

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