Every decade or so, a company once considered a great American company goes into a raging death spiral.
The reason is always the same. Whether it’s the Enron Ponzi scheme selling energy to its own shell companies, Bear Stearns loading up on built-to-fail mortgage bonds, Intel thinking it was exempt from the tech cycle, GE betting its 120-year legacy on GE Capital…
Pencil pushers take over the C-suite on the promise that they can consistently grow quarterly profits. So they stop pushing the corporate values that made them great companies in the first place and start pushing numbers around on a spreadsheet…
As if the products or services they provide are a gift of divine provenance and all that’s left to do is juice the numbers.
Outsider Club is a business. My partners Dave and Chris and I spend hours every week in meetings with advertisers, talking about marketing strategies, planning our next promotion…
But for the 40 or so hours a week that Hammer and I collectively spend writing the articles that we send you, we’re in lockdown. Phones are off. No Zoom meetings. Because this is what we do. We write. We entertain you with stories and we bring our 60 years of combined experience to enrich you with solid investment ideas.
That’s what we have to offer. That’s our product. And we don’t cut corners, mail it in, or sell out.
If you’re a business owner or part of a successful operation you know this is the way. The only way. All the marketing meetings and accounting gimmicks in the world can’t save you if your product sucks. You may not like us, but at least you’re making an informed decision because you’re getting everything we got.
I probably shouldn’t even say this but I’m always surprised when a great American company demonstrates that it doesn’t understand this most basic rule. Seriously – how hard is it?
The Idiots at Boeing
Boeing was run by engineers up until 1997. Boeing was the best because they built the best.
But the 1997 merger with McDonnell Douglas changed all that. McDonnell Douglas CEO took over as CEO and the new chairman of the board had no engineering or aviation background – though he had worked at GE! Surprise!
And in a move that foreshadowed everything to come, the company relocated its HQ away from Seattle, where the engineers lived, to Chicago, where the pencil pushers lived.
The Boeing Max line of fuel efficient planes was announced in 2011. It was a rush job. Because American Airlines was interested in taking delivery of a new fuel-efficient Airbus plane and wanted to know if Boeing had anything to offer…
Boeing got to work on the Max, changing the wing angles, changing the position of the engines on the wings, airframe changes, split-tip winglets, etc.
Normally a new plane design would cost $20 billion. Boeing allocated $2.5 billion to the Max.
Normally it takes a loooong time to get a new plane certified. The 787 Dreamliner took 8 years and 4,645 flight hours to get approved. With Airbus breathing down their neck, Boeing didn’t have that kind of time…
So they pitched the Max line as an upgrade to the 737, compensated for design flaws with software and delivered the first plane in 2017.
The first Max line plane plunged into the Java Sea in 2018, killing all 189 passengers.
As you well know, the problems didn’t stop there. A door plug fell off, wheels have fallen off, the move to outsourcing parts ended up with some suppliers using counterfeit titanium in the fuselage parts they sold to Boeing…
It’s like the whole company is rotten.
Bad Product, Bad Company
Between 2013 and 2019, Boeing spent $43 billion on share buybacks. That’s more than the company even made in net profit!
Add in the dividends and the total spending to increase the share price is $68 billion.
I have no problem with a company using its cash to buy back stock, goose earnings per share and incentivize buyers to take the share price higher – if the company is actually making money, that is.
Over the last 12 months, Boeing has lost -$5.64 per share from its operations. Cash flow is negative $3.8 billion. It has a net $45 billion in debt and 33,000 Boeing employees are on strike because the company can’t afford pay raises…
The company hasn’t paid a dividend in 4 years. And Boeing is now trying to sell $25 billion worth of stock and bonds to raise operating cash.
The worst part is that Boeing is probably too big to fail. Between it and its suppliers, every state in America has employment exposure to Boeing. As a government contractor and the only U.S. commercial airplane company, it will be kept afloat as a matter of national security. “Too big to fail” means it will likely never have to truly resolve the existential problems it clearly has. Boeing will enact just enough reforms to satisfy regulators and it will be back in business.
Boeing’s story is a bad one, and it keeps getting worse. The weird thing is, at some point, Boeing stock will be a buy, just like bank stocks were coming out of the financial crisis.
Bank of America stock had more than doubled by the time Warren Buffett loaded up in 2011. That was two years after the stock market bottomed and most investors were still convinced banks were rotten.
Buffett has now sold over $10 billion worth of Bank of America stock over the last few months. Berkshire Hathaway reportedly has a cash hoard of $275 billion right now…hmmmm…
Cheers,
Briton Ryle
Chief Investment Strategist
Outsider Club
X/Twitter: https://twitter.com/BritonRyle
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