On January 30, 2019, Boeing reached a financial high water mark. They reported record revenue of over $100 billion in 2018 with more than $10 billion in profit:
This was a 50% increase over the 2011 revenue of $50 billion. Three months later, on April 30, 2019, it was reported that Boeing not only had no new orders for the 737 Max, they had not a single order for any of the other models of their airplanes. Instead, they were hit by a series of whistle blowers who alleged that Boeing had huge quality control problems on many models of their planes including the new 787. They were also hit by a series of lawsuits – not only from the families of the Indonesian and Ethiopian crashes but from investors who lost billions due to the plunge in Boeing stock. Investors claimed correctly that Boeing knew about the 737 Max problems but failed to disclose them not only to the FAA and to pilots but also to investors. Boeing stock price quadrupled. Its executives personally made tens of millions of dollars in bonuses, thanks, in large part, to the record-setting pace of 737 Max sales.
Here is the stock price and valuation charts during the time of this deception. Boeing market cap history and chart from 2006 to 2019. Market capitalization (or market value) is the most commonly used method of measuring the size of a publicly traded company and is calculated by multiplying the current stock price by the number of diluted shares outstanding. Boeing market cap as of May 15, 2019 is $202 B.
This $200 billion valuation increase since 2016 was based almost entirely on the orders Boeing had to produce about 5000 737s during the next few years. Boeing reached a maximum value of $252 billion in February 2019 – meaning that since the second 737 crash, their investors have lost about $50 billion. It is pretty obvious that if the 737s orders are canceled, Boeing stock price will fall back down to $40 billion or even lower – for a loss to investors of more than $200 billion.
Here is the related stock price history:
The latest stock price for Boeing as of May 15, 2019 is 355. The all-time high Boeing stock price was 440 in February 2019. The loss to investors since February has been about 20%. If (or when) the Boeing 737 orders are canceled, the Boeing stock price will fall back down to the pre-737 Max days of just $50 per share – for a loss to investors of about 90%.
Since the two crashes, Boeing has lost over $50 billion in market cap. It may have to pay billions more to its suppliers and airline customers for costs related to the grounding, and that’s not including the nearly $30 billion in orders that airlines have threatened to cancel. All this for an airplane whose initial development was supposed to be a great value at only $3 billion.
At a Boeing financial call on April 24, 2019, Boeing stated that they were losing money at a rate of one billion dollars per month. This claim was based entirely on the fact that Boeing had reduced production of 737 Max from 52 planes per month to 42 planes per month. Since each plane sold for $100 million, 10 times $100 million is a loss of one billion dollars per month.
But actual Boeing losses were much greater than this because Boeing was not actually selling ANY of the 42 planes it was making each month. Instead, these planes were sitting at airports all over Washington state. The true loss was $100 million per plane times 52 planes equals $5.2 billion per month.
At the April 24, 2019 conference call, Boeing also claimed that it had over 6 billion dollars in the bank. This implied that Boeing could sustain over 6 months of losses (at a loss of one billion per month) due to the 737 Max disaster before they would face bankruptcy. Boeing assured investors that the 737 problem had already been solved and that 737s would be back in the air in less than 3 months.
Boeing financial leaders clearly knew that they had under-stated their financial problems because less than one week later, on April 30, 2019, Boeing arranged for an additional $3.5 billion in unsecured corporate bond offerings and a $1.5 billion line of credit from three different US banks. Proceeds of the sale will be used for “repaying debt, buying back stock, acquisitions and capital expenditures.” https://www.marketwatch.com/story/boeing-gets-liquidity-boost-from-35-billion-bond-sale-2019-04-30
On the surface, this would appear to give Boeing $10 billion in cash to weather the storm. However, Boeing has payments to make on previous bonds of about one billion by the end of the year. This huge interest payment is because Boeing already had $15.5 billion in debt which included $1.5 billion in debt it took on in February before the second fatal crash. Adding $5 billion in new debt increases Boeing’s total debt to more than $20 billion. As of March 31, 2019 Boeing had $3.4 billion of debt maturing within the next 12 months, including short-term debt and commercial paper.
Plus, in order to keep their stock price from collapsing, Boeing needs to pay a dividend of more than one billion. So, after subtracting the billion dollar dividend and billion dollar debt payments, Boeing actually has about $8 billion to cover the losses from 737 cancellations. The question is whether $8 billion will be enough to keep Boeing afloat (or aloft). In this section, we will explain why $8 billion – or really any amount of money – is not likely to save Boeing.
First, let’s look more closely at why Boeing said it was losing one billion per month. Boeing cut production of planes from 52 per month to 42 per month. Since each plane sells for about $100 million, and since most of this payment is made when a plane is actually delivered, a reduction of 10 planes per month is a loss of one billion dollars per month.
