Market Mad House

In individuals, insanity is rare; but in groups, parties, nations and epochs, it is the rule. Friedrich Nietzsche

The Death Spiral

How Much Money is Boeing Losing?

The Boeing Company (NYSE: BA) is losing enormous amounts of money. For example, Boeing reported a quarterly operating loss of -$8.049 billion on 31 December 2020.

Similarly, Boeing (BA) reported a negative gross profit of -$5.678 billion on the same day. Moreover, Boeing reported a quarterly negative operating cash flow of -$4.009 billion and a quarterly ending cash flow of -$2.812 billion on 31 December 2020.

Boeing faces enormous losses because of the collapse of air travel and technical problems with some of the company’s signature products. The air-travel collapse is the greatest threat to Boeing, which manufactures the world’s most popular airliners.

Passenger Air Travel is Dead

The COVID-19 pandemic has devastated air travel. For instance, Cirium estimates 43 airlines failed between January and October 2020, CNBC reports.

Frighteningly, Global Air Travel and demand for Boeing’s planes, will not return to pre-COVID-10 levels until 2024, The International Air Transportation Association (IATA) estimates. The IATA estimates air travel fell by 55% in 2020.

The number of revenue passenger kilometers (RPK) airlines flew fell by 86.5% between June 2019 and June 2020, the IATA claims. Slow virus containment, reduced corporate travel, and weak consumer demand will keep air travel rates low.

The IATA estimates that 2021 air travel could rise by 62% in 2021, if they contain coronavirus. However, RPK is down by over 86.3% in the North American air travel market, 96.5% in Africa, 95.5% in the Middle East, and 93.7% in Europe.

Overall, the IATA estimates airlines’ RPK fell by 86.5% between June 2019 and June 2020. Therefore, many airlines will lack the money to buy new airliners for a long-time. Hence, passenger air travel is dead and could stay dead for years to come.

Can Boeing Survive?

Given these conditions, I think Boeing (BA) will need to change its business to survive.

First, Boeing could spin its commercial aircraft and space technology businesses off into separate companies. In particular, Boeing could launch its space technology business as an independent company.

Boeing’s space track record is questionable because of problems with its CST-100 Starliner space capsule. While SpaceX’s Crew Dragon hauls astronauts to the International Space Station (ISS), the Starliner crashes because of software problems.

Boeing Needs to Spin its Space Technology Company Off

Consequently, Boeing (BA) is now third in the US commercial space race behind Elon Musk’s SpaceX and Jeff Bezos’ Blue Origin. However, I think a standalone Boeing Space Technology could attract enormous amounts of investment.

For instance, Business Insider claims SpaceX’s valuation could be $60 to $92 billion. A Boeing Space valuation could be higher because of the company’s history and relationship with NASA. Another way Boeing Space could attract investment is to hold an initial public offering (IPO).

Space technology is hot now because of all the publicity Blue Origin and SpaceX are generating. For example, Blue Origin is part of a National Team building NASA’s next generation moon lander.Blue Origin’s partners are Boeing’s competitors Lockheed Martin (LMT) and Northrop Grumman (NOC).

Furthermore, I think another smart move could be to break Boeing up into three companies. The companies could be Space, Commercial Aviation, and Defense.

Can Air Cargo Save Boeing from Doom?

Of the three I commercial aviation could be the most lucrative and space the most valuable. To explain, Space can attract the investments while commercial aviation will profit from an explosion in air cargo.

Cargo planes transport over $6 trillion worth of goods a year, the IATA estimates. IATA estimates air cargo accounts for 35% of world trade by value. In particular, cargo planes haul billion parcels and 328 billion letters a year.

In contrast to passenger travel, the IATA forecasts that air cargo revenues will grow by 8% in 2020. Meanwhile, the Centre for Aviation (CAPA) estimates that air passenger revenues fell by 61% in 2020.

Notably, revenues for some air cargo companies are exploding. The CAPA estimates that China Airlines’ cargo revenues grew by 15.3% between May 2019 and May 2020. Plus, EVA Air’s cargo revenues grew by 161% in the same period.

