Monday, August 19, 2019

Boeing! Boeing!

It's not all fun-and-games at Boeing these days

We went on a tour of the Boeing "factory" the other day.   That was a week ago, and they still have a $50 hold on my credit card.  Perhaps they need the cash for this 737 MAX fiasco.  By the way, they are ferrying the unfinished planes to South Dakota, apparently, so they are not cluttering up the aprons at Everett.   Funny thing, on the tour, the 737 wasn't mentioned much.

It is an interesting tour, but part of me felt like it was a bit of a time warp.  Boeing started doing the tours when the wildly successful 747 was introduced.   People would flock to see the "Jumbo Jets" being produced.  And a few were still being made - freighters, of course.   It was not clear whether these were new freighters or 747 BCF models - Boeing Converted Freighters - reworked from old passenger jets.

Off in the distance were the new 777X models with folding wings - but we weren't allowed to see those up close.  The facility is huge - so large that the airplanes look like toys.  I never thought of a 747 as "small" but it looks pretty tiny in that big building.

The building is so big and the planes are so huge that it doesn't appear anything is going on, even though thousands - tens of thousands - of employees are at work.   You have to study the scene closely until you see a small figure, like an ant in an anthill, working on part of an airplane.   Other than that, it seems deathly still.

Boeing, of course, is hemorrhaging cash these days, as unsold planes pile up.  They don't get paid until planes are delivered, and the longer the 737 MAX stays out of service, the worse things will get.  Worse yet, the new 777X is now delayed due to engine development problems, and Boeing's cash crunch may delay or even cancel the rumored 797 project.

Some readers and commentators have mentioned to me that the fault of all this lies in management, which tried to ramp up production too quickly, to outproduce Airbus.  I am not sure where the fault lies, but usually in a nightmare scenario like this, the head of State is sent to the guillotine.  For some reason Boeing resists this.

I sold my airline stocks and Boeing stock last year.  I heard a report quoting some airline President saying that "losses are a thing of the past!" and realized that losses were going to be coming really soon.   When recession occurs, airline travel will be the first thing to be cut from people's budgets.  And this will trickle down to the airplane manufacturers, which have huge "books" of orders which can usually be cancelled with little or no penalty.   We are already seeing some foreign airlines going bust, in Europe and Asia.   Many over-extended themselves and borrowed too much money.   Others are facing labor actions by pilots and crews whose salaries have been crammed-down over the years.

The interesting question to me is whether Boeing's travails will be one of the causes of the next recession, or merely exacerbated by it.   When plane orders dry up or are merely delayed, this will have a domino effect on Boeing's suppliers, particularly engine manufacturers (which technically are not suppliers as "engines are sold separately" according to the tour guide) - in particular General Electric, which has enough problems of its own, without some short-selling scheme being played upon them.

What also impressed me about the visit was how antiquated a lot of the equipment seemed - or at least what we saw.   Boeing, like the car companies, is less of a manufacturer than an assembler of components.   A lot of the high-tech stuff, such as the construction of composite 787 fuselages, is performed by outside contractors - all over the world.  Not so many union employees are bucking rivets at Everett these days anymore.   The enormous jigs for bending aluminum sheets into 747 fuselages and wing spars sat empty during our visit.  Maybe the demise of the A380 will spur a revival of the fabled queen of the skies - or write its epitaph.  Or perhaps this new 777X will be the next 747.   We'll see.

It was an interesting experience, but the overall impression I got was of a company living in denial and resting on its past laurels.