If you have flown on a plane or gone by the airport to watch planes fly from the airport, you eventually determine the airlines were using 2 manufacturers of planes – Boeing and Airbus. The world of commercial aircraft is a duopoly and that allows investors in Boeing to be very confident airlines will buy their planes. In the last 3 years, Boeing has had a problem with their planes – first it was the Max 737, although that problem has been fixed and planes are coming off the assembly line and being sold. The other plane is the 787 which has some structural repairs and face further regulatory inspections.
In the world of airplanes, similar to many other manufacturing industry, the government has regulatory agencies to determine if the plane is safe and once given approval, the public accepts and happily goes flying. Generally things have to be very serious before the regulatory bodies say no, however in the last couple years saying no is heard loud and clear.
In an article by Uday Sampath Kumar and Eric M Johnson of Reuters, Boeing announced its 4th quarter results in late January and stated it incurred $4.5 billion charges on the 787 program. To become positive cash flow Boeing plans to increase production of the 737 and 777.
Reports suggest the 787 program will be stalled for months as US regulators review repairs and inspections over structural flaws in the jets. Often after the US regulatory agency has approved other countries will rely on their work and approvals will be easier to come by.
David Calhoun, the CEO of Boeing, noted the company is working to build stability and predictability going forward. Production with remain at 5 jets a month and soon will be able to sell to Chinese airlines.
The issue with the 787 is Boeing switched to carbon composite structures that make the jet lighter and cheaper to fly for the airlines, however there are tiny gaps barely visible to the naked eye which have resulted. Boeing is using ultrasound devices and tools to find the gaps.
The good news for shareholders is the 737 Max is producing 26 planes a month up from 19 and they are selling. Boeing is trying to reach 31 planes a month.
Linking to dividend paying stocks, all manufacturing companies produced goods but a flaw or bad manufacturing which makes the company redo means cash flow will take time in the months to fix. Regulatory bodies do not operate under the same pressures and time frames as public companies, they take time to do their thing. As members of the public, that is what you expect and desire – the regulatory agencies to take their time and when they say it is safe, the public can use the product. If one of your companies has a issue in their manufacturing process, a good strategy is to move to another alternative company and if desired buy it when it has solved the issue and sales return.
There are more questions than answers, till the next time – to raising questions.