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Author: BFatConservative One star, 50 posts Add to my Favorite Fools Ignore this person (you won't see their posts anymore) Number: of 14491  
Subject: BA ( Boeing ) Date: 1/17/2013 8:31 AM
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Filed under Watchlist: Falling Knives

Allright, been watching this BA fiasco unfold and the little voice, starting with a whisper, and recently a little louder - "Get greedy when others get scared".

BA hasn't dropped 20% in one day, but does close somewhere around 6% lower than it did a few weeks ago.

Anyone been doing due diligence on BA and have a good enough working knowledge to evaluate the current 787 issues? It seems like every government organization has grounded the planes.

At some point this becomes an overreaction that will be recovered after a credible fix is initiated. Obviously, when your product is one massive flying bus, you don't want to give your clients any reason to not buy your product. So long-term damage might be present, but if they nip this in the bud, then the world moves on.

I'll perform some financial analysis here soon if I decide to free up some cash. Just thought I would test the waters.

MjH
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Author: mungofitch Big gold star, 5000 posts Top Favorite Fools Top Recommended Fools Feste Award Winner! Old School Fool Add to my Favorite Fools Ignore this person (you won't see their posts anymore) Number: 13116 of 14491
Subject: Re: BA ( Boeing ) Date: 1/17/2013 9:07 AM
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One view:

I imagine the planes are excellent once a few things are worked out.

The issue for investors is probably delays.
With the big bird 3 years behind schedule already, imagine another year
of delays while they go through inspections or have to re-engineer
and roll out some battery systems or something.
If they aren't able to ramp up production and continue deliveries they lose money at a very rapid rate.
Not enough to sink them, but enough to erode value a meaningful amount. Billions.

Jim

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Author: knighttof3 Big red star, 1000 posts Add to my Favorite Fools Ignore this person (you won't see their posts anymore) Number: 13117 of 14491
Subject: Re: BA ( Boeing ) Date: 1/17/2013 1:02 PM
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Not enough to sink them, but enough to erode value a meaningful amount. Billions.

My crystal ball likens Boeing's overall situation to a combination of BP and Intel - like BP, in that one bad event can temporarily depress their market price for a short while; and like Intel because a new plane is a bet of the whole company (like Intel with chips).
Imagine if, after un-grounding, a 787 crashes. Or turns out to have fundamental flaws.
Unlike the $400 billion F-35 funded by the ever-generous US taxpayer; 787 does not have an unlimited amount of funds to correct major design flaws if there are any. Boeing will be toast.
I'd like to wait and see and maybe buy Boeing after 5 years of successful 787 flights, no matter how low it falls now.

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Author: khrushchv Two stars, 250 posts Old School Fool Add to my Favorite Fools Ignore this person (you won't see their posts anymore) Number: 13118 of 14491
Subject: Re: BA ( Boeing ) Date: 1/18/2013 2:08 AM
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knighttof3 said:

Unlike the $400 billion F-35 funded by the ever-generous US taxpayer; 787 does not have an unlimited amount of funds to correct major design flaws if there are any. Boeing will be toast.

Given that BA is a major manufacturer that makes products in the US (i.e. lots of jobs), using the observation that the gov't stepped in to help the auto industry, my guess is that BA would likely be in line for a bailout if things really get that bad. So I'm not too worried about BA going anywhere.

My guess is that the FAA will (in the short run) disallow the Li-Ion batteries so they will get replaced with a heavier and slower-to-charge version (I assume the current standard is NiMH but really have no idea). Or they'll disallow the Li-Ion batteries in "heavy load" electrical systems, creating a hybrid solution while the problem can be researched further.

More generally, the FAA is a real gem in the "gov't institution" space. They do a fantastic job of (at almost all costs) protecting passengers and keeping up a strong culture of ethics and responsibility. My prior is that they never would have approved the Li-Ion batteries for the 787 w/o solid evidence that they could do the job. But, now that there's "pudding" that can be proofed, they grounded all 787s while they work out a solution. I don't know about you but, that's exactly the kind of behavior I want to see from an industry regulator...they're open to new things (based on evidence) but if the evidence ever changes, so does their opinion.

Whatever happens with this electrical sub-system I don't think it will affect the ultimate success of the 787: The airlines really want these aircraft because of their flexibility (they are "just right" in terms of size and range for a multitude of roles) and their operating costs (they're much much lighter and therefore much much cheaper than anything else out there right now). Moreover passengers really like flying in them because of the reduced stress from the 5000 ft. cabin compression (compared to a 7-8000 ft. compression for most modern aircraft). Punchline is that the demand for the 787 is really big and Boeing is the only one selling ice cream.

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Author: flightdoc101 Two stars, 250 posts Add to my Favorite Fools Ignore this person (you won't see their posts anymore) Number: 13119 of 14491
Subject: Re: BA ( Boeing ) Date: 1/18/2013 4:02 PM
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The replacement battery should be LiFePO4. They don't catch fire and accept rough handling.

