So what’s the under and over here?

Elsewhere, I talk about kitchen sinking.

New management can instead claim that this and that and t’other are all problems that need to have provisions in the accounts. And to make those provisions, write-downs, as vast as can possibly be sustained by the finances of the company. For by starting for this new low base, their own reigns in office are going to look much better.

Further, by over-provisioning, there’s a little wiggle room to write back some of those excessive provisions in the future, thereby flattering the performance of this new management.

I’m thinking that less than $5 billion will be thought of as not enough for Boeing. And more than $15 billion will definitely be kitchen sinking.

Others think what?

14 comments on “So what’s the under and over here?

  1. On the other hand, as an investor, you have to make a guess about whether the cultural problems that led to this are fixed. As attractive as the share price might look, you might find yourself in a value trap, where no one believes the company will grow again. I would just steer clear myself

  2. I think Boeing’s problem are much deeper and stem from the replacement of their old engineering culture with the managerialism and (almost random) cost-cutting culture that currently prevails.

  3. My opinion, a company with 57 subcommittees dealing with female and minority corporate empowerment and one subcommittee self-certifying they’ve put the engines in the right place is a long term Avoid.

  4. Home of the 747 thought they’d taken over home of the DC10.
    Turns out, it was the other way around.

    Now all their planes are DC10’s.
    Even their space capsule failed the flight test, and the solution? Rewrite the certification criteria, perhaps? They have already been exempted from the live-abort test required of SpaceX.

    “…I believe that pigs and even DC10’s can fly…”

  5. Kitchen sinking would be to write-off the 737 Max and provide for refunds to all purchasers. I assume that they could uninstall the software and install the software for the previous version of the 737 and then most/some at cut-price (it would have to be cut-price as they would have more 737s than there is demand for them). Would this put them into a Chapter 11 situation? It looks likely as they have massive amounts of money tied up in 737Max work in progress.
    Could they correct the software and re-launch? Technically yes, but I shouldn’t buy a ticket on one until the new version had a clean safety record for 10 million airmiles or so: would you?.
    So kitchen sinking is Chapter 11

  6. What SE alludes to, it was the change from an engineering culture to managerliasm:

    Let’s start by admiring the company that was Boeing, so we can know what has been lost. As one journalist put it in 2000, “Boeing has always been less a business than an association of engineers devoted to building amazing flying machines.”

    For the bulk of the 20th century, Boeing made miracles. Its engineers designed the B-52 in a weekend, bet the company on the 707, and built the 747 despite deep observer skepticism. The 737 started coming off the assembly line in 1967, and it was such a good design it was still the company’s top moneymaker thirty years later.

    How did Boeing make miracles in civilian aircraft? In short, the the civilian engineers were in charge. And it fell apart because the company, due to a merger, killed its engineering-first culture.

    What Happened?

    In 1993, Clinton’s Deputy Secretary of Defense, Bill Perry, called defense contractor CEOs to a dinner, nicknamed “the last supper.” He told them to merge with each other so as, in the classic excuse used by monopolists, to find efficiencies in their businesses. The rationale was that post-Cold War era military spending reductions demanded a leaner defense base. In reality, Perry had been a long-time mergers and acquisitions investment banker working with industry ally Norm Augustine, the eventual CEO of Lockheed Martin.

    Perry was so aggressive about encouraging mergers that he put together an accounting scheme to have the Pentagon itself pay merger costs, which resulted in a bevy of consolidation among contractors and subcontractors. In 1997, Boeing, with both a commercial and military division, ended up buying McDonnell Douglas, a major aerospace company and competitor. With this purchase, the airline market radically consolidated…

    Its a long read but worth the effort.

  7. Clearly, Boeing’s management has learned that the old Muelinburg process of pretending everything is ok results in CEOs looking to spend more time with the family. They will try to get the bad news out while they can still blame it on the last guy.

    More important will be to look at what Boeing does on stock buy-backs. If Boeing gives up on buy-backs cold-turkey, then the prospects for the necessary kind of change of managerial direction look good. If they carry on with buy-backs, it will be sayonara.

    Long-term, the best move would be to de-merge Boeing into two separate companies — commercial aviation and military aviation — and shut down the space division. Time will tell.

  8. Well, they need to cancel the 737 programme entirely and design a new mid-sized plane from scratch. Something that can compete with the 320 series in all its ever increasing versatility. But that will take another 10-15 years and it’s not clear Boeing is up to it.

  9. Is there also an element of self fulfilled prophesy , especially with Jury decided court cases. I.e. put 10billion provision for settling lawsuits,,, that’s what the lawyers (on both sides) are thinking is in the pot.

  10. @john77 January 25, 2020 at 10:53 pm

    I assume that they could uninstall the software and install the software for the previous version of the 737 and then most/some at cut-price

    Unfortunately you assume wrong. Engines on MAX are further forward, higher and heavier altering 737 CoG, hence all the “don’t tell the pilots” automatic overrides

    ie it doesn’t fly, same as military fast jets – but they have ejector seats

    Maybe pre MAX engines, mounts, sw etc could be retrofitted, but at what cost?

  11. @ Pcar
    Thanks for the info – so it is even worse than I assumed.
    That leaves the body shell as reusable but probably worth less than cost and the part-built ones will get converted to 737s to be sold sometime over the next umpteen years as supply will exceed demand past the time when they become obsolescent .

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