But this claim that the loss is only one billion per month is based on the assumption that Boeing will be able to deliver the other 42 planes per month that are currently sitting on runways in airports all over King County. Here is a picture of 13 737 max airplanes parked in Renton
About 30 are parked at Boeing field in Seattle
Here is another parking lot at Boeing field in Seattle:
About 20 more are at Paine Field in Everett
At 42 planes per month times at least four months before the FAA approves these planes, Boeing is going to have to find parking spaces for 168 more additional planes. Counting those Boeing has already built, this will make an inventory of about 300 unsold planes - $30 billion in unsold planes.
But what if carriers do not want to take deliver of these planes. What if passengers find out how unstable these planes are? A poll conducted by Business Insider noted that 53 per cent of American adults never want to fly on a 737 Max, even if the FAA says the plane is safe. They clearly do not trust either Boeing or the FAA. Aviation industry analyst Henry Harteveldt stated: "Passengers are afraid of this airplane. I haven't seen anything like this in decades, in terms of consumer fear and desire to avoid flying on the 737 Max."
Airlines have already bought hundreds of 737 Max planes which they will likely try to put back in service later this summer. If they cannot convince people to fly on the planes they already have – then what will happen to the $30 billion in unsold Boeing planes stacking up all over Washington State?
To make matters worse, the real cost of the Boeing disaster is likely to be much more than one billion dollars per month. On April 3, 2019, JP Morgan analysts estimated Boeing monthly losses could be as high as $2.7 billion per month. Even if the losses are only two billion per month – Boeing could be bankrupt in just as little as four months.
Because Boeing would fail in about 4 months and because Boeing is too big to fail, it is almost certain that the FAA will be forced to certify the 737 Max as safe in less than 4 months – likely by the end of August 2019. Boeing and airline carriers will then likely begin the biggest promotion in history declaring the 737 to be the “safest plane that has ever flown.”
But the worst problem for Boeing will come AFTER the FAA certifies that the 737 is safe to fly again. It is almost certain that another Boeing airplane will crash in the following months – perhaps in part due to high winds, heavy rain and poor visibility. When the third crash comes, that will be the end of the line for the 737 max and perhaps the end of the line for Boeing. This is why I predict that Boeing will inevitably go broke.
Latest Shocking News
Here is the latest shocking news.
March 24 2019: Indonesia's largest air carrier has informed Boeing that it wants to cancel a $4.9 billion order for 49 Boeing 737 MAX 8 aircraft. Garuda Indonesia spokesperson Ikhsan Rosan said in a statement to the Associated Press that the airline was canceling due to concern that “its business would be damaged due to customer alarm over the crashes.”
April 9 2019: China Aircraft Leasing Group Holdings (CALC) has put its order for 100 Boeing 737 MAX jets on hold until it is assured of the aircraft’s safety. The Hong Kong-listed lessor, controlled by the state-owned conglomerate China Everbright Group, placed an order for 50 737 Max in June 2017. CALC then increased it by another 25 in December 2017 with an option for 25 more as part of its plan to grow its overall fleet from 133 in 2018 to 232 by 2023. According to the original schedule, the first MAX jet was expected to be delivered to CALC in the third quarter of this year 2019 and continue up to 2023. “The purchasing procedure has been temporarily put on hold and we have stopped the payments” because the matter is being worked out with the aircraft manufacturer, said Chen Shuang, chairman of CALC and chief executive of China Everbright, the financial arm of China Everbright Group. The order for the first 50 aircraft was valued at US$5.8 billion.
China is also looking at excluding Boeing Co.’s troubled 737 Max jet from a list of American exports it would buy as part of a trade deal with the US., people familiar with the matter said. Boeing jets were featured on a draft list of American products China would buy to reduce its trade surplus with the US., the people said, asking not to be identified discussing private deliberations. Now, safety concerns are pushing China to examine whether to cut the 737 Max from the list altogether or replace it with other Boeing models after the crash of a plane operated by Ethiopian Airlines led to the aircraft being grounded worldwide, they said. For Boeing, China’s exclusion of Max purchases in a trade deal would mark another setback for a company that’s reeling from a crisis of confidence over its top-selling plane, which accounts for almost a third of its operating profit. No other country has more demand for aircraft than China, which is estimated to seek 7,690 new planes worth $1.2 trillion in the 20 years through 2037, according to Boeing’s latest forecast.
But instead of ordering Boeing planes, on March 26, 2019, China ordered 300 Airbus A320 NEO planes. The deal was signed as Chinese President Xi Jinping visited France’s Emmanuel Macron in Paris. No value was announced, but the pre-discount list price for the order is roughly $35 billion. Airbus’s shares rose more than 2% on the news. Almost all the planes—290 of the 300—are in Airbus’s single-aisle A320 family.
In addition, Airbus is working closely with China on an Airbus factory in China.
Second, on April 27, about a dozen former and current Boeing employee “whistle blowers” claimed that Boeing suffered from numerous safety violations – violations affecting not only the 737 but several Boeing planes.
