Pontifications: A contrarian view of Stock Buybacks

By the Leeham News Team

April 25, 2023, © Leeham News: Airbus and Boeing last week held their annual shareholders’ meetings. Boeing continues to suspend dividends and stock buybacks as it struggles to recover from the grounding of the 737 MAX and delivery suspensions of the 767/KC-46A, 787, and 737 (again); and the years-delayed certification of the 777X. Losses and charges at its defense unit mount as well, hurting profits and cash flow.

Before the MAX grounding in March 2019, Boeing spent more than $60bn in stock buybacks since the 1997 merger with McDonnell Douglas. “Shareholder value” became a priority—and dirty words to those who long for the days of a Boeing based on engineering excellence vs focus on Wall Street and the stock price.

Airbus has taken over the lead in airplane engineering and innovation. Boeing in November deemphasized new product development and pointed to its guidance of $10bn in free cash flow by 2025. However, Airbus now puts shareholder value as an important business goal. At its annual meeting, Airbus continues its dividend and stock buyback programs. But Airbus buybacks and dividends are a fraction of what Boeing has spent and Airbus committed to a €10bn war chest for future contingencies.

Stock buybacks remain a target of criticism. While our view of over-emphasis on shareholder value is well known—we favor a balance on free cash flow expenditures between shareholder value and new product development—there is another side to stock buybacks that haven’t been discussed.

Leeham News is going to take a step back and dig into the details of the buybacks, analyzing the numbers behind the repurchase program, its results, and possibilities for the future.

The Good, The (not so) Bad & The Ugly (question)

In the 2013 Boeing Annual report, this line appeared on page 39 under Financing Activities:

“During 2013, we repurchased 25.4 million shares totaling $2.8bn through our open market share repurchase program. There were no shares repurchased through the share repurchase program in 2012 and 2011.”

Thus began the annual stock buyback program of the 2010 decade at Boeing, which ran from 2013 to 2019, totaling a whopping $43.5bn. Given the subsequent issues Boeing has faced, there has been much criticism leveled at them, for spending free cash flow on their own shares.

Corporations are faced with a variety of choices regarding what to do when operations generate large sums of capital. Indeed, if one reflects on the decision-making process, an argument can be made that a buyback is no different than putting cash into term deposits, investing in the stock market, or buying commodities such as precious metals or fossil fuels. Everyone is looking for a return on their investment. Some corporations are just willing to bet on themselves.

Board members and executives benefit

Yes, it is true that the Board, the officers, and the executives of the company will benefit from an increase in share price that will usually occur as stock is taken off the market. Perhaps there need to be some limiting regulations added to how much can be repurchased. But the point remains that if one can objectively look at it as an investment, without emotion or ulterior motive, is there much difference between Boeing buying their shares and the Vanguard Group, Blackrock & Newport Trust – who combined hold about 62% of all outstanding shares?

From 2013 to 2019, the following buybacks were made (amount of shares is in millions).

Boeing Repurchase Program
Year Amount Value (in billions)


25.4  $       2.80
2014 46.6  $       6.00
2015 46.7  $       6.80
2016 55.1  $       7.00
2017 46.1  $       9.20
2018 26.1  $       9.00
2019 6.9  $       2.70
252.9  $    43.50


As of April 19, 2023, Boeing was trading at around the $208 mark. This would make those 252.9 million shares worth $52.6bn. This means that they are $9.1bn to the good on their buybacks.

If you are an investor in the market and looking at ROI, it isn’t outstanding – but they haven’t lost their shirts, which will come as a surprise to some. The 2018 and 2019 years hurt some, when Boeing bought back high, however it is balanced out by the repurchases in earlier years.

It’s not good, but it’s not so bad.

Boeing was savvy enough to use some of these buybacks to fund pension requirements in 2020:

“In the fourth quarter of 2020, we contributed $3bn of our common stock to our pension fund. In the fourth quarter of 2020, we also began using our common stock in lieu of cash to fund Company contributions to our 401(k) plans for the foreseeable future, which we estimate will conserve approximately $1bn of cash over the next 12 months. “

Boeing’s share price during November 2020 ranged from a low of $143 on November 2 to a high of $223 on November 24, so that $4bn funding cost them from a high of 27.9 million to a low of 17.9 million shares. This leaves them retaining between 225 million and 235 million shares from the buyback program (of 252.9 million repurchased), with a current value between $46.8bn and $48.9bn. Still well above the $43.5bn spent.

Now for the difficult question

As of Q4 2022, BA has a combined long- and short-term debt burden of $57.5bn. Annual interest and debt expense cost them $2.5bn for 2022. It was $2.68bn in 2021 and $2.16bn in 2020. That’s $7.34bn over the past 3 years and 2023 will push them close to the $10bn mark, if nothing changes.

Boeing can gain $48bn by selling those investments and wipe out most of their debt with the proceeds, putting the company on solid footing. Any taxes on the gain can be offset by expensing amounts from the deferred production balance on the 787 program, improving margins there.

There has been some Good and some Bad, but the Ugly question is whether those managing the company are that tied to stock valuation, that they fear the effect that selling those buybacks will have on the share price. Take the moderate (and surprising) win and move forward.

  • The Share Repurchase program has not been a disaster;
  • It has already been used to fund obligations like pensions; and
  • Cashing in now can reduce debt to single digits, from $57.5bn.


102 Comments on “Pontifications: A contrarian view of Stock Buybacks

  1. Buying your own shares is insider trading, isn’t it?

    There is a hitch and it the same as with moving cash influx to the left: buying looks good, boiys the share value but pushing it back is detrimental.

    • Share buy programs are allowed but there are regulations around them, so no, it is not insider trading as long as the rules are followed.

      • Question: How much of your own stock can you buy before you disappear up your own as…..

        • Valid question. Taking to many shares off the market through buy-backs could make the liquidity in the stock too low, especially for smaller companies. Hence the regulations.

        • 1. No. of shares: I believe a company can have as few as two shares outstanding (one share in certain jurisdictions);
          2. Amount: take a look at BA’s 10K for Dec 31, 2022
          Common stock $5.1 (in billions)
          Additional paid-in capital $9.9
          Treasury stock ($50.8)
          Retained earnings $29.5
          Other comprehensive loss ($9.6)
          Total shareholders’ deficit ($15.9)

    • No, it isn’t generally speaking. Only if you do it based on withhold information, that will have an effect once it is disclosed after your purchase.

