Why Boeing’s Dreamliner 787 Is a Nightmare
By Shlomo Maital
Yup, Boeing, one of America’s leading industrial exporters, is in trouble – again.
In 2011 it introduced the fuel-saving Dreamliner, a truly great and comfortable aircraft — but Boeing is still not making money on it. Normally, the learning curve lowers production costs dramatically, moving new planes into profitability. Why not the Dreamliner, which is a great airplane?
Reading between the lines in Christopher Drew’s New York Times article:
Boeing has not yet ramped up production to 12 a month. There are delays in supply of seats from a French supplier, Zodiac Aerospace.
But buried in the article is the real zinger: “Boeing has an aggressive stock repurchasing program; it spent $2.5 billion to buy back 17 million of its shares in the first quarter.”
Had Boeing used that cash to boost its production rate, and help Zodiac get those seats delivered, it could have moved down the learning curve faster. Instead it buckled to shareholder pressure and distributed the money instead of re-investing it.
I never give advice on the stock market. But here is one exception: Never invest in shares of a company that spends money to buy back its own shares. The reason: It proves the company knuckles under to shareholder pressure (bad sign), and proves the company has no other imagination or vision for using scarce resources.
And one more tip: Beware of the accounting numbers. Boeing apparently can book profits computed according to “average projected cost” (using the learning curve) rather than the actual cost of planes at the moment. This is highly dubious. And Boeing has used this method for ages. Where are the audit board and the auditors?