Air Cargo May Not Save Boeing

Unfortunately, CAPA analysts note “although air cargo is proving more robust than the passenger side of the business, it will not be enough for the world airline industry to avoid a record loss in 2020.”

I think the cost of converting passenger airliners to cargo planes will add to that loss. However, I predict the demand for cargo planes will grow.

For example, Amazon (AMZN) plans to purchase 11 Boeing 767-300 planes , the BBC reports. Amazon Air will use the planes to haul Amazon packages. DePaul University forecasts that Amazon Air’s fleet will grow 70 planes in 2021 and 200 planes by 2028. Amazon Air had 41 planes in May 2020, DePaul’s Chaddick Institute for Metropolitan Development estimates.*

On the other hand, rebuilt airliners could serve Amazon’s needs, which could lower demand for new aircraft and hurt Boeing.

Boeing Burns Enormous Amounts of Cash

Boeing (BA) is already in trouble because it is burning through enormous amounts of cash.

For instance, Boeing experienced six straight quarters of negative operating cash flow between 30 September 2019 and 31 December 2020, Stockrow reports. Boeing began 2020 with a negative quarterly operating cash flow of -$2.22 billion on 31 December 2019 and -$4.009 billion on 31 December 2020.

Similarly, Boeing reported negative quarterly ending cash flows of -$9.428 billion and -$2.81 billion on 30 June and  September June 2020. However, Boeing reported a quarterly ending cash flow of $15.039 billion on 31 March 2020.

Boeing is borrowing enormous amounts of money

Predictably, Boeing is borrowing enormous amounts of money. For instance, Boeing reported a quarterly financing cash flow of $22.462 billion on 30 June 2020, that quarterly financing cash flow grew from $10.28 billion on 31 March 2020.

Conversely, the quarterly financing cash flow fell to -$468 million on 30 September 2020 and rose to $2.681 billion on 31 December 2020. Thus I estimate Boeing had a $35.84 billion financing cash flow in 2020, hence, it borrowed $35.84 billion.

As a result, Boeing’s long-term debt grew from $19.962 billion on 31 December 2019 to $61.89 billion on 31 December 2020. Boeing now faces a mountain of debt it will trouble paying.

I think Boeing’s management will have to sell assets, break the company up, or declare bankruptcy to survive. I believe one of those courses of action is inevitable because I think Boeing cannot pay off the debt.

What Value Does Boeing Offer?

Boeing (NYSE: BA) has some value despite the mountain of debt. For instance, the company had $25.59 billion in cash and short-term investments on 31 December 2020.

Additionally, Boeing had $152.136 billion in Total Assets on 31 December 2020. In 2020, Boeing’s Total Assets grew from $133.625 billion on 31 December 2019.

I think Boeing has no margin of safety because its revenue and revenue growth is shrinking. For example, Stockrow estimates Boeing’s revenue growth has shrunk by double digit margins for six straight quarters.

In particular, Boeing’s revenue growth shrank by -36.8% in the quarter ending on 31 December 2019, before COVID-19. The revenue growth shrank by -4.56% in the quarter ending on 31 December 2020.

Boeing’s quarterly revenues fell from $19.98 billion on 30 September 2019 to $15.304 billion on 30 September 2020. Thus, Boeing’s quarterly revenues fell by $4.676 billion in 15 months. I predict the shrinkage will continue.

Boeing is a terrible stock

I think Boeing Co (NYSE: BA) is a terrible stock Mr. Market grossly overvalued at $195.84 a share on 1 February 2021.

I cannot see how a company with $61.89 billion in long-term debt that lost -$8.049 billion in the last quarter can be worth $195.84 a share. Predictably, Boeing’s shares have lost enormous value over the last year.

For instance, Boeing was worth $318.27 on 31 January 2020. Thus, Boeing lost over one third of its share value in 2020. If that trend continues in 2021, Boeing could be worth under $100 in 2022.

In the final analysis, I think investors need to avoid Boeing because I cannot see how this company can survive in its present form.