  2. You can also buy them and delete them according to regulations thus giving assurances to stockholders that they will not come back on the market again. Still a well run company must invest in its present and future product lines in good and bad times, as well in its people to hone its skills, just look at the UK car industry from the 1950’s until now.

    • I agree. Only if you delete the shares you bought back you will have the reverse dilution effect, that actually increases the ownership stake of remaining shareholders. I had thought Boeing had deleted these shares, but obviously this was not (always) the case.

  3. Nice try, but this misses out some critical points:
    1) interdependencies of the market and feedback loops
    a) if Boeing tried to re-issue that stock, they wouldn’t be able to do it at the current price as the dilution would require a reward, resulting in lower stock price.
    b) there is a dance between management and investors on multiple levels – low growth companies need to reward investors with near term returns (as they are low growth, so the long term returns are limited), while high growth companies promise future riches. Management need to run this tightrope – if they return too much, then they limit the future as they don’t have the cash; if they don’t return enough (and the market doesn’t believe in the future growth), then the investor return is not high enough, so the shares decline to compensate.

    Share buybacks, in my view, only add value if the shares are fundamentally mispriced, otherwise they are simply trading equity for debt, increasing the financial leverage. This does reduce the P/E, but it also increases the risk – I’d posit that investors should pay a lower P/E for increased risk, but I’m cognisant that this is not always the case.

    I think there is a valid argument that says, as insiders, management have better information about the company, so are better placed to decide whether their shares are undervalued, but this needs to be offset by a) they are not stock market professionals, and b) the agency problem and their renumeration.

    See figure 2 of the attached (which I wrote in 2010 with my good friend and boss, Stephen Grundman) – this focussed on the other side of the coin, investment, but investment and shareholder returns are interrelated and co-dependent


    2) “But for” – it doesn’t really make sense to compare what they paid for the buyback vs the current share price – the shares wouldn’t be at the current share price if they hadn’t bought back the stock (we can debate whether they’d be higher or lower, but the current share price reflects the market view on all the public information currently available, which includes the fact they have bought back stock).

    3) WRT to “Any taxes on the gain can be offset by expensing amounts from the deferred production balance on the 787 program, improving margins there.” – no – this is confusing cash and profit (I think) – taxes would be cash out, the deferred production balance is non-cash. Furthermore, if you improve the margins, then you pay more taxes. I’d suggest this is exactly the financial engineering that caused many of the problems in the first place.

    • “a) they are not stock market professionals,”

      Guidance available at their fingertips. Just like with legal advice ..

    • Charles

      ‘this is confusing cash and profit (I think)’

      The Deferred Production Balance is an amount for each program which sits in Inventory, an asset account.

      Normally, when you spend money on goods to be produced, you expense them on the Income Statement:

      Cost of Good Sold………$XXXXX

      Accounting rules allow them to do this:


      Sure – the money is spent and is ostensibly an expense, but there it is, sitting in an Asset account, waiting for the fateful day that it will be expensed.

      So yes – the cash has been spent, but it is still technically an asset.

      In 2020 and 2021, Boeing expensed $6.5 billion and $3.5 billion out of the 777X and 787 DPB’s respectively, determining that this money would never be recouped in the production run.

      IF….there were any tax implications from selling those buyback stocks and it acted as an impediment to the transaction, there is a huge pile of DPB waiting to be expensed that they can draw on, to lessen the hit.


      Stock Price Falling

      So within the past year or two, BA quietly approached financiers in NY and asked them to buy some $30 billion in stock. Leeham reported on it.

      Problem is, they wanted between some $250-$300 a share. (allegedly)
      They got greedy (IMO) and the money walked.

      I’m not an SEC rules expert about when BA MUST report the details of a sale like this, but it is conceivable that a transaction can be completed without anyone knowing (the great unwashed), and then the news released publicly. Then market forces can determine if it’s good or bad, if the price should be higher or lower, etc.

      Just saying…

      • @ Frank
        Is it possible that BA might have collateralized a (large) portion of its bought-back shares to its lenders? If those shares are collateral against loans, then BA can’t sell them without the lenders’ permission…

        • Well yes, if I go out and spend that money on fast cars, women and drugs, but if I immediately give you your money back with the proceeds of the sale, then you are no longer a lender to me, are you?

          Also, that ~253 million shares are back into the pool of authorized stock, but not issued, along with the other unissued shares they had. If say they had 500 million there, well those 253 million might have covenants inhibiting their sale, but the ‘other’ shares would be fair game…even though they are the same thing.

          But what’s to stop me from saying “Here’s the money I borrowed from you, plus any interest I owe. Thanks for your help”

          • “But what’s to stop me from saying “Here’s the money I borrowed from you, plus any interest I owe. Thanks for your help””

            They’re term loans — the lender expects to receive a certain percentage of income for the full duration of the term. Paying back the loan early effectively robs the lender of income. Most lenders will charge a hefty penalty to renegotiate an agreed term.

  4. I think the relation between stock buy back and stock value plus the relation between executive bonusses and stock price is what is wrong.

    Executive salaries include the value of stock awards granted and the cash received when exercised stock options awarded in previous years. They are boosted by elevated value of the stock options as the share price rises.


    It is/was very rewarding for executives to boost short term stock value by authorizing stock buy backs. Regardless of the long term needs of the company.

    Boeing did these buy backs while the A320NEO took a decisive lead over the 737, there was a huge debt because of the 787 development and the market showed a clear A350 preference as 777 replacement.

    But they managed to blind the willing stake holders with rosy outlooks, historical evidence, proud market capitalization figures, free cashflow and .. a soaring stock price.

    All before the Max crashes & Corona. And got away with it, nobody dared to doubt.

    • BA wasn’t the only company to allow short-term greed to overpower long-term prudence — the problem was much more widespread among US companies:

      2020, CNN: “Companies that binged on buybacks now seek bailouts from taxpayers”


      Not aware of any similar issues in Europe or Asia — this seems to be a uniquely US phenomenon. Rather like the ongoing regional banking crisis in the US, which also ultimately stems from short-sighted greed (putting short-maturity deposits into long-maturity securities is a Cardinal Sin in banking — but it pimps up near-term earnings, and thus also helps line management’s pockets).