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Author: Goofyhoofy Big funky green star, 20000 posts Top Favorite Fools Top Recommended Fools Feste Award Nominee! Old School Fool Add to my Favorite Fools Ignore this person (you won't see their posts anymore) Number: 13120 of 14491
Subject: Re: BA ( Boeing ) Date: 1/18/2013 9:18 PM
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Given that BA is a major manufacturer that makes products in the US (i.e. lots of jobs), using the observation that the gov't stepped in to help the auto industry, my guess is that BA would likely be in line for a bailout if things really get that bad.

Boeing assembles planes in Seattle (and to a lesser extent in South Carolina), but gets sub assemblies from all over the country. They would have substantial clout with employers and manufacturers in practically every Congressional district that might matter in the event of a company-threatening problem.

More to the point, they are also a huge military contractor, and the Pentagon would hardly allow them to go under. It's conceivable that a plan might be hatched which would give a haircut to bond holders or stock owners, but it's inconceivable that Boeing would cease to exist.

Whatever happens with this electrical sub-system I don't think it will affect the ultimate success of the 787:

Every aircraft employing new technologies - and even those which are modest upgrades - suffer problems out of the gate. Unless there are fatal accidents, the memories disappear pretty quickly.

Punchline is that the demand for the 787 is really big and Boeing is the only one selling ice cream.

The Airbus 380 has a passenger capacity 15%-20% larger than the Dreamliner. Airlines will balance that against the Dreamliner's 20% fuel savings (along with other factors, like legacy fleets, obviously). The fuel savings is significant, but fuel is only one component, so you might achieve an 8-10% overall cost savings (ignoring downstream maintenance of the new technologies, about which I know nothing). Balance that against the Airbus higher capacity (which will depend on load factors and not be 100% utilitized, obviously) and it's not quite as clear cut as first blush estimates might seem.
 


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Author: khrushchv Two stars, 250 posts Old School Fool Add to my Favorite Fools Ignore this person (you won't see their posts anymore) Number: 13121 of 14491
Subject: Re: BA ( Boeing ) Date: 1/19/2013 7:51 AM
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Goofyhoofy said:

The Airbus 380 has a passenger capacity 15%-20% larger than the Dreamliner. Airlines will balance that against the Dreamliner's 20% fuel savings (along with other factors, like legacy fleets, obviously).

The A380 passenger capacity is waaay bigger than 15-20% of a 787. According to wikipedia:

B787-8 (three cabins): 210
B787-9 (three cabins): 250-290

A380-800 capacity (three cabins): 525
A380-800 capacity (two cabins): 644
A380-800 capacity (one cabins): 853

Whenever I see an A380 in the air, but near the ground I can't help but gape...those things are so freaking big I am mystified that they can fly!

In terms of pricing a 787 is not quite half the price of an A380:

A380-800: $390 million

B787-8: $207 million
B787-9: $244 million

Obviously these are list prices but it gives us an idea about relative fixed costs. I think the 787's role is intended to compete in the space that the A330 and A340 currently occupies.

In terms of demand for the aircraft, the A380 has a lifetime total number of orders of 262 (thus far) and has been in operation since 2008.

On the other hand, the 787 started service late 2011 but has already amassed about 850 orders.

At a ratio of about 3.25:1 in favor of the 787, I think the airlines have been pretty definitive about which plane they want.

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Author: Goofyhoofy Big funky green star, 20000 posts Top Favorite Fools Top Recommended Fools Feste Award Nominee! Old School Fool Add to my Favorite Fools Ignore this person (you won't see their posts anymore) Number: 13122 of 14491
Subject: Re: BA ( Boeing ) Date: 1/19/2013 11:33 AM
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The A380 passenger capacity is waaay bigger than 15-20% of a 787. According to wikipedia:

B787-8 (three cabins): 210
B787-9 (three cabins): 250-290

A380-800 capacity (three cabins): 525
A380-800 capacity (two cabins): 644
A380-800 capacity (one cabins): 853


This is true, but misleading. Nobody orders the "one cabin" version, and I'm not even sure about the "two cabin" version. Realistically, the Dreamliner will seat around 250-290, while the A380 around 500.

I should note, and I am guilty of it too, that the 380 and Dreamliner are not direct competitors. The 747 stretch has a higher passenger capacity than the Dreamliner but airlines were having a hard time filling 450 seats on flights - and asked for a smaller, but more efficient plane. That's the market Boeing is trying to serve here.

And I don't think it's right to compare sales of the A380, which has been in production since 2008 with the Boeing product, which is barely starting to roll off the assembly lines, and say "it's over."

The best analogy I can come up with is that Airbus made "a huge bus", and Boeing is making "a big Prius limosince." Time will tell what the market wants.
 


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Author: kelbon Big red star, 1000 posts Old School Fool Add to my Favorite Fools Ignore this person (you won't see their posts anymore) Number: 13123 of 14491
Subject: Re: BA ( Boeing ) Date: 1/19/2013 4:22 PM
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Simply put, Boeing makes the airframe, not the engines, not the batteries, not the tires on the landing gear. Only if there is a airframe failure: wings falling off mid-flight for example, will the company, or it's stockholders be in real and permanent jeopardy.

kelbon

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