Is It Time to Sell Boeing?

In case you couldn't guess from last month's test flight cancellation, or the subsequent cancellation of 15 orders for the 787 Dreamliner, all's not well at Boeing (NYSE: BA  ) . The latest news, that Boeing is in negotiations to take one of its suppliers in-house, just confirms it.

On Wednesday, widespread reports pegged Boeing as closing in on purchasing Vought Aircraft, a South Carolina facility that makes sections of the 787's fuselage. Boeing bulls argue this is good news, with The Wall Street Journal this morning putting on a happy face, arguing that:

  • "Boeing... needs to take a more direct role in the manufacturing process of its marquee product."
  • Boeing erred in outsourcing too much 787 work to suppliers like Honeywell (NYSE: HON  ) , United Technologies (NYSE: UTX  ) , Spirit AeroSystems (NYSE: SPR  ) ... and Vought. "Bringing more of the production in-house could increase Boeing's ability to manage the complex project."
  • Buying the South Carolina operation "potentially paves the way for a second 787 assembly line."

I disagree.

The party line
Oh, I admit that the Journal's minor premises have merit. Boeing's troubles with its supply chain are well documented, and berthing suppliers at the mothership could help unkink the chain. Also, seeing as the 787 is already two years behind schedule, opening a second assembly line to accelerate production and delivery to impatient customers like AMR (NYSE: AMR  ) , Delta (NYSE: DAL  ) , and Continental (NYSE: CAL  ) may be prudent.

But while there's logic to the party line, for my part, I prefer to ...

Read between the lines
And what I see there is Boeing admitting that as bad a state as the 787 program appears to be in, it's in fact quite a bit worse than Boeing lets on. Up until a few weeks ago, we'd been led to believe that Boeing had generally gotten its problems under control. The Dreamliner's maiden voyage was on schedule. Actual delivery of the plane was just around the corner.

Investors who slapped the snooze alarm and dreamed happy dreams through last month's test-flight buzz, however, cannot afford to ignore the resurgent alarm bells today. You need to ask yourself: If all is well, the structural weak spots that forced the test flight's cancellation will soon be fixed, and production put back on track ... then why did Boeing feel it necessary to bring more manufacturing in-house today?

Foolish takeaway
I submit to you: It's because production is not on track. There are more, unannounced problems with production, and another shoe(s) yet to be dropped. There. I said it. You've been warned.

Fool contributor Rich Smith owns shares of Boeing. He'd actually prefer to sell them, but The Motley Fool's ironclad disclosure policy prevents him from doing anything of the sort for at least 10 days after this article posts. Spirit AeroSystems Holdings is a Motley Fool Hidden Gems selection.


Read/Post Comments (6) | Recommend This Article (17)

Comments from our Foolish Readers

Help us keep this a respectfully Foolish area! This is a place for our readers to discuss, debate, and learn more about the Foolish investing topic you read about above. Help us keep it clean and safe. If you believe a comment is abusive or otherwise violates our Fool's Rules, please report it via the Report this Comment Report this Comment icon found on every comment.

  • Report this Comment On July 02, 2009, at 2:44 PM, plange01 wrote:

    now is the time to buy boeing! this stock was at $107 last year and once the dreamliner gets going it will be there again.i have been a strong longterm buyer at current prices..

  • Report this Comment On July 02, 2009, at 3:52 PM, mynabird64 wrote:

    Let's not forget problems with the Union and the idea that Boeing may be looking to make this move partly because of it.

  • Report this Comment On July 02, 2009, at 4:05 PM, secondclass wrote:

    I don't mind if BA has a three month delay in starting production of those 1000 787s. I am happy to trade the 15% lower share price compared with a month ago for the delay. If BA offers the 787 for the USAF tanker competition instead of the obsolete 1982 767, they will win it all and stick the USAF with a big share of the development costs (after all, it is a defense contract).

  • Report this Comment On July 03, 2009, at 10:52 AM, slard271 wrote:

    Perhaps Boeing is just recognizing this opportunity to pick up a supplier on the cheap?

  • Report this Comment On July 04, 2009, at 1:57 PM, magoo75 wrote:

    just look at BA's equity - oh yeah, it doesn't have any. I am neither long nor short this stock - my opinion is that you gotta have a strong stomach to either long or short this sucker. The technicals and fundamentals on this bad boy are completely upside down. Then again, they are a defense contractor, and there are only 2 real large plane manuf - and BA is the only US one - it may be too big to fail. LOL

  • Report this Comment On July 28, 2009, at 11:14 PM, aircraftbuilder wrote:

    first of all, Vought could not continue to play the game. They were spending 25 million a month with no possibility of recouping the cash. The program was two years delayed. And that's another problem. It took 7 years and 15 billion dollars to design and build the 777. This was an aluminum aircraft, of conventional construction. The main risks of that program were confined to the engines and the use of Catia. A first for Boeing. Now even a layman has to ask the question, how can you design a brand new, unproven structure out of composite, using a Enterprise partnership arrangement never before tried, with a brand new operating system not ready for prime time (Enovia) and a brand new cad system (Catia V5) built by people who have never worked on an airplane (South Carolina) and do it in two years less time than a conventional program.

    The answer is you cant! T

    The problem is systemic with the new Boeing management, too many MBA's and McDonnell Douglas people calling the shots. Its amazing that a failed company can be merged in to the worlds most successful air framer and then be in any position to call any shots.

    This is the new reality called Boeing. The bad news still isn't out, consider this, the first six aircraft are over weight, If these aircraft are delivered to a customer, Boeing will have to pay an operating penalty for every hour these planes are flown. If they meet the lifetime guarantee of 250,000 cycles, Boeing will be paying for these aircraft 4 time longer than a conventional airframe. With this in mind, want to bet, these first six planes never see a paying customer. That folks is a 1.5 billion dollar write off looming in the future.

    Now who is saying they want to buy this stock?

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