      • European airlines were bailed out , including Ryanair – despite the noise its CEO makes, their accounts spell it out.
        O’reilly just bleated about some of the money was available only by governments for their own carriers , not an Irish one . Boo hoo

        With government mandated restrictions on travel and in some cases leaving home why shouldnt governments help those businesses most affected.

        • The comment about Europe/Asia didn’t relate to bailouts: it related to depleting cash reserves via excessive buybacks.

  5. Airbus Stock Buybacks were purely to cover annual stock purchase deals for it’s employees. The stocks were purchased then resold to employees at a discounted rate, offering a benefit from 35% to 50%. (The amount of stocks purchased was much less than the demand, so the offers had to be revised down to a maximum of 105 shares per employee)

    This is nothing like the Boeing stock buy backs.

    • Are you sure . Companies can and do issue new stock for employees.
      Purchase and then resold – at a discounted price – sounds very complicated

      And the quantity , 10% of outstanding limit, its far too large for employees only
      Although I see some statement from Airbus who says the same about employee shares , but that only lasted for one month in 2023

        • Oh dear Airbus says so itself
          “Airbus SE reports the following share buyback transactions from 27 February 2023 to 20 March 2023 under Regulation (EU) No 596/2014 of the European Parliament and of the Council of 16 April 2014 on market abuse (“EU Market Abuse Regulation”).

          The transactions are part of a share buyback programme that started on 27 February 2023 for the sole purpose of covering Airbus’ long-term incentive plan in shares. The repurchased shares will be redistributed to the beneficiaries of long-term incentive plans according to the relevant plan rules. The share buyback programme was completed on 20 March 2023.
          Clever Airbus doesnt state the actual quantum of shares bought back but gives ‘ average daily weighted number ‘. Oh dear

          The traditional share buybacks for commercial reasons continued after that window

          • Babbling without an ounce of evidence showing it’s “far too large” for employees only.

            Have you checked how much Airbus have actually spent over last ten years in shares buyback?

  6. Indeed – ostensibly linking executive renumeration to share price performance would seem a good idea, as the board’s responsibility is to act in the interests of the shareholders. However, it is actually very hard to do:
    1) short term vs long term – roughly 70-80% of the value of a company is beyond 5 years, so how do you reward executives for making good decisions on a long term basis?
    2) dumb luck – should an executive be rewarded (penalised) because either his sector is in (or out) of favour or the overall market goes up (or down).
    3) volatility of share prices – if you grant shares (or even worse, options), the more volatile a share price, the potentially bigger rewards:
    Case 1 – shares go from $100 to $10 and back to $100 over 3 years – the CEO is awarded $1m of shares each year – the shares will be worth $1m (from year 1), $10m (from year 2) and $1m (from year 3) = total of $12m
    Case 2 – shares go from $100 to $110 over three years, the CEO is awarded $1m of shares each year the shares will be worth $1m (from year 1), $1.05m (from year 2) and $1.1m (from year 3) = total of $3.15m, but Case 2 is a much better investment
    (even if Case 1 sees a huge reduction in his award in year 2, he is still likely to be better off)

  7. This graph seems to indicate that BA has re-floated 31 million shares since 2020:


    Does LNA have a more detailed breakdown of what BA did with the bought-back shares? Cancellation is an option for at least a portion of the shares, in which case the bought-back shares in question can’t simply be re-sold — see next link:


    Re-floating all the bought-back shares would cause a share dilution of the order of 50%, which would have a significant negative impact on stock price.

    Note: If not done so as to enable employee share allocation programs, then the conventional purpose of share buybacks is to pimp-up EPS.

    As regards Airbus’ small buybacks:
    “The transactions are part of a share buyback programme that started on 23 February 2022 for the sole purpose of covering Airbus’ long-term incentive plan in shares”


    • Thats just a single Airbus buyback program that lasted for * just one month * in early 2023.

      It doesnt mean thats what happened for all the other buyback tranches at other times and other years.

      • Does DoU have evidence of larger share buybacks by Airbus?
        If so I hope he’ll present it, so we can all be the wiser.

        • Thats just what Airbus states in corporate messaging. Look it up

          Some missed the very restricted frame of time it applied to …its called sleight of hand.
          They also hide the fact they do use program accounting when it suits early on in new aircraft program. They also dont separate out the various parts of ‘commercial aircraft’ financials into its components like Boeing does.
          They are financial bunnies in Europe, for a business who *pretend HQ* for tax reasons is actually in an office park in Leiden ( the home of the master of light and shade Rembrandt van Rijn) in the Netherlands, a known ‘European style’ tax haven.
          I wonder which commenter resides in Netherland too ?

        • Links to the AB and BA buyback history have been posted ~2 weeks ago.

          Volumes are a couple or three of magnitudes apart
          with Boeing full steam ahead.

          • Thanks. So it was merely muddying the waters / false conflation from that commenter, yet again?

  8. “…an argument can be made that a buyback is no different than putting cash into term deposits, investing in the stock market, or buying commodities such as precious metals or fossil fuels”

    I don’t agree.
    Investing in the alternatives listed in the quote has no manipulative effect on EPS — whereas EPS manipulation is the main purpose of BA-style buybacks.
    Also, when viewed in this manner, buying/selling one’s own shares as a form of “investment” reeks of insider trading.

    • OK, look at it this way:

      ***Breaking News***

      May 1, 2023

      ‘The Boeing Corp has announced that it is hiring Bryce from Holland as it’s new CEO and Chairman. He has been tasked with returning BA to it’s engineering roots AND with getting it’s finances in order. He has hired Scott Hamilton of world famous Leeham to aid him.’

      Put all the moral judgements aside.

      You get rid of the bean counters and clean out the MBA whiz-kids, but you need to get that $57 billion debt load under control. You yourself has said that debt expense is killing them. So what do you do?

      Well – you could break off something and sell it, right? Defense, Services or Space? Taking on more debt is not an option.

      OR…you take that other asset you have, that thing which was bought back over time and is still profitable…the shares, and turn it into a pile of cash. Sure – the share price takes a hit, but isn’t it kinda the only move left?

      (outside of asking Uncle Sam for a bailout…)

      • Assuming that the bought-back shares can be freely disposed of by BA (see above).

