Random Thoughts/Update, Good bye Line 2

Update, 9:20 AM: Flightblogger just posted this: Boeing to buy Vought, Line 2 to go there. This is step one in the allusion below to big news coming out of Boeing that affects Puget Sound.

Original Post:

ANA and the 787

All Nippon Airways, launch customer of the much-delayed Boeing 787, upped its orders from 50 to 55. We can’t help but wonder if it’s going to pay anything at all for these five airplanes or whether these will be free for compensation.

Big news out of Boeing coming?

Here in the Puget Sound we are hearing a lot of buzz that there will be big news out of Boeing’s HQ in Chicago as early as Friday that will be of more than passing interest here. We’ve had three sources on this one.

United Airlines and the 150 plane order

This falls into the Are they nuts? category.

We’re told that United’s RFP for 150 airplanes includes demands that it pay no deposits, no pre-delivery payments and the manufacturer finances the airplanes. And Boeing 767s and 757s be purchased by the manufacturer at above market rates and leased back at below market rates.

Our take: there may be few orders this year, but Airbus and Boeing have backlogs of 3,500 airplanes each. United’s credit sucks (17% yield on its recent Rubber Hose offering). We don’t see any reason for Airbus or Boeing to go for this one.

Andrea James, who succeeded James Wallace at The Seattle PI as aerospace reporter (a case of a B-scale wage earner replacing an A-scale earner, we think, when the PI dropped its print edition to only a web paper), has this interesting item about American Airlines’ latest aircraft financing. Boeing’s list price for 737-800s is ~$71m. AA’s 738s are being acquired for around $48m. She tells how.

Air France 447:

Here is an interesting discussion about pitot tubes and the relationship to air accidents.

13 Comments on “Random Thoughts/Update, Good bye Line 2

  1. Well, I’ll add grist to the mill:

    Heard M.O.L. was in town (seattle) recently, and there is also a rumor floating of a rate increase on 737 to 37/Mo.


    • Wow a rate increase? So not all doom and gloom then, as predicted by just about everyone 🙂
      I think, if the FR deal is confirmed, this will be just the confirmation of the expected. MOL was never serious about Airbus. I am looking forward to the one liners he has already prepared. So, a high margin deal for Boeing? 🙂

  2. There’ll be lots of buzz before the bottom falls out of the 787 program. You know, Wall Street prefers balanced news.

    Re Andrea James’ article…I don’t see what’s so exciting about a 30% concession level. That’s actually still quite a good price, compared to what we saw when the Dynamic Duo (Nöel & John) went out to buy market share.

    Re United…sounds like a donation what they’re after, eh?

  3. Well looks like United also want to be bailed out in the current environment…. not by the government but by the manufacturers 🙂

    I think this will be a prestige deal, for either of the manufacturers. Who wouldn’t want to get a 150 plane deal?

  4. I just read the artical Scott. I don’t see anywhere where jon said the second line was to be sighted there, if there is to be one.

    I take that as a presumption on your part, not a fact.

    At any rate, this aquisition presents another example of failure on Boeing’s part. It’s an outright admission that they indeed do want to be in the parts business, that they cannot control or trust outside suppliers enough to get the job done.

    This is basically total repudiation of the 787 outsourcing model. Boeing has failed in it’s quest to be a mere ‘systems integrator’.

    At vast expense.

    Now Boeing will have to come out with the cash to pay up for Vought.

    They won’t be getting much for our money except another headache, but not nearly the migrain that an attempt to site a second 787 line there will cause.

    The cash drain on Boeing in the next few years sets it up as a takeover target. All of it’s profits will be drained away by either the SC 787 operations, or debt service.

    A move will not aid Boeing in escaping labor strife. Strikes against Bell in Texas and Vought in Tennessee prove that simply being in a right to work state provides no sort of invulnerability. The IAM has already organized much of the operations in SC. Boeing is just a bigger target.

    As well, it is entirely probable that card check will pass, making organization all the easier. It’s just a matter of time. Large scale industrialization begets trade unionism, always has, always will.

