“From an outside investor’s point of view, Boeing is kind of like a fallen angel. They will come back one day, but that will take time and new leadership,” Sabourin says. “It’s a manufacturing chain process which takes time, and all the suppliers, checks, adjustments, and control will take years to get right. In the meantime, you will have flight cancellations, order cancellations, some of their clients will sue them over missed deliveries. We still have a few quarters of negative announcements ahead. One day it will become a really clever value play, but right now I will let the new management take over.”
Sabourin explains that in an effort to become more shareholder friendly, Boeing cut costs to deeply and spun off too many of their businesses, which has compromised the quality of their engineering. The 2005 decision to spin off some of their manufacturing and servicing operations as Spirit Aerosystems has come to dilute much of Boeing’s engineering and manufacturing capabilities. That decision, and others like it, has contributed to the company’s current issues, such that Boeing has announced plans to re-acquire Spirit at what is likely to be significant cost, largely involving debt financing.
Boeing has not turned an annual profit since 2018. It is lagging behind Airbus in the delivery of orders and it has reduced factory output to tackle its quality issues. Airbus is in a net cash position while Boeing is now adding on debt.
That is much of why Sabourin is cautioning against a buy the dip approach as of now. Even though Boeing retains its biggest customer in the United States military, the preponderance of their business is in commercial airplane sales and that business is struggling. Reputational harm from accidents or setbacks are all the more acute in airplanes, Sabourin adds. A tech company or even a car company can botch a product and recover relatively quickly, but there’s something about airplane issues that make consumers keenly aware and afraid. When the new leadership team at Boeing is named, they will have to build back from that significant reputational damage.
Sabourin expects that the new CEO will come from Airbus, the only other company that builds jets of the scale and size that Boeing does. He is watching for the culture that comes with the leadership change and the decisions made around ongoing engineering, manufacturing, and delivery issues. In the short-term he expects Airbus to take more market share from Boeing, becoming almost more like a monopoly than the current duopoly. Over time that should give Boeing the opportunity to outcompete, but Sabourin cautions against declaring the rebirth of Boeing too early.