        • Dear Boeing Bondholder,

          We recently completed a financial transaction to raise capital. As such, please find enclosed cheque for $1000 (plus any applicable interest and fees) which completes our obligation to you. We thank you for your trust in our company as we look forward to the future.

          Best regards,


          • Dear Boeing,

            We previously agreed a term of X years. By closing the loan early, you are depriving us of Y years worth of income. Enclosed is a bill covering our term adjustment penalties.


            James Bondholder

          • Dear James Bondholder,

            So nice to hear from you. Please find enclosed the details of our bonds:

            Boeing Co. today placed $9.825 billion of callable senior notes in three parts, as the company seeks to repay borrowings under its $13.8 billion two-year delayed draw term loan.

            The bonds will also be callable by the company after one or two years, in case it wants to repay the debt as its cash flow improves.

          • Dear Boeing,

            And the other $50B that we lent you…for a variety of terms…including longer maturities?


            James Bondholder (and the Bond Girls)

          • I remember attending a meeting when Debbie Hopkins was making the rounds introducing herself. It’s embarrassing to say this, but she graduated from the same business school I attended (one of my three majors was accounting). She clearly took away a different understanding of accounting than I did.

            She had two basic messages. One was this accounting nonsense about the importance of RONA (return on net assets as she called it). Of course there are two ways of looking at net assets, one is either total liabilities, and the other is total equities. Saying “return on net assets” was just a way of avoiding saying what she was really talking about, which was return on shareholder equity. She was really good at obfuscating.

            The other part of her highly polished schtick was a complaint about how Boeing wasn’t carrying nearly enough debt and how important it was to drive that up quite a bit. I wish I was making that last part up, but that’s what she said.

            Of course, adding to debt drives up return on shareholder equity (RONA in Debbie’s schtick) provided that there are earnings and that the equity section is a positive number, since the added liability reduces net assets. Oh well, I guess it is just too bad that there are no earnings any more and the equity section of Boeing’s balance sheet has a negative number for the past six years.

            Debbie moved on as soon as the foundation of the mess was rock solid and impossible to fix. For her services, she was highly compensated and praised for doing such a good job. Again, I wish I was making that up, but that’s the way the American financial casino any more. A huge portion of it runs on the greater fool theory of investing.

          • there is a discontinuity at max RONA.
            ( division by zero 🙂

            maybe Boeing has dived into that …

          • Bryce, after a quick look I didn’t see anything about the other shares and what their terms were. You find anything?

            I’m still sending you a cheque for $10 billion and getting it down to $47.5 billion, btw


          • @Bryce

            Yah, I meant Bonds, not shares.


            pg 90

            Looking at BA’s debt:

            Unsecured debt
            1.17% – 2.50% due through 2026 $11,846 12,404
            2.60% – 3.20% due through 2030 6,412 7,001
            3.25% – 3.90% due through 2059 9,576 9,570
            3.95% – 5.15% due through 2059 14,035 13,993
            5.71% – 6.63% due through 2060 13,011 13,008
            6.88% – 8.75% due through 2043 1,854 1,853

            Those 4.7% bonds are callable, so you pay those off. I’m thinking that the other debt from 3.95% upto 8.75 is also callable. Probably.

            The cheap stuff you can keep – the 2030 stuff. Keep about $17 billion and pay off $40 billion. Would go a long way to righting the ship.

          • @RTF

            Thanks. An article from 1999 that I found quite interesting:
            -> It’s not every day that a new CFO flatly contradicts the boss in front of a reporter. Boeing Co. president and chief operating officer Harry Stonecipher had railed against the venerable program-accounting system for airliners. “You have to know the cost of the airplane as you go along the production line: what the wing costs, what every piece of the airplane costs,” Stonecipher insisted with obvious frustration. “You cannot reduce the cost of a wing if you don’t know where you’re starting.”

            Asked her view, though, Deborah Hopkins disagreed. It’s one of the “myths that need to be dispelled” at Boeing, the just-installed senior vice president and finance chief contended. “There’s a natural tendency for people to say, ‘The problem here is that employees have no idea what an airplane costs,’” she allowed. But well into what she calls “a very deep dive on the issue… I’d say that [program accounting] is not the problem.”

          • @Pedro – Yes, that raised a few eyebrows. But in reality they were pretty much in synch with each other. Stonecipher was out to convert the company’s accumulated wealth into cash that could be split between the C-suite and the outside shareholders. Hopkins was fully on board with that plan.

            I certainly did not mean to imply that she did not understand exactly what was going on in the accounting. It is clear that she did. She was just very good at using the language and numbers to tell people something that would sound good to them.

            Cost allocation is always a bit of a black art, especially in a mature business. Activity Based Costing (ABC) was a revolution because it looked at idle assets very differently than traditional cost accounting did. Hopkins came in just as that transformation in thinking was occurring, and she was up to date on it. Harry was not, but I wouldn’t fault him too much for that. A whole lot of experienced people at that time didn’t understand what ABC was about.

            This sort of thing happens in every field when there is a significant new insight or discovery, it’s just that these things happen a little less frequently in finance than they do in something like the sciences or engineering. The big new insight in finance over the past five or six years is MMT, which in my experience, both its loudest proponents and detractors get completely wrong, mostly because the new insights provided by the theory or model about how central banks work gets confused with policy options that it creates.

            It can take quite a while for a revolutionary insight in any field to get to where it is understood in the mainstream and properly talked about. That was the whole point of what Thomas Kuhn was saying in his famous book “The Structure of Scientific Revolutions.”

          • @UWE, Division by zero is one of those things in math that gets really strange. Think of a graph of the results of dividing a number by every smaller fractions. In effect, the graph is saying that division by zero is one kind of infinity (the kind where the numbers are very large). But, you can pass right through that infinity and move into negative numbers. Again the curve is a mirror image of the tone we drew using positive fractions, but this time everything is negative. That’s weird enough, but if you think about that curve some more, it is moving from an infinitely large negative number to ever smaller ones. OK, now that we have the two parts of this curve, let’s think about motion along it from the point of view of RONA that goes negative.

            In the instant one passes zero and emerges on the negative side, the shareholder’s debt to the company is near infinite. As the losses (uncollectable shareholder debt to the company) mounts, the disaster rapidly falls away from the infinite, and becomes more meaningful.

