I’m writing about Boeing (BA) not because I have some major position in the name (I don’t, I have a small put spread and am short the equity slightly), but because I find it interesting the way the stock has traded over the last week after news of the China Eastern Airlines Corp. Boeing Co. 737-800 NG.
That plane is the predecessor to the company's 737 MAX and, has one of the best safety records of all aircraft, retired pilot and Aero Consulting Experts CEO Russ Aimer, told Fox. Currently, there are still “several hundred” of this plane in service globally.
As almost everybody knows at this point, the jet plunged from about 30,000 feet, nearly straight down and killed 132 people on board. The first of two black boxes has just been recovered, but we still know little about what caused the crash. As Fox notes, “it could be weeks or months” before we get any color on what caused Monday’s crash.
"The data recorder records just about everything that happens in that aircraft. All the position of the flight controls, the altitude, speed, everything technical that happens in that airplane," Aimer said. So there’s little doubt that the black boxes will help
Maybe it’s just because I recently watched Downfall: The Case Against Boeing - a documentary that I would encourage all of you to watch [Netflix link is here] for a detailed look on the absolutely gross incompetence that went into the 737-MAX and, in my opinion, directly cost hundreds of Boeing passenger lives. I knew the 737-MAX was a scandal, but the documentary opened my eyes as to just how horrifying the incompetence and negligence really was.
And so while Boeing’s stock slipped about 8% pre-market on Monday, it then recovered nearly all of its losses and is slated to finish the week down less than 1%. In other words, the market thinks that, relatively to Boeing’s price to close out last week prior to this incident, there is no material risk potentially coming down the pipe from this recent crash.
I hope this is the case, to be honest, and that the market has it right. When I first heard the details of this crash, I immediately thought about the unfortunate circumstances of a pilot bringing down a flight on purpose - there’s little other explanation for such a horrifying drop directly out of the sky.
But, I also think that, in the rare chance this is some type of mechanical failure a la the MCAS system in the 737-MAX planes, it could literally be the end of Boeing as a company (at least for how its current equity). I do not think the company’s reputation can survive another scandal like the 737-MAX one and I believe the company’s equity would crumble under $100 per share in the (unlikely) chance that this crash was mechanical.
While I concede that this crash is likely not mechanical, I can’t say that I think the market is handicapping that chance appropriately. The stock trading barely lower than it was prior to the crash says the market thinks there’s zero chance Boeing had any negligence. After watching Downfall: The Case Against Boeing, I simply can’t help but think that this may not be the case - especially if the designs and builds of this 737 model took place at the company during the same period of trying to find “cost efficiencies” by any means possible.
I want to point out Boeing because the market is saying “nothing is wrong” and that the outcome has already been determined. While the market is likely right, as far as a Boeing negligence standpoint is concerned, it is not yet a certainty. In fact, we have almost no additional information today than we did on Monday. This leads me to wonder why the initial risk priced into Boeing’s stock on Monday (or at least a larger portion of it) hasn’t carried on through the week.
In addition to risk directly involving this crash, there are also risks that this crash could worsen a rift between Boeing and China and even between China and the U.S. China has already weaponized the crash as an excuse for anti-American rhetoric, as Bloomberg pointed out on Thursday:
But it didn’t take long for mistrust between the two sides to flare. Shortly after the crash, Assistant Foreign Minister Hua Chunying accused U.S. Secretary of State Antony Blinken of “spreading lies about ‘genocide’” when China was dealing with the immediate tragedy. “How callous!” she said on Twitter, in apparent reference to a speech Blinken gave in which he listed China and Russia among the countries selling weapons to aid Myanmar’s crackdown on the Rohingya minority group.
It is also possible that the U.S. (and potentially Boeing) is excluded from a Chinese investigation, which could then “concluded”, ostensibly, whatever the Chinese government wants:
In a worst-case scenario, U.S. participants in the China Eastern probe could be excluded from key elements of the investigation, such as full access to data and audio from the black boxes. The probe has, in part, become a test of China’s commitment to aviation safety, an area it’s improved significantly on over the past two decades.
Boeing has said its travel to China has been “limited by visa and Covid quarantine requirements.”
The NTSB stated this week: “We are working with the Department of State to address those issues with the Chinese government before any travel will be determined.”
But are they considering this incident with the serious implications it may carry for Boeing? Are shareholders, only pricing the stock 1% lower? George Ferguson, a defense and aerospace analyst with Bloomberg Intelligence said this week: “How [Boeing is] perceived around the globe is at stake.”
