May 18, 2015: Boeing has always been masterful with spinning its message, but the spin last week strains credibility with its explanation over how it will bridge the production gap for the 777 Classic into production of the 777X.
Leeham News last week examined Boeing’s detailed explanation, emerging from its May 12 investors day. Reports from aerospace analysts recounted Boeing’s assertion that when “feathering” in 777X production on the 777 Classic, because production of the X will be slow (normal for a new model and the ramp-up/learning curve), the X will be the equivalent of producing two or three Classics–and thus today’s production rate of 8.3/mo (100/yr) will be preserved, as claimed from the launch of the X program.
As noted in our report last week, suggesting the assembly of one 777X is equivalent of producing two or three 777 Classics is specious at best.
It’s Boeing’s spin machine working overtime. And it’s simply not credible. Yet many aerospace analysts, even while expressing skepticism over this, nonetheless let this subterfuge slide, maintaining Buy ratings. A few brave analysts, willing to risk Boeing’s wrath, have downgraded the stock before now. Others should be following suit.
This is hardly the first time Boeing spins things to the point of straining credibility.
After analysts beat up Boeing on the third quarter earnings call over weak cash flow, Boeing in the fourth quarter began approaching lessors and airlines to accelerate progress payments and increase the size of advances in order to pump up cash flow for the year-end results. The sharp increase in 4Q cash flow caught Wall Street by surprise and several analysts who were at the forefront of questioning Boeing over cash flow were embarrassed. It took several weeks for these analysts to smoke out what was happening and by the end of 1Q2015, several issued notes with detailed analysis of what was going on.
The large advances and progress payment accelerations were being done so Boeing could maintain its commitment to Wall Street on the level of shareholder buyback.
Boeing, at its investors day, coughed up additional detail. Once again, most analysts gave Boeing a pass. In essence, Boeing has been borrowing against the future. The question, which largely remains unanswered, is how long Boeing can keep this up. But since analysts are more concerned about the next quarter than the long-term, there have been largely no consequences; only a few have downgraded Boeing on cash flow. Most continue to maintain Buy ratings on what is highly dubious cash flow quality.
Boeing has a long history of playing fast and loose with facts.
Talk about Glass Houses.
Boeing’s propensity to stretching credibility makes it very hard to accept its arguments when it’s right. Early on Boeing began questioning whether the A350-800 would ever be built; it turned out to be correct (at least in the -800’s current form), but there were many doubters of Boeing’s position (me included). Boeing also raised questions over the viability of the A350-1000, a position that turned out to be half right. But the credibility issue cast a cloud of suspicion over its views on this one, too.
There are more examples, of course.
Airbus is hardly immune to exaggerating,spinning and casting aspersions. But I’ve been covering Airbus and Boeing since 1985, and it’s my experience that Boeing is by far the more egregious.
It’s too bad, too. Boeing produces very good airplanes. It’s a sound company. It doesn’t need to resort to sophistry.