            Division by zero as a concept on this mirror image pair of curves in motion is like a hole in both real and rational numbers. Thus we have a kind of proof based on the results that they have produced that the GE trained leadership of Boeing is experienced in being both unreal and irrational. I rather like that. It’s just so fitting.

  9. The share price used to be main factor in board and top management annual bonus payments. Assume from current incumbents’ policies that is still the case. In which case forget any notion of selling stock (which would sharply depress stock price of course).
    And ditto too to any hope of Boeing going back to its olden day engineering first habits. They can’t even torque bolts correctly for God’s sake.

    • Golden age ?

      It was a mess when the MDD merger occurred . They had to halt production for a whole month soon after to ‘re-engineer’ their whole production systems.

      And some previous programs had terrible introductions because of design problems
      “In 1965, three Boeing 727-100 passenger jets crashed in less than three months in the United States while coming into land, killing a total of 131 people”
      But that was an era of blaming the pilots first rather than the designers so it wasnt grounded

  10. Very good summary of the buyback issue, which now seems the biggest threat to the future of US commercial aviation.
    The article ended with the suggestion that Boeing pay down debt by selling those repurchased shares….and posed the question of whether or not Boeing execs will refuse to do this out of fear the negative impact on share price.
    The author already knows the answer to this question: YES!!!!!
    The thought of Calhoun and friends ever seriously considering this is comical…it would be doing the precise opposite of their training and management history…..

    • Agreed.

      So who’s the brave soul who’s going to ask Calhoun that ugly question?

  11. This argument would make sense if we were talking about managing an investment portfolio. Boeing is (or was) running a business selling complex heavily engineered products in a demanding industry with formidable competitors.

    Staying competitive requires a capable and effective workforce, investment in plant and equipment, innovation and product development, and long-term vision.

    Harry Stonecipher once said that if you can’t make high margins, you should get out of the business. He had no long-term commitment to products, workers, suppliers, or customers.

    In its shift to shareholder value, Boeing diverted significant resources from its products, sacrificed its high-performance problem-solving culture, and mismanaged every program under the new business culture at a direct cost in the many tens of billions, and with the indirect costs of brand damage and burning the bridge to competence behind it.

    I could almost imagine a comparable strategy for managing a portfolio through a series of short-term decisions, but it is a poor choice for managing a business that requires frequent large investments and long-term relationships.

  12. Good commentary followed by what started as a good discussion. It may have degraded a bit after that. Ignoring that for a moment, what’s missing from the analysis and discussion?

    When a company purchases its own shares the journal entry is quite simple. It’s a debit to the common stock and retained earnings equity accounts, and a credit to cash. The split between the two equity accounts occurs because it is typically the case in these transactions for each share’s respective share of the balance of the common stock account to significantly exceed what was on the books as the respective value, which is the initial proceeds from the stock sale adjusted for any stock transactions that have occurred over the many decades since then. By whacking the retained earnings section, that results in a balance sheet loss to be spread across the remaining shares. Appropriately, the income statement will show this loss (decapitalization) below the line since it is not a valuation adjustment from operations.

    Ok, so capital has been pulled out of the business at the expense of the equity associated with the remaining shares, is that a fair way to think about it? Maybe. That depends on what was happening in company operations in the same period in which it occurred. If the hit to equity is offset by period earnings, the net change in shareholder equity will be zero. If period earnings exceeded the buyback excess over original stock sale proceeds, then total equity still goes up. So here we are a decade later and the first question to be asked in evaluating the wisdom of the buybacks is did the equity at least remain neutral? The answer in the case of Boeing is ‘no.’ In fact, the company has no stockholder equity and the only reason that the corporation hasn’t been dissolved and restructured under the bankruptcy laws is due to the ugly realities of corporate chartering law in the state of Delaware. It’s a discussion for another day, but Delaware is basically in the business of assisting miscreants in their efforts to hide their assets and transactions while remaining anonymous. One of the primary businesses generating income for that state is the facilitation illicit banking, and companies like Boeing suffer the consequences of that business. That’s been pointed out before on this forum.

    The second question deals with opportunity costs. Did the reduction in capital take away from the company’s ability to invest in either its future or address any threats to its continued existence? In other words, was the state of Boeing’s existing resources, products and services healthy? To quote Jack Swigert: “OK, Houston … we’ve had a problem here.”

    • ‘So here we are a decade later and the first question to be asked in evaluating the wisdom of the buybacks is did the equity at least remain neutral? ‘

      It’s not about the wisdom of buybacks.

      Analytically, they were made when they shouldn’t have been. I don’t think you’ll get much argument on that point. The article isn’t a pro-buybacks, let’s do more.

      Simply, the shares were bought, you can’t go back and change that. What are they worth and what can be done with them? What SHOULD be done with them?

      • That’s a fair question, but it goes straight back to the obscene corporate chartering scam that the state of Delaware is running, which came about because Ben Franklin had enough of a hot potato on his hands trying to get the delegates to the constitutional convention to come up with a set of compromises on representation, legislative, and executive powers. Adding in a bunch of language to establish a foundation for business law would have made getting the country started an impossibility. Even as it was, it barely got off the ground.

        So what should happen is almost irrelevant because the legal framework to get to a good “should” does not exist in American business law. A better question would be along the lines of what’s the best possible course of action? The answer to that depends on how one racks and stacks various values and not everyone is going to agree on that.

        The stuff that matters to the stockholders are almost perfectly at odds with the things that matter to the country. You get to choose what your values are and then your preferences flow from that. Mine are clear. Screw the stockholders. They enabled this mess with their proxy votes, so let them take it in the shorts.

        • It’s not about what matters to the country and as for the stockholders, those who benefitted when the buybacks were made, took their gains. Those who held on, caveat emptor.

          I guess the point is that there is a solution to the debt mess. It would also put the company on firmer ground. Mgmt also wouldn’t look like total idiots doing it, because they could point to the gains as outlined above and the need to make some tough choices.

  13. Boeing seems to have a debt-load that is unsustainable in the long-term and might need to raise cash to pay it off. Selling back some or all of their own shares to the market will have a diluting effect for the shareholder, but so will the alternative of raising cash through a share issue.

  14. Fundamentally both buybacks and dividend are a way of returning cash to shareholders. Buybacks while a more complex mechanism have tax advantages over dividends. Companies would use buy backs much less if it were not for those the tax advantage buybacks have over dividends.

