The Disgrace That Is Boeing: Why Not To Own This Stock & How To Do It?
One of our longest running arguments is that you should not own any Boeing stock. That is right: none. zero. zip.
The reason is pretty simple: Boeing is an unmitigated disaster of a company.
It is difficult to write that without feeling pretty sad. Boeing is an American manufacturing giant, a global icon and is often the single largest exporter of high tech hardware in the country.
Or rather it should be an iconic company and one Americans can take pride in. We also rely on it. After all, just about everyone flies on Boeing planes no matter where you live.
However, Boeing is failing. Its reputation has taken hit after hit and finaklly this is beginning to show up in the numbers. Boeing's export prowess continued until 2022 when US aviation exports suddenly fell to 4th. This change will likely only continue in 2023 and 2024.
That is frustrating and pretty negative but it is incredibly difficult to come up with a more constructive thesis other than:
Well, the stock can't go lower than this.
We last covered this topic a year ago where we concluded with the following:
There is no rule that says that you need an underperforming company in your 401k year after year. Yes, Boeing could turn it around next year but where is the evidence for that? The problems first unearthed by the 737 MAX issues are growing, not shrinking. Metastasizing quality control issues is not something a company like Boeing can easily shake off and nor should it.
Well here we are. It has been nearly 18 months since we wrote those words and, surprise, surprise, the problems for Boeing have only grown in the intervening time.
This was most spectacularly demonstrated when a door "plug" blew out of an Alaska Airlines 737 Max 9 midair in the first week of the year. The videos are shocking and it is a miracle that no one was seriously injured. The only reason it wasn't much worse other than dumb luck was the fact that the plane was still climbing at the time. This kept the resulting decompression from being too severe and likely saved lives.
Boeing's stock sold off around 8% immediately. It has traded sideways until this past Thursday where, surprise, surprise, it fell a further 2% on the announcement that the Federal Aviation Authority is conducting a formal investigation.
The latter is very necessary and wasn't really a surprise or it shouldn't have been. The Alaska Airlines issue isn't looking like a one off. United Airlines also found some loose bolts fastening the door plug that was at the heart of the defect.
Among other problems, Boeing will almost certainly have to pay for the cost of the grounded jets but above that cost and the concomitant hit to the company's already damaged reputation is a bigger problem:
The lack of trust from airlines and passengers and also, increasingly, investors.
You might get in a Boeing plane tomorrow. You would likely not have much of a choice depending on your airline but you certainly won't be happy about it.
This will likely stay true for most Americans and it will remain the case for many other countries for the foreseeable future. That is because the MAX line of Boeing aircraft are, despite their many defects, still very fuel efficient which makes them very popular with both governments and airlines who are keen to hit green targets and also save money on fuel.
But very quickly another option is coming up very fast on Boeing's tail: the Chinese planes built by the Commercial Aircraft Corporation of China or COMAC. In particular, the COMAC C919 which held its maiden flight in Hong Kong just last month is now ready for export for the first time.
This means that the duopoly of Boeing and Airbus is going to gain a third competitor and a very sharp elbowed one at that. The Chinese airplane manufacturer will almost certainly offer ridiculously good deals and even better financing to their customers to gain market share and so the only way to compete with them is either a race to the bottom on price or actual product quality. The choice is simple and, if you know Boeing, very grim.
So, the time for Boeing to regain its engineering culture or risk losing large contracts and being a huge engine of the US economy is rapidly approaching. It could do so but all the evidence is against it.
We aren't alone in this opinion. The market has also spoken. Here is Boeing's share price since we founded this company:
The nice thing is: you don't need to have anything to do with this sad tale. You can simply say that you don't have the time or money or blood pressure to see if Boeing figures out their problems. You have the option of simply excluding Boeing with Pebble...
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