Boeing Vs. Raytheon: Which One Has The Right Stuff?

I wrote one of my recent articles about Boeing (BA) back on Jan. 27 titled “Why I Won't Be Buying Boeing.” I implied but should have ended the title with the words “For Now.” I have owned the company’s shares before and, if BA fixes its problems, I will be delighted to own it once again. But for now, I will still not be buying it. After my current analysis, I find the company today, as then, “in transition.”

For the sake of the nation and Boeing’s workforce I hope the company is successful. When I wrote the article Boeing was $316 a share. It now trades at almost half that.

In that article, I was not piling on to the negative news about Boeing’s much-publicized failure to exercise quality control with the 737 MAX aircraft. That has been the subject of incredulity and disdain for more than a year. I saw no reason to state what had previously been stated.

Instead, I pointed out that Boeing’s problems go deeper than the 737 MAX fiasco. I cannot read a single issue of my Defense News without seeing some new horror with the troubled KC-46 Pegasus program. This is the Air Force’s new tanker aircraft. Our nation’s jet fighters are worthless without fuel. Our nation’s airborne tankers are in desperate need of replacement. Once stalwart Boeing is now $4.6 billion in the red for delivering a product that was declared unsafe by the US Air Force.

In fact, in addition to FOD (Foreign Object Debris) like screwdrivers, wrenches, soda cans and candy wrappers inadvertently left behind in critical components, there have been three “Category 1” deficiencies. These are what the Air Force classifies as problems “which may cause death or severe injury; may cause loss or major damage to a weapon system; critically restricts the combat readiness capabilities of the using organization; or results in a production line stoppage.”

How could such a storied company for more than 100 years fail to exercise the same brilliant engineering and uncompromising quality control that had characterized Boeing for decades?

I have probably flown in more Boeing commercial aircraft than any other person. I have traveled the world via 737, 747 (still my favorite commercial airframe), 767, 777, and, most recently 787. While in the service I flew in Boeing’s C-17, KC-135 (and RC-135) and CH-47 heavy lift helicopter. I can honestly say I never felt unsafe in any of those aircraft over many years. (Well, no more unsafe than any rational person who gets into any helicopter with any understanding of the aerodynamics and glide path of helicopters!)

In recent years, there was a changed culture at Boeing, foisted upon the company’s ingenious and accomplished engineers and dedicated workforce by management that was mostly interested in jacking up the stock price to get massive bonuses. They could instead have been fulfilling the promise and respecting the legacy of a great American company. It was Boeing, after all, that provided America and our allies the massive aerial firepower to bear on our enemies in existential battles in WWII. William Boeing would be rolling over in his grave.

Not only will many potential passengers decide to wait some time (six months? a year? more?) before flying in the 737 MAX even after it's certified, but Boeing’s management still seems tone deaf to the advice of its engineers and workforce.

For instance, they have stated they will make the $4.6 billion they are losing on the KC-46 program by selling it to other nations. I’m not so certain. If you were the Indian or French or Republic of Korea defense chief, and you have watched the US Air Force send the product back time and again to ensure it met the contractual specifications, you might just have second thoughts.

When will I once again buy Boeing?

When the new management team proves itself willing to listen to the workforce and the engineers. The new senior leadership is not part of a clean sweep, but they might just heed the problems of the recent past and be willing to make this juggernaut a powerhouse once again.

When the new management realizes they cannot afford to lose military business just at the moment new orders for civilian aircraft are in the dumps.

When the company can follow up its sales of Harpoon and SLAM-ER (Stand-Off Land Attack Missile-Expanded Response) missiles to other nations with even more such sales, in head-to-head competition with the Big Dog in missiles (see below.)

When management can refrain from buying back shares at elevated prices.

And when I can see these sorts of changes with the stock price at a reasonable price.

Meanwhile…

Raytheon Tech

I have written elsewhere that this has been a dangerous rally. I believe it still is, and yet I have been buying quality issues all along. “Danger” doesn’t mean I advocate sitting on the sidelines muttering, “It just shouldn’t be, it just shouldn’t be.” The time to fish is when the fish are running. Among my purchases for clients, there was a suggestion to subscribers that they conduct their own due diligence to see if they agreed that the “new” Raytheon (RTX) was an absolute steal the day the merger was consummated.

I also bought and advocated for others to review my favorite spin-off from the merger, Carrier Global Corp (CARR) – but that's the subject of a future article. (Both are in our model portfolio.) For now, here's what I told my subscribers about RTX:

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Disclaimer: I do not know your personal financial situation, so this is not "personalized" investment advice. I encourage you to do your own due diligence on issues I discuss to see if they ...

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