    I’ll note that the Inflation Reduction Act of 2022 imposed a new 1 percent excise tax on buybacks which eats into this advantage.

    • Yes. Thats good news about the tax on share buybacks.
      Boeing is a good example of when the 2500 Wall St institutional investors have 60% of your stock you are going to reward them in the way the shareholders want. Either that or they will replace the board with people who do.

      I always remember a sports team coach analogy. ” If you listen to the fans on how to run the team then its time to sit with the fans”

  15. To gain an understanding of how BA got into this mess, I recommend the book “The Man Who Broke Capitalism: How Jack Welch Gutted The Heartland and Crushed the Soul of America” written by David Gelles.

    • Welch is not the Boogey Man. GE was a leader in almost every market it competed in back in the day. Its when his underlings took over everything went to pot.

      • @williams – sorry, but you couldn’t be more wrong about that. You should read the book @Bob recommended, or try “Lights Out: Pride, Delusion, and the Fall of General Electric” by Gryta and Mann. They flagrantly violated a bunch of accounting and disclosure rules in several of their divisions and worked hard to hide what they were doing.

    • Institutional ownership is almost exclusively as compenents of ETFs issued by the institutions in question. By definition, there’s a BA component in every Dow 30, S&P 500 and/or NASDAQ 100 ETF.

  16. Theres a major error in the artciles claim that the 4-5 largest shareholders have 60% of the stock
    ‘Boeing buying their shares and the Vanguard Group, Blackrock & Newport Trust – who combined hold about 62% of all outstanding shares?’
    Actual numbers are
    Vanguard 7.4%
    Blackrock 5.9%
    Newport 5.8%
    Total is around 19% ( this is 2020 but only smallish change since then)

    The error seems to be lumping the total of institutional type shareholders, of which there might be 1000s, as only 3 largest.

    • Yahoo finance has a list of the top 10 institutions , thats more recent Dec 22, and confirms the above . They also say there are 2500 institutional shareholders who collectively have 60%, which confirms what I said.
      The 9th & 10th largest holders are Morgan Stanley and Capital Global who have around 1.3-1.4% each .

      It might be around 40% of shares held by top 10 holders who own shares in their own right or mutual funds they control.

      This is why Boeing – owned by the shareholders- does it shareholder compensation programs to suit Wall St , rather than wishfull thinking from non stockholders as reflected by many comments
      Of course they are hurt the most when the company doesnt perform, so dont cry for them

  17. Keesje

    “…the market showed a clear A350 preference as 777 replacement…

    …But they managed to blind the willing stake holders with rosy outlooks, historical evidence, proud market capitalization figures, free cashflow and .. a soaring stock price…”

    That doesn’t make sense. Shareholders don’t mess with the money that they want to invest. Your comment is surreal.

    They want robust and innovative long-term products for continued gains. Let’s just say that your analysis is quite wrong.

    The A350 struggled to sell while the 777 was commercially a smash hit. Add to that the 787 which was simply phenomenal, the 737NG and the 767F Freighter which sold well,

    Boeing executives didn’t need to blind what whatever.
    Lol, you’re not in a thriller movie…

    I just can’t buy into these kinds of baseless comments.

    • ..I would add that the 777-300ER/-200LR/-Freighter were launched in the 2000s like the A350. I’m not saying that the A350 sells badly but currently, and for almost 18 years, it has sold almost as much as the 777LR program (2000/2006). In addition, we cannot compare the 777-300ER size vs A350-900 which is a proxy 777-200ER / proxy 787 size…

      In sum, BCA’s portfolio in the 2000s and 2010s was robust


      • not a valid comparison in ‘launched’
        The 777-300ER/LR/F were launched as heavyweight *variant* of the existing 200/300 line , and then into service a few years after.
        The A350 didnt come into service till 2015 or so as a completely new model after a long development process- as you would expect for a carbon fibre plane.

  18. I look into the accounting treatment of reissuance of treasury stock, for example:
    -> When a reporting entity reissues treasury stock at an amount greater (less) than it paid to repurchase the shares (based on its policy such as average cost, FIFO, LIFO, or specific identification), it realizes a gain (loss) on the reissuance of the shares. *This gain or loss should be recognized in shareholders’ equity, not net income*. A gain on the reissuance of treasury shares should be credited to additional paid-in capital. A loss on the reissuance of treasury shares may be debited to additional paid-in capital to the extent previous net gains from sales or retirements of the same class of stock are included in additional paid-in capital. Any losses in excess of that amount should be charged to retained earnings.

    I don’t believe there’s any impact on tax as any gain/loses is recognised in shareholders’ equity, not income.

    • So it all depends on what the mechanism of reissuance is. Your example assumes that it is being sold in an arm’s length transaction. In that situation, you are exactly right. However, as often as not (or perhaps more often) reissued treasury stock is being used in compensation packages where there is no arm’s length transaction. Often it just gets transferred sideways into a treasury stock reserve account that isn’t even on the balance sheet, but shows up in the footnotes (if at all) in the form of RSUs that vest over time.

      This gets into some funny accounting pretty quickly if M&A activity complicates things. Reserve accounts in the equity section of a balance sheet are not liabilities in the strictest sense of the term. They can be committed and feel like an asset that is due in the future to the person who has been “awarded” them, but they can be zeroed out in several ways, and the person who “lost” them has no recourse since they were not actual instruments of debt. I’ve experienced that one first hand when I accepted some RSUs in payment for a consulting gig with a startup that sold out instead of going public. Oh well … come see, come saw.

  19. BA’s magic black box program accounting has inflated its profit by $26.1 billion from 2011 to 2015:

    BCA profits (losses) / Unit cost accounting / Program accounting ($ in millions)
    2011 2,217 / 3,495 inflated by 1,278
    2012 (3,716) / 4,711 inflated by 8,427
    2013 (1,582) / 5,795 inflated by 7,377
    2014 (122) / 6,411 inflated by 6,533
    2015 2,669 / 5,157 inflated by 2,488

    BA pre-tax income (program accounting) / inflated by program accounting / under unit cost accounting ($ in millions)
    2011 5,393 (inflated by 1,278) 4,115
    2012 5,910 (inflated by 8,427) (2,517)
    2013 6,232 (inflated by 7,377) (1,145)
    2014 7,137 (inflated by 6,533) 604
    2015 7,155 (inflated by 2,488) 4,667

  20. It was in 1982 that the Securities and Exchange Commission passed rule 10b-18, which created a legal process for buybacks. Before that it was against the law for a company to buy its own stock and for good reason; it is a form of stock market manipulation, insider dealing.
    The executives of a company are usually incentivised to pursue this path prejudicing the interests is the shareholder by the exchange of liquidity (the property of the shareholder) for a more risky asset, the share. The shareholder doesn’t get to participate in this decision.