There may also be implications for getting the 737-MAX back in the air in China as a result of this crash.
The risks to being short Boeing are numerous and I do not recommend trading this or trying to trade it: it’s a staple stock that has survived the unthinkable, it will likely rally past where it was if Boeing is cleared of wrongdoing, and it’s a a company that’s been around more than 100 years and has become a staple in its industry and nearly a subsidiary of the U.S. government. Even if it does wind up running into catastrophe, the brand and company would likely survive under a new equity structure. It’s today’s equity that I’m concerning myself with.
And while I’m likely incorrect in assuming that negligence on the part of Boeing will be proven, I still think the stock is pricing it incorrectly and still think everyone should watch Downfall: The Case Against Boeing, before giving the company the benefit of the doubt.
Here’s an additional podcast discussion about the Boeing documentary:
Disclaimer: I have a BA put spread and am short some equity. This is not a recommendation to buy or sell any stocks or securities. I own or will own all names I mentioned or linked to in this piece. I often lose money on positions I trade/invest in. I may add any name mentioned in this article and sell any name mentioned in this piece at any time, without further warning. None of this is a solicitation to buy or sell securities. These positions can change immediately as soon as I publish this, with or without notice. You are on your own. Do not make decisions based on my blog. I exist on the fringe. The publisher does not guarantee the accuracy or completeness of the information provided in this page. These are not the opinions of any of my employers, partners, or associates. I get shit wrong a lot.
There is another possibility for the crash. I was an aircraft mechanic back in the day when the FAA allowed Chinese repair stations to open, authorized to work on US registered transport category planes. Smaller carriers jumped on this to cut the cost of maintenance. When the Chinese were done with them, we got them. We needed to do proper maintenance and fix everything they had screwed up. I also was a supervisor at a facility and had terrible Chinese mechanics assigned to me. I had to watch their every move. Later, when I was teaching aircraft mechanics at a college in AZ the Chinese tried to send all the students we would take, we did not accept. Our programs were for the taxpayers of AZ. I think shoddy maintenance is also a probable cause.
Ben Hunt: https://www.epsilontheory.com/shot-and-chaser/
I will give another possibility: China is at war with the US.
Boeing is the the most important company the USA. It is the largest industrial exporter. It may be the largest military contractor. The company's prestige is perhaps the largest contributor to US industrial and military prestige.
China has been struggling to get its airline manufacturing business going. It even makes large parts of the 737 for Boeing who does this under duress for Chinese sales.
At the very least this incident in China of all places in the world is a propaganda factory. At worst it is Chinese direct action. The US China war in the Pacific is heating up a lot. A lot.
You be the judge. Facts are facts.
There’s a video going around that supposedly shows the aircraft already in plunge when a piece comes off. So far they only referenced finding “a piece” that came off. Not definitive as it could have been loosened beforehand, but at least it seemed to come off after the plane was already headed down. Been long BA since low $200s. The general thesis is that it’s so beaten down from $350-$400s due to the scandal and delivery/service delays, that it would take a lot to go much lower. This plane line has been in service awhile and it’s unlikely (thought not impossible) that there wouldn’t have been other issues by now. Add in the fact that a lot of people forget it’s also a defense stock(secret space surveillance, helicopters, drones, fighters) and right now I think eventual upside is more likely. Thanks for the link to the doc, hadn’t seen it, I think you’re right that any claim of fault could result in a sentiment turn near term, I just think Pentagon support wouldn’t let it collapse too far. Plus it’s really just them and Airbus for ability to fill big orders…
I would guess that if this is pilot error or suicide, China will not allow anyone to have access to info and will blame unspecified mechanical failure. In which case, there is no real proof and BA stock survives relatively unscathed. However if this is some type of 737 MAX type flaw/malfunction, then China will make sure everyone has access to the data and BA stock may be in significant trouble. Third possibility would be China trying to fabricate some data indicating a mechanical flaw, but I would think NTSB and Boeing could decipher through the propaganda and get the real story out there. Regardless, large passenger jets don’t just plunge 30,000 feet into the ground for not reason. Crashes from that altitude usually mean some catastrophic system failure or pilot suicide.
The Seattle Times aerospace reporter, Dominic Gates, has an article in today's edition (3/25) that discusses problems with obtaining FAA certification for the 737 MAX 10 by the end of 2022. The date is critical because a special exemption from a safety regulation granted by Congress expires on December 31, 2022. Serious delays plague many programs at Boeing: 787, 777X, MAX 10, Starlifter, KC-46. Revenue streams from Boeing Defense (F-15, H-47, T-7A, P-8, missiles) are the only sure thing going forward. The order books there are full and getting fuller every week. Is it enough to keep BA afloat? I don't know.