    Further, I can imagine such a move will cause nothing but trouble on Boeing’s remaining programs in the Puget Sound. The IAM and speea may well adopt the attitude that resistance to outsourcing is futile, but a strike for more compensation in the meantime is a no brainer. If they have nothing left to lose in their minds, there is nothing to stop them from halting operations locally when the contracts expire in three or four years. And in an atmosphere of ruined labor relations, I think this is quite possible.

    Boeing is on some sort of ideiological fools errand.

    On Ryanair, I have no doubt M.O.L will get a good price. My real hope is that a big 737 sale bumps the stock price enough for me to get out of BA altogether.

    Never again brother, never again.

  5. Well Scott, I can only imagine why the embargo.

    Either an agreement was made or you fear losing access.

    Perhaps something else. But I see no utility in sitting on the info if indeed it’s any good.

    Unless revealing it causes you some sort negative ramifications.

    Afraid of something?

    I am. I’ve alrady had the sleeves ripped off, and BA threatens the rest of the shirt. Do I need to put in a sell order for market open tomorrow?

  6. Well, I’ll just take that as meaning that the info isn’t fully developed enough to hang your hat in just yet, ok, fine.

    But the nanosecend any sort of confirmation of 787 final assembly in SC arises, I’m out, no matter the losses. I just can’t see such a move as being anything but devastating to the balance sheet.

    Hopefully, M.O.L. will get me out first.

    LMT here I come. Maybe Embraer.

  7. What balance sheet? Boeing already has a negative net worth and $8bn in pension fund liabilities (around $3bn due in 2010-11) and only $4.5bn in cash at 3/31, including $1bn from a debt-equity issue at the time.

  8. Correct.

    So the costs associated with both the aquistion and the move will put BA so far in the hole that they will never climb out.

    Carlyle are no bunch of schmucks, they are going to exact a pretty price. The rest of Vought is on it’s rear end, and to get them to give up the potential 787 income stream is going to cost BA.

    A significant portion of BA’s current debt comes due before any meaningful revenue from 787 will occur. That also puts them in a bind on a 737/777 refresh.

    See where it’s going here?

    Boeing is spending like a Bush era republican congress, for marginal returns.

    The buyback is gone.

    IMO, the dividend’s days are numbered.

    A new equity offering is out of the question.

    All that leaves is more Bond sales (debt). And that kicks equity stakeholders directly in the gentleman’s region.

    Boeing would be way ahead negotiating tax breaks with the state and peace with it’s unions.

    But I doubt that’s the plan; idiologs are in charge, and that means sharholder value takes a back seat to stubborness.

  9. For Boeing to negotiate “peace” with its unions, the unions must be willing to negotiate away their primary weapon: the with holding of their labor. I suspect they will be loathe to give up the one weapon in their arsenal that really works. Despite the fact that wages, hours, & working conditions between management and labor are covered by the NLRA and not the Railway Labor Act, binding arbitration could be a lengthly and laborious process, just as we have seen at various airlines around the country. We are a culture that wants instant gratification and we need clear “winners and losers”. For their part, the unions may feel they have the solid backing of the politicos in WA state and will continue to resist any brokered agreement that requires them to surrender their right to strike.

    If I were on the Boeing management team, I would insist on nothing less.

    The way I read the tea leaves is “goodbye Seattle”.

  10. It’s not like there aren’t companies and unions that get along, there are plenty.
    Boeing won’t escape the IAM by moving to S.C.

    The IAM already has the Charlston Vought facility organized. The first thing they will do is align the Seattle/Charlston contracts, just like Wichita.

    Nobody seems to realize that this is a no-lose situation for the IAM international. They get the dues no matter where the 787 gets built.

    The only real losers are The Seattle IAM local, and Boeing shareholders. And some revenue to the state the state should never count on anyway.

    Right to work means nothing in the face of a large, painstakingly trained, highly specialized workforce. You can bring in all the replacements you want, it won’t help you one bit.

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