    Stock buy backs are not a sign of undervalued shares but of over valued management.

  21. I totally agree. Prior to the buy-back nonsense, it was still possible for management to intervene to adjust the actively traded price of a stock by doing splits and reverse splits. Sometimes an adjustment is required to the total authorized number of shares as stipulated in the corporate charter, but this is not that difficult to process.

    Splits are usually done when the trading price is rising, making it easier for the holder to sell a little and still hang in for future growth. Reverse splits can be a good idea if a risk of going into the pinks is building. There can be strength in fewer numbers if enough of those folks are still believers.

    Splits and reverse splits also impact shares that have been authorized but not issued.

    • RTF,

      Had a look where Debbie Hopkins went to school. You anywhere near the 23?

      • The Wikipedia article on her education is incomplete, so I don’t know if you saw the whole thing. Maybe she dropped it from her bio. Anyway, she got an MBA from Western Michigan sometime around 1979. She used to describe it by the college’s name (Haworth College of Business), not the university’s. This was about the time they started moving into new digs on the west campus, vacating the east campus buildings which were mostly torn down as vacated. I left Kalamazoo and moved to Seattle in 1978. I spent most of my first five years here as an auditor, mostly doing tax and computer related audits. I joined Boeing to work on setting up local area PC networks on the ICBM program in 1983, and stayed doing various program and systems integration activities. My first nine years were on defense programs, then five years in the advanced research and technology organization, then seven in commercial airplanes, and then my last 11 working on systems integration projects across the whole corporation.

          • Ah, well I don’t think I know anyone north of A2. I know a few people in the Manchester area, but other than that, most of my Michigan friends are in the areas around Detroit, Kalamazoo, and Traverse City. Plus, I moved to the Northwest in 78, so most of those connections are a it old at this point.

  22. Q1 Results are out:

    Another losing quarter.


    Interest and debt expense (649) (637)

    Global Services is the only division in the black. Both BCA and Defense are losing money.

    Cash and cash equivalents $10,812 $14,614
    Short-term and other investments 3,955 2,606

    Cash/Investments are down.

    Short-term debt and current portion of long-term debt 7,926 5,190
    Long-term debt 47,465 51,811

    Paid down debt, looks like.

    • They paid down $1.6 B in debt.
      Cash burn was $3.8B.
      BCA made the expected loss of $615M — it’s becoming a predictable pattern.
      The EPS loss (1$1.27) was worse than analyst consensus (-$1.07).

      No doubt, LNA will be posting a separate article on these results.

      • Yah, what I also find interesting is this:

        ‘Still expect to deliver 400-450 737 airplanes in 2023’

        Lemme take off my socks and shoes….130 aircraft (Q1 deliveries) times 4 quarters = 520 aircraft. 400 to 450 Max’s gives us a range of 70 to 120 wide bodies. Out of the 130 Q1 deliveries, 113 were Max’s and 17 were WB’s.

        Four times 113 = 452. Exactly their guidance.

        So unless they really up the amount of WB’s they deliver, the 130 mark looks to be rinse/repeat for the whole year.

        2023 will be another unprofitable year.

        • Deliveries in April to date:
          BA: 18 MAX + 5 787 + 1 777F + 1 767F = 25
          BA: 38 A320/321 + 2 A220 + 1 A330 + 1 A350 = 42.

          I somehow don’t think that BA will find it easy to hit the targeted delivery numbers…

          • @ Frank
            I got my numbers this morning from Planespotters.
            Perhaps the data only included the -100…I’ll check again.

          • @ Frank
            When I re-check Planespotters now, I get 3 A220 deliveries for April.

    • Here’s an interesting calculation.

      First, let’s convert BCA’s loss of $615B into a crude EBIT avatar, by adding back on the $649M paid in loan interest. That yields a positive “EBIT” of $34M, which was generated from deliveries of 130 aircraft. The revenue from the same deliveries was $6.704B. This yields:
      – Revenue of $51.5M per plane.
      – “EBIT” of $261.6k per plane.
      – Earnings *loss* of $4.73M per plane.

      Now, let’s take Airbus’s 2022 revenue (€41.428B) and earnings (€4.800B) from 661 commercial aircraft deliveries and we get:
      – Revenue of €62.67M per plane ($68.94M).
      – Earnings of €7.26M per plane ($7.99M).

      Proof of what I’ve been saying about unsustainable pricing.

      In Q1, about 35% of BA’s deliveries came from inventory — and we know that those have deliveries small / zero / negative unit margins. This effect should diminish as inventory clears — but we’ll then see the effect of over-discounting on recent sales. The pot will merely be replaced by the kettle.



  23. DoU’s comments are difficult to parse (intentionally so)?), but
    his claim seems to be that Airbus has been buying back their
    own shares on a scale similar to what Boeing did until (roughly) the MAX debacle. This should be fairly easy to verify- if it
    were happening. An obscuring conflation of the two companies’
    actions, it seems to me.


  24. Dukeofurl

    …”The A350 didnt come into service till 2015 or so as a completely new model after a long development process- as you would expect for a carbon fibre plane…”

    This is why BCA’s portfolio was more robust for shareholders. This does not contradict my statement…

  25. I normally try to stay out of the the AB vs. BA parts of these discussions. Both companies have huge problems, mostly self inflicted. Maybe the biggest difference is that from what I can see, AB’s self inflicted wounds seem to stem almost entirely from issues of competence and egos, while Boeing’s adds malicious decapitalization to those two.

    The details of how ego and incompetence get in the way of performance are different in both companies. For whatever reason, the leadership selection process in both companies tend to select people with huge ego problems, and rewards them accordingly. Now in some cases, an outsized ego, if well managed, can be turned into an asset. I think Scott makes a pretty good case for this as it applies to John Leahy in his book. But, in engineering, manufacturing process design, and daily management, it seems to always get in the way.

