The nation’s newspapers are awash in allegations of improprieties at the Boeing Company. Airbus is displacing Boeing as the world’s leading producer of airliners. And several of the company’s biggest space programs are facing cost overruns and schedule delays. So Boeing’s stock price has taken a beating, right?
Wrong. It’s been going up since March, even as the drumbeat of criticism in Washington grew louder and louder. In fact, it’s up nearly 50% in just eight months. Those are the sorts of results that make people rich, and the share price is likely to continue increasing. If that seems counter-intuitive to you, then it’s time to put down your newspaper and consider the possibility that too much reading will impair your plans to retire early.
The truth of the matter is that Boeing’s business outlook is better than good — it’s great. And the fact that you can’t get that from reading newspaper coverage about the company is just the latest evidence that the fourth estate is out of touch with the mainstream of American culture. That culture is profoundly entrepreneurial in character. It cares more about making money than moral righteousness. And by the standards of a market-driven culture, almost everything that “disgraced” Boeing CEO Phil Condit did on his watch made sense.
Consider losing the commercial airliner race to Airbus, Exhibit “A” in most journalists’ case against Condit. Condit figured out years ago that the only way to stay ahead in the race would be to make huge investments in a new family of airliners. The scale of required investments would have depressed profitability for a decade, after which the company would earn mediocre returns competing head-to-head with Airbus for every order. What investor would find that story compelling?
Condit decided instead to get much bigger in the domestic defense business, where Boeing would be largely protected from foreign competition. Only one problem — to get big at a fast enough rate to compensate for the falloff in airliner business, he would have to bid very aggressively against other defense companies. So he did, with stunning success. Just one of the military programs Boeing won outside its traditional markets has a potential long-term value of $90 billion.
Bidding aggressively hurt Boeing’s reputation and led to cost overruns. But if you’re an investor, what matters is that Boeing won. Condit leaves the company with a huge backlog of defense business, just as demand for airliners is about to surge with a recovering economy. As for the tanker deal, Boeing long ago bought out the only other domestic producer of large aircraft, so the Pentagon’s options are either to buy from Boeing or from the French. Guess which source Congress is likely to favor.
If this path to business success makes you uncomfortable, then maybe you should invest in newspaper stocks rather than Boeing. But don’t give up your day job.
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