(Bulk of linked article is paywalled.)
Boeing created such engineering marvels like the 747 and then what happened? They bought McDonnell Douglas and literally the MCD mgmt took over Boeing. The engineers were pushed out and this is what we have - an aircraft company that is more concerned with bottom line than our lives!
Let's not forget that Boeing is part of the MIC and they get preferential treatment from the government which does not help. How the FAA allowed the 737 MAX to be approved by Boeing themselves is criminal.
Plane crashes are usually a combination of bad maintenance and bad pilots. I was a AF pilots and have friends who held jobs such as Boeing test pilot and training foreign pilots. The reason companies like Boeing make their aircraft so automated is that pilots from second and third world countries are not very good pilots. They depend on the autopilot to do it's job and don't have the skills to handle real emergencies.
As an ex airline pilot who has flown Boeing 737‘s, Airbus A320 and Boeing 747s‘, one prior crash that MIGHT (!) be relevant COULD (!) be the the Japan Air Lines flight JL123 flight in 1985 where the rear pressure bulkhead failed. Some more background info: https://en.wikipedia.org/wiki/Japan_Air_Lines_Flight_123#Investigation
Of course other problems such as pilot suicide like happened with the SilkAir B737 and the GermanWings A320 cant be ruled out either, but without access to vital things like maintenance records, flight data recorders, pilot psychological profiles etcetera, it‘s almost impossible to assess. It‘s always hilarious how the ‘whørenalists’ and “markets“ can always so quickly jump to conclusions.
The video shows the plane heading straight down. Isn't this clear evidence of suicide? No expert here but I've never seen a plane go down like that.
The NTSB should come up with a ratio for each airline that takes all outboard incidents resulting in loss of life or injury to those flying divided by number of flights x 100 to give us a per cent comparison. Airlines are very secretive about their safety performance. If we can easily look up how safe a car is we should be able to consult a table that shows the safety record of every airline. Does this exist already ? If so, not well known...........Most people know a Saab is a very safe car. How many could tell you which is the safest American or European airline ? As for the communists, corruption is endemic. It is no surprise at all to learn that, for example, Russian fighter pilots get less than 80 hours air time on a new SU before they can engage. The average for American pilots flying the latest jets is nearer 200+, I am told. Everything in a communist state is tainted by corruption due to low pay. It is endemic. You'd have to be nuts to fly a communist maintained jet if you can avoid it. My first, and last, adventure on Aeroflot was 40 years ago flying to Australia via 6 countries on a bucket shop deal. It was a hoot but terrifying. The queue to loo was all along the corridor on a packed flight whose air hostesses served only prune juice, a well known laxative. Oliver.
you got that right my friend, I do not fly anymore, and aviation maintenance was my life work, I was an FAA Designated Mechanics Examiner and had my Inspector Authorization. Things are bad now and I can't believe how lucky we have been that there aren't more tragedies. Don't just blame Boeing, the FAA is why they get away with the BS.
Every time I get on a plane I consider the act of flying a slight miracle. The control systems, the mechanical systems, the emergency systems are all designed with uber redundancy and safety in mind. And yet, mathematically speaking, there is always a probability albeit small that systems will fail catastrophically. Even is so acquit the systems, the people are the wild card. As someone has said earlier, maintenance and mechanics are a key reason many of our planes don’t fall out of the sky. Maybe someone forgot to tighten the aileron or left a tool in the turbine shaft. Again, our lives are in the hands of other seemingly well intended people that make mistakes. May the families of the victims of this crash be comforted. Oh, as for Boeing, yes the 737-MAX story speaks for itself. IMHO, the company lost all public trust with that fiasco; that means full liquidation to right the ship. Safety should always come first before profitability. ￼
With new info out now that a piece of the plane was found 5 mi away and the fact that no distress call went out I am starting to suspect an explosion, possibly a bomb.
It might be helpful to know who was on the plane...
A couple/few years ago on the heels of some other Boeing bad news, the guy that taught me options trading (an engineering colleague at a DOD contractor) had some advice for me.
I thought and said, "looks like Boeing is gonna take a bath! good time for some bullish option trades?"
He told me that, nope, don't bet against Boeing because they're a DOD prime contractor. Their stock won't ever take too bad of a beating.
And this is from the same guy that told me that it's absolutely, positively *impossible* for the market to be manipulated.
So, naturally, I didn't believe him and lost money on bullish Boeing options trades! 😁