    I mention this here, because setting up a production line for large composite structures is not something new. Both companies have people who know how to do it and do it in such a way that the products coming off the line are of a consistent high quality. What makes it difficult in practice are things like stupidity in high level budget management, project status reporting, and basically an inability to tell the truth as a matter of daily routine. For whatever reason, there is a tendency to promote managers in both companies who are more focused on looking good than on doing good, and as a result they achieve neither. In my view, Boeing seems to suffer from this particular ailment more seriously than AB, while before the merger I think it was the other way around.

    • Looking into the future, you think Boeing will actually develop a new commercial plane next decade as suggested by Calhoun?
      Barring some drastic change in the C-suites, I see the commitment to returning all cash flow to the shareholders rendering this unlikely.

  26. This is a multi-faceted question. Part of it starts with definitions. What’s a new plane? If all that is meant is that will the company try to do an update to one of its existing offerings such that full recertification is required, then probably yes – meaning I expect it to try. Will it behave like the old Boeing and offer something that new that redefines the market? That is currently impossible without drastically changing the leadership, the controlling investment community (i.e. the proxy voting behavior), the operational culture, and a dramatic recapitalization of the company to inject it with a huge shift to the right of its normal distribution curve of talent. I don’t see any of that happening without taking the shareholders to zero, the government seizing what’s left, and then putting someone equivalent to an Alan Mulally or T Wilson in charge. The Boeing Company that showed true aviation leadership no long exists and has not existed for over two decades.

    On the question of doing an update to an existing product that requires total recertification (e.g. replacing the 737 with an all composite plane on a taller gear), the company does not currently have the leadership talent or culture to be able to do that successfully. There is one primary reason, and that is they incentivize routinely lying about the status of even the smallest things in the current culture. The leadership rewards glad-handing talent and punishes truth telling. Those two cultural attributes would have to be flushed out to have a chance at doing a new plane and doing it successfully (on schedule, within 200% of initially projected cost), meets market needs on day one with no groundings for airworthiness bulletins in its first five years, and none ever that keep the fleet on the ground more than 24 hours.

    • Good answer! Especially the part about the systemic lying…Seems this comes right from the top. The GE-McDonnell management philosophy seems to report only what your audience wants to hear.
      Back on the 787 development program when Stonecipher refused to approve sending legions of Boeing engineers to interface with suppliers per original development plan, was there a risk assessment of this? Seems like management must have known that this action cut the chance of successful program execution significantly. Then as it became obvious to everyone on the program that the schedule would have to slide significantly, did management report this with openess and honesty? Or did they sugarcoat the delay reporting only a short 6 mo slide, then 6 mo later another 6 mo slide, etc.
      I think of the 787 development often, because it’s our only example of a clean sheet program by the post merger McDonnell-Boeing.

  27. @John Thanks.

    I think Harry had a very high level of confidence based on his GE experience, that an industrial company with products that have a very long lifecycle can be stripped of its capital while using unethical accounting methods to make it look wildly profitable, and get away with this for a long time before anyone on the street figures out just how badly they have been had. Even when they do start to figure it out, the stock will be hugely over inflated, and the greater fool theory of investing will take over to stretch things out even further. GE did as much in both their turbine generator and locomotive businesses.

    The key is the accounting. I once took an advanced accounting class from John Burke, the founder and head of the department of accountancy at Western Michigan U. I can remember his ethics lecture like it was yesterday (it was sometime around 1974). He started with a story.

    One day after closing was nearly complete, the CEO asked the controller into his office to ask how they had done in the previous year. “What do the numbers look like?” was his question. The controller got all nervous, got up and closed the door and drew the shades. Then he asked: “What do you want them to be?” Professor Burke used that as the intro to his lecture on ethics.

    The thing is that a huge percentage of the dollar values presented in the financial statements are dependent upon valuations for which there are quite a few methods. The reason that multiple methods exist is that the most accurate and fair presentation will vary quite a lot depending on the nature of the business and the business environment. The right way to select a method is to figure out the one that is most suitable for the situation, and then run with it. What you don’t ever do is select a method that gets you the answer you have arbitrarily selected in advance. GE under Jack Welch had done exactly that with inventory valuation, pulling forward income from maintenance contracts that would be sold if and when some of those obsolete turbines built in advance of orders. Their accounting treatment was though the maintenance contracts themselves were some kind of high dollar inventory items. They had assets that weren’t real, and some of the ones that were real were carried at valuations for which there was no support. The books that Immelt inherited were loaded with that kind of nonsense thanks to the games being played in GE Finance, which was essentially an unregulated bank that eventually failed.

    That was the training that Stonecipher and McNerney had before coming into Boeing. It all reminds me of some of Woody Guthrie’s songs.

    The old Boeing culture was one that had several critical characteristics that made it work. At the top level the mission was to make the very best flying equipment that was humanly possible. Before the Boeing name went on it had to be not just good, but the very best possible. We made the best stuff we could and charged a fair price for it.

    To make it happen, we hired the very best talent money could buy. On a program, schedule commitments and deliverables weren’t everything, they were the only thing, the paraphrase Vince Lombardi. You met your delivery commitments or you simply didn’t work there.

    Status reporting was your chance to ask for help. When you were done pitching your progress charts, the next two layers of management above you would actually understand where the problems were and what they had to do to address any threats to the program schedule. Getting caught hiding a problem could get you fired. You made your commitments and you helped out others that were having trouble with theirs. What you did not do was manage to the budget. Rather, you reported on your estimate for your remaining cost requirements, which were termed your MEAC (management estimate at completion). Schedule and quality performance trumped al other considerations, including shifts and sleep, hence things like The Incredibles on the 747 program. When you were one a program, you pretty much knew in advance that there would occasionally be some weekends and double shifts, and they might come up without warning, which would be a hit to family commitments. But that’s what you signed on for.

    To get that kind of loyalty, commitment, and truth telling you have to treat people with an enormous amount of respect. The kind of arbitrary and inconsistent behavior that is typical of the current Boeing management team is simply intolerable if you want your people to step up and commit like that. To fix it, they need to get rid of the entire top tier of non-leadership, and put in a team that sets a very different example, and who will simply not tolerate the kind of crap that has become routine in that company.

Leave a Reply

Your email address will not be published. Required fields are marked *