• Market Crumbs

Will Boeing Become A Case Study On Sacrificing Quality For Financial Gain?

Image via HAL9001 on Unsplash

They're going to have their hands full explaining this one. Shares of Boeing, the world's largest airplane manufacturer, dropped nearly 7% on Friday following the release of internal messages which could implicate the company in misleading regulators about the safety of the 737 MAX airplane.

The messages between Boeing technical pilots revealed they knew of "egregious" issues with MCAS, the airplane's new flight control system. The system is blamed for two separate airplane crashes that killed a total of 346 people. The one pilot said MCAS is "running rampant in the sim on me" and he "basically lied to the regulators (unknowingly)" by telling the Federal Aviation Administration that MCAS was safe and didn't need to be covered in pilot manuals. Additional emails show he continued to tell the FAA that the system didn't need to be included in the manuals.

Boeing responded "We understand and regret the concern caused by the release Friday of a Nov. 15, 2016 instant message...And we especially regret the difficulties that the release of this document has presented for the U.S. Federal Aviation Administration and other regulators." Regarding the context of the messages, Boeing said they "reflected a reaction to a simulator program that was not functioning properly, and that was still undergoing testing.  We are continuing to investigate the circumstances of this exchange."

In addition to the stock cratering, the reactions to the news were obviously overwhelmingly negative. The FAA replied "The FAA finds the substance of the document concerning. The FAA is also disappointed that Boeing did not bring this document to our attention immediately upon its discovery." Peter DeFazio, chair of the House Committee on Transportation and Infrastructure, said the messages are "Shocking, but disturbingly consistent with what we’ve seen so far in our ongoing investigation of the 737 MAX." Implying the pilot may be the scapegoat, DeFazio added "I think the pressure started at the top."

This is just the latest in a long list of issues for Boeing over the 737 MAX. Earlier this year, a whistleblower revealed Boeing rejected safety upgrades to the 737 MAX that could've potentially prevented the crashes. The engineer, whose job was to study past crashes and use the information to make new planes safer, proposed to managers and senior executives various safety upgrades to the MAX that were denied on the basis of schedule and cost.

This wasn't isolated though. Another report revealed an engineer whose job was to act on behalf of the FAA refused demands from Boeing's management for lax testing of the fire-suppression system. The Seattle Times found many engineers "faced heavy pressure from Boeing managers to limit safety analysis and testing so the company could meet its schedule and keep down costs."

Friday may end up being a turning point. Up until now, Boeing's stock has largely weathered the storm. Despite being down 23% from its high, shares of Boeing are still up 2.5% since the first 737 MAX crash on October 29, 2018. Since 2013, Boeing retired a net 200 million shares through repurchases, helping its stock gain more than 400%. Boeing has since suspended its stock repurchase program in light of the 737 MAX issues.

Boeing cut costs and sacrificed quality while continuing to spend billions on buybacks. The irony of this whole situation is the shares they repurchased could begin to look increasingly expensive if the stock continues to fall.

Leftover Crumbs

  • It's not if, but when. With many troubling signs brewing, it appears a recession is inevitable. According to a recent survey, 40% of Americans are not prepared for a recession to hit in the next six to twelve months. At the extremes of the survey, only 19% of respondents said they are "very prepared" while 16% saying they are "not at all prepared." The most common answer, by 41% of respondents, is being "somewhat prepared." Spending less, saving more money for emergencies and paying down credit card debt were the most popular answers for how respondents are preparing for a recession.

  • That wasn't the initial plan. Facebook, which has seen its Libra cryptocurrency initiative lose support, is now open to using cryptocurrencies based on national currencies rather than its own synthetic one. David Marcus, who oversees the Libra project, said "We could do it differently. Instead of having a synthetic unit ... we could have a series of stablecoins, a dollar stablecoin, a euro stablecoin, a sterling pound stable coin, etc." Marcus said this is not the preferred method, but the company must be agile to achieve its "mission." Facebook still hopes to launch Libra in June 2020, but Marcus acknowledged that may not be possible due to regulatory setbacks that are "not entirely up to us."

  • Assuming a sales tax of 6%, you could buy roughly 3.3 billion cans of black beans with that much money. Goya Foods, the largest Hispanic-owned food company in the U.S., is reportedly nearing a deal to sell a majority stake to The Carlyle Group. Goya, known for foods such as rice, beans and olives, would be valued at roughly $3.5 billion in the deal. Robert Unanue, who is part of the founding family, demanded he remain CEO and that Carlyle doesn't burden the company with too much debt, to which they obliged. 

  • Well, there goes that plan. Former WeWork CEO Adam Neumann reportedly told employees earlier this year he envisioned his family running WeWork "maybe in 100 years, maybe in 300 years." In the speech to employees from January, he also said WeWork isn’t "just controlled — we’re generationally controlled." This is hardly surprising, though, as Neumann also once said he wanted to live forever, be king of the world and become the world's first trillionaire.

  • Is there a bubble in TV streaming rights? South Park, the hit cartoon that isn't afraid to say what everyone is thinking, is the latest TV show to hit the auction block. The streaming rights for the show, which just began its 23rd season, are reportedly going to cost the winning bidder between $450 million and $500 million. Netflix and Apple, due to the show being banned in China, have reportedly dropped out of the bidding process. South Park is set to follow in the footsteps of "Friends," "The Office," "The Big Bang Theory" and "Seinfeld" in landing huge streaming deals this year.