Boeing faces a nightmare
Today's Financial News - Posted June 23, 2009
Boeing (NYSE:BA) was forced to announce yet another major delay this morning. Now that the Dreamliner has been put back five times, investors are wondering if the new plane is nothing more than a bad nightmare.
By Andrew Snyder, TodaysFinancialNews.com
Baltimore—(TFN): So many times we hear of folks that believed they were living a dream only to learn it turned out to be a nightmare. That sure looks to be the case at Boeing (NYSE:BA) these days.
The company’s first new plane in over a decade, dubbed the Dreamliner, has flat out become a nightmare. Supplier problems, strikes, parts shortages and now design glitches have delayed the first flight of the plane five times.
It is more than the market can take.
After announcing the latest major delay this morning (even after a company executive swore the new plane was ready to fly last week), the company’s stock, pardon the pun, took a nosedive.
As I write, shares of the $31 billion company are down by over 8%. Even worse, since the Dreamliner was first announced two years ago, Boeing’s value has been chopped in half.
Who is left to blame?
The latest problem cannot be blamed on labor issues, supplier errors or even the economic downturn. Boeing is working to fix a design flaw that calls for more structural support in a side section of the plane.
The problem started on Boeing’s own drawing board.
If you have ever tried to change the plans for a new-home construction in the middle of a build, you know it can be a time consuming and costly process.
Investors are not willing to wait until management tells them exactly how expensive today’s news will be when Boeing reveals its Q2 earnings in July. Instead, they are selling today and getting out before any more bad news knocks out the value of their asset.
With over 850 orders already lined up for the Dreamliner, Boeing still has a potential success on its hands, but at the current pace it could be a while before shareholders see any of the revenues trickle into their pocket.
In a world dominated by net present value and cash flow projections, five-time delays are not the kind of events you want corporate public relations teams to be writing about.
Boeing has growing competition from Airbus. The Paris air share proved Boeing cannot sit back and relax.
The Dreamliner had the potential to be a dream come true for investors, but some bad luck, even worse management and a tough labor environment are turning the situation into a nightmare.
Unfortunately, investors will not be able to pinch themselves and get out of this mess.
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