Boeing/Now Is A Good Time To Buy It
1998 was not a good year for BA. Previously a darling of the
Street, BA fell from grace and with it, CEO Mr. Condit. We
expect a management change to happen sometime this year.
Mr. Stonecipher, the leftover CEO from McDonnell, is the No. 2
man right now and we expect him to be cashiered with Mr.
Condit. It's time for a change and it should be good for Boeing.
Despite what you hear right now, things are not all that
bad...here's what we see that is good about BA.
***Despite 1998, BA is still 'the" aircraft maker in the world.
The No. 2 competitor, AirBus, is a long second away. AirBus
has never made a profit, is government subsidized, and is far
behind BA in the free markets.
***Despite the bad year just completed, BA still has an A+
financial rating. On revenues of close to $60B this year, there
is about 6.5B in debt and around $3B in cash and securities. BA
could pay off their debt with the cash and this year's cash
flow...that's impressive.
***Right now there are a bit fewer than 1 billion shares
outstanding. BA has announced a significant stock buy back
will take place over the next few years...about 15% of BA
shares will be retired...that will help earnings and increase
your share (if you buy BA) of the pie.
***We see a bright future for the aviation business. Remember
back in the 60's when most of us had not flown in a plane?
Now, we all have. Such is the way we see the rest of the world
right now...most people that live overseas have not (yet)
flown...they will...in that live overseas have not (yet)
flown...they will, in the coming years. We believe that BA will
be the primary beneficiary of the coming aviation boom we see
happening in the next 25 years.
A Look At Boeing
Boeing is the largest commercial aircraft builder in the
world...about 60% of the market. BA is also a significant
builder of military aircraft; fighters, helicopters, AWAC's, and
transport planes. BA is also a big player in the Space and
information area.
The 737 has been to BA what the Chevy was to GM during the
50's...indeed almost 1/2 the planes Boeing has built in the
past have been 737's. The new generation 737 is now being
delivered. It is much more efficient and should continue to get
big market share. Unlike GM and their Chevy, the 737 is still the
primary plane for most airlines. The planes with the next (most
hope) for BA would be the 767 and the 777. The 777, called the
people mover, should replace the 747 as the "big hauler" of
passengers. Carrying 480 people and being much more
fuel-efficient than the 747, we think the 777 will find a ready
market in the long haul markets...overseas, etc. The 777 will
also boast much lower maintenance costs. This long haul plane
is ideal for overseas routes. The 777 should be a worthy
replacement for the 747. We look for much expansion in global
trade, as capitalism expands. This means more trade and more
aviation flight - it's a fairly straightforward proposition. The
'middle' planes, the 757 and 767, should also do well but we
think the real gravy will be in the 777's and 737's. That should
be about 70-80% of the BA production in the coming years.
It is estimated that by the year 2017, there will be more than
17,000 commercial airplanes in use, worldwide. If BA can just
keep current market share, they should do very well. We think
they will even increase their market share. The fact is, the
French and the EU cannot carry AirBus forever.
At some point they must become profitable, or some changes
will have to be made. We have confidence in BA that they will
be able to beat AirBus in this race. The only way AirBus has
been able to hurt BA is with political pressure, and though that
can work for awhile, eventually the realities of economics
come to the top. The reality is this...BA is a profitable cash flow
cow that makes lots of money. AirBus is being carried by
government money and has never made a dime. Which one
would you be betting on?
Boeing is working hard at improving efficiencies for customers.
BA's advanced digital troubleshooting maintenance aid for
airplane's is proving very popular with existing customers.
Once BA has a customer, it is important for them to keep them
happy for future orders. In 1998, the number of airlines using
the Portable Maintenance Aid jumped from 47 to 95. The PMA
puts the complete BA library of important
information/technical data right at the mechanics fingertips.
It's all right there in the portable computer and it saves much
time in the repair room. Airlines are always looking for ways to
cut down on maintenance costs/down time, and this high tech
data/improvement is proving to be very valuable to the
airlines. The newer/updated 3.0 version that will be released
this year will include BA's leading edge, intelligent graphics
technology to assist user navigation, and also the browser
based interface. The whole system is headed toward being
more high tech. The old days of aircraft maintenance are
headed toward 'high-tech' /diagnostic times. This is pretty
interesting stuff and if you are an aviation buff, you might want
to go to www.boeing.com/digitaldata and take a look. It shows
you where the future of aviation maintenance is headed.
Commercial Aircraft Financing
BA's CAF division works with airlines, etc. on financing the
needs of established air carriers. CAF manages its own
portfolio and also sells aircraft in completed lease situations.
We think BA has been one-upped by the sharpies (GE and AIG)
in this arena, and has been too timid in their own backyard.
They have let competitors steal a very profitable niche
market...to wit the very juicy profits GE and AIG have etched
out in this area. We would hope that new BA management
would take a look at his sector for more profit potential.
Cash Flow/Moats
Warren Buffett constantly (wisely) talks about the moats he
wants to see around the business companies he buys stock in.
Who is the competition, and how easy is it to get in the
business? Look at the airline business...only two
players...Boeing and AirBus. It is very unlikely that any new
major entrants will be seen; the cost of doing it would be too
big. So, we have two. We think that if you look closely you will
agree BA has the lead. We think you will also agree that the
aviation business has super potential for the future. Right now,
BA is unpopular on the street ...that is the ideal time to
pounce, when the 'Street' is down in them. By the time they
'come-back', BA will be back in the $70 area.
Technical/What To Do Now
After the collapse of last year from the $70 area to the $30
area, BA is now building a base. We think the base is about 1/2
way built, so you should start nibbling on BA in the low $30
area. We don't see any hurry to get fully invested right here,
right now...there will likely be some more backing and filling
and we believe there is good support in the $30-32 area. We
believe Mr. Condit, the BA CEO, is in a very desperate position.
His comments a few weeks ago, worrying about BA being a
takeover target, seem more to address his job worries,
personally, than it does the reality of the situation. We think
that even in these wild times, a takeover would be unlikely.
About the only one that could handle it would be GE, and we
don't think they are interested. We also don't think Uncle Sam
would let it happen, so we think his speech about BA being a
takeover candidate is geared more toward Mr. Condits' (rather
lame) attempt to 'up' the BA price, than for any real event out
there.
It's a bedrock stock. When we are asked about scenario's...
you know...what stock would you like to own over the next 30
years...which one would you want? Well, BA would be one of
them. We believe in the future of the aviation
business/potential, and we believe in the future/potential of
the excellence of BA.
|