Third, on April 28, 2019, the Wall Street Journal published an official statement from Southwest Airlines admitting that for more than one year (between 2017 and October 2018) Boeing had secretly turned off stabilization “warning lights” in 737 cockpits without telling either Southwest Airlines management or pilots. Southwest Airlines is (or was) one of Boeing’s largest customers. This meant that the only reason Southwest Airline flights did not suffer the same fate as the two doomed flights is that Southwest Airlines has better, more experienced pilots than the doomed flights.
Fourth, on April 29, 2019, Boeing admitted that they had even more software problems (in addition to the additional problems they admitted to on April 4 2019). In fact, the real problem is an unfixable design problem which Boeing tried to cover up with several software band-aids – none of which can address the real danger in the flawed Boeing design.
Fifth, on May 15 2019 the House held a hearing on the Boeing 737 MAX.
House Transportation and Infrastructure Committee Aviation Sub Committee hearing status of the Boeing 737 max May 15 2019
The House committee was so bought and paid for by Boeing that Boeing executives were not even required to attend. Not only did Boeing not have to testify, they failed to supply a single document requested by the House Committee. Result? No problem.
Rick Larson is the chair of this committee How much did Rick get from Boeing? $10,000.
Peter DeFazio, who heads the full Transportation Committee, said Boeing hasn't yet provided documents that he and Larsen requested. "Boeing has yet to provide a single document," he said. "We've got to get to the bottom of this." DeFazio also got $10,000 from Boeing.
FAA acting chief Daniel Elwell was critical of Boeing for not disclosing to the FAA or to airlines for more than a year that a 737 Max display supposed to show whether a sensor was malfunctioning wasn’t functional. “I think that’s an issue, sir,’’ Elwell said under questioning by DeFazio. “It shouldn’t take a year for us to find out.’’ Elwell also admitted that the FAA certifiers were paid by Boeing.
Shockingly, Elwell had no idea about the real power of MCAS.
Congressman Cohen: “Media reports indicated that Boeing underestimated the capability of MCAS by a magnitude of four times in its submissions to the FAA and the FAA only found out about this in Boeing’s notice to airlines explaining MCAS after the Lion Air Accident. For the record, can you confirm this account and if it is not correct, please clarify the timeline?”
Elwell: I will get an answer for you. I am not familiar with it.
Representative Norton stated: “Our purpose is to restore confidence in our system.”
Representative Mitchell stated. “I have faith in the FAA and I have faith in Boeing. We have to trust our aviation system. ”
Why the FAA will approve the Boeing Patch even if they know it will not work… Meet Ali Bahrami
Ali Bahrami is now the FAA's associate administrator for aviation safety. But six years ago Bahrami worked for the aircraft manufacturers lobby, and he argued before Congress to fight foreign competition by delegating more regulatory authority to the plane-makers to help them get new products to market faster. Now he'll be the one to sign off on the Max's band-aid
Airline Carriers are already hiding the fact that you may be inadvertently put on a 737 Max
Consumers who want to avoid flying Boeing 737 Max jets after they return to the skies could still unknowingly book flights scheduled for those models. A review of flights scheduled on Max planes in the fall of 2019 found airline websites do not clearly identify which aircraft model passengers will be flying on, according to two primary sources of airline schedule data, Diio Mi and ch-aviation. For example, the airline websites showed
American Flight 1201, scheduled for Sept. 8 from Miami to Boston on a Boeing 737 Max 8, had no equipment type listed, which is unusual because American typically lists aircraft types for its flights
- For that same day, United Flight 1046 from Houston to Las Vegas, was scheduled on a Max 9, but showed simply a "Boeing 737," which is unusual because United typically lists the specific type of 737
- And Southwest Flight 5407 from Fort Lauderdale to Chicago, scheduled on a Max 8, showed a "Boeing 737-800"
However, the online search site Kayak did indicate Max planes would be used for those same flights, as did TripAdvisor's SeatGuru site. For all three, Kayak and SeatGuru indicated Max jets: Max 8s for American and Southwest, Max 9s for United.
Officials at American and United airlines told Here & Now that their systems will be updated so that customers will be able to see if a Max is scheduled on any given flight. By Wednesday morning, United's website was updated to correctly show, for example, that a Max 9 is scheduled for Flight 1046 on Sept. 8. Southwest did not respond to requests for comment. https://www.wbur.org/hereandnow/2019/04/24/boeing-737-max-web-searches
Here are the airlines to avoid if you want to avoid flying on the 737 Max:
Southwest Airlines, ordered 280 of the planes and has 36 in its fleet.
United Airlines, ordered 137 of the planes and has received 14.
American Airlines, ordered 100 of the planes and has 24 in its fleet.
Southwest lost more than $200 million in revenue during the first quarter and has taken its 34 MAX aircraft out of the company's flying schedule through Aug. 5.
American Airlines extended its Max cancellations through Aug. 19, 2019 saying it was confident the aircraft will be recertified to fly before then.
Here is a pile of Southwest 737 max airplanes just waiting for FAA approval to start flying again:
Even if the 737 Max is certified in August, the real question is whether passengers will be willing to serve as hostages by flying in 737 Max planes with a band-aid placed on MCAS.