Memo from Beijing?

If you must play, decide upon three things at the start: the rules of the game, the stakes, and the quitting time. -Chinese Proverb 

Challenges are multiplying - for markets; for trade negotiations, and now it seems realistic concerns about 'why' the United States reacted (partially as a result of 'missing' Iranian weapons transfer activity) swiftly to 'reports' of a rise in shipments and 'threatening activity' in the Middle East.  

First of all this matters, and has now been extensively leaked by the British Press, and caused the Foreign Minister to reverse his General's quiescent stance, and point-out they now see what Iran was doing. Worrisome in that is the revelation that the Quds Force (really Iran's terror paramilitary) head, summoned terrorist groups from all over (including operating in Iraq) to meet with instructions to prepare for a 'proxy war' (asymmetric attacks) aimed at their 'regional adversaries and America'.  

    (Virtually no basic change overall from last night's assessments.) 

                                                      ~ 

This meeting apparently was 3 weeks ago; and would thus 'predate' what a lot of folks (myself included to a degree) worried was John Bolton's leaning too heavily on ramping-up force presence in the region. Now that we know it was 'not premature', we can say with greater conviction it was justified; but of course that doesn't mean Bolton isn't (at times) a bit hot-headed (we all remember his participation to convince Bush of Saddam's WMD that never existed; and we all know it was more the Saudi's or even Pakistani's, that attacked the United States on 9-11; there were zero Iraqi's or Persians that I recall; even though they are all quasi-police state or theocratic countries.

In any event; now that we know about the meeting and plans to mobilize the various tribal-like militias throughout the region; plus moving rockets or arms that neither U.S., Saudi, or Israeli intelligence picked-up at the time; there's an acceptable (and necessary) logic to the rapid deployment of Forces. And it's why the U.K. not totally endorses the U.S. posturing; totally reversing the more restrained initial reaction (and not because Washington simply asked); as it's the British who actually uncovered this (at least that we saw today). I address it in more detail in the 2nd video this weekend).  

Speaking of the weekend, and not just shareholder interest, or our belief in Boeing longer-term (and historically) with respect to design, commitment to the flying public and military; it is advisable that Boeing and other learn lots from how the Company dropped-the-ball, not so much in 'spin' testimony in Washington (clearly trying to mitigate forthcoming litigation); but the delays in correcting a problem they knew about (that's basic to flight safety and is why pilots are hopping mad about it).  

I realize mainstream media mentioned the 'recorded calls', but they didn't go into details about 'why' Boeing always refers to 'software design' and still no remarks about 'flight dynamics requiring a software fix'; nor do that ever talk about why analog instruments (those external sensors) needed in this digital age. It's the weekend; you know this roller-coaster market generally (that's including vacillations by China on trade talks as well as lowering barriers on trade with the EU on autos for now, and also Canadian steel & aluminum); so let's share a bit of reading from the 'Seattle Times' about Boeing:

In his opening statement Wednesday at the House Aviation subcommittee hearing on the 737 MAX in Washington, the lead Republican congressman blamed errors by the Indonesian and Ethiopian pilots for the two deadly MAX crashes in those countries.

"Pilots trained in the United States would have successfully been able to handle" the emergencies on both jets, said Rep. Sam Graves of Missouri, ranking member of the House Transportation and Infrastructure Committee. He added that preliminary reports about the accident "compound my concerns about quality training standards in other countries."

Graves was repeating the main points in a report written by two pilots at a major U.S. airline that pointed to pilot error as "the most consequential factor" in both crashes. Their report was commissioned and paid for by institutional investors with large holdings in Boeing stock.

That case for pilot error as the major cause of the crashes seems close to a surrogate for what Boeing has only hinted at, and may be a key part of the manufacturer's legal defense in liability lawsuits.  

read more 

Now the preceding can be debated as to whether there's a 'smoking gun' of course; but my purpose is just to enlighten flyers (presuming most of us) at least a bit more about actual issues beyond mainstream media (Seattle's reporter is an old aviation hand); and liabilities Boeing likely faces of course.  

Here's how CBS put it:

CBS News has obtained audio from the American Airlines pilots' union confronting Boeing about new features to the 737 Max that may have been factors in two deadly crashes. Frustration boiled over during the tense meeting in November 2018, less than a month after the first Max crashed, and four months before the second crash.

"We flat out deserve to know what is on our airplanes," one pilot is heard saying. "I don't disagree," a Boeing official said.

The pilots at the meeting were angry that system was not disclosed to them until after the first crash. "These guys didn't even know the damn system was on the airplane - nor did anybody else," one pilot said.

The official, Boeing vice president Mike Sinnett, who does not appear to know he was being recorded, 'claimed' what happened to Lion Air was once-in-a-lifetime type scenario.

Boeing told the pilots it would make software changes, perhaps in as little as six weeks, but didn't want to hurry it. "We want to make sure we're fixing the right things," the official said. "That's the important thing. To make sure we're fixing the right things. We don't want to rush and do a crappy job of fixing the right things, and we also don't want to fix the wrong things." 

That fix was still in development when the second 737 Max crashed in March, leading to the worldwide grounding of the plane. Existence of the audio was first reported by the Dallas Morning News.  

In-sum: tensions on the tape relate to the Middle East and oscillating (and thus tricky to trade) swings related to China's on-and-off negotiating stance.

My sharing of the CBS and Seattle Times reports are to expand awareness of the 737 Max situation, without drawing judgement about Boeing's future performance. It's a stock that I'd prefer avoiding for now; and suggested in a related way, the China 'might' use a desire to avoid 737 Max aircraft going forward, by making them seem to be a 'pawn' in the negotiating process. I'd already mentioned 'if' a huge deal with Airbus is signed; that hints at it. By the way the pilots who were not identified in media stories, apparently met with Boeing and perhaps separately with the FAA in a private meeting that was held in Ft. Worth. (Think in terms of DFW, and American Airlines.)  

Sure, it's not our function to assess difficulties to prove criminal negligence, or wrongful death lawsuits. But we do suspect some airlines will be dragged into litigation not yet filed (regardless of current certification issues). Boeing might counter-sue likely cancelled contracts (airlines will want to avoid any option or order forfeit charges), as Boeing will claim the planes are fit to fly (whether they are or not, or will be if they go to digital from analog, we're not trying to opine on). We do suggest this can and will drag on for years.  

Bottom line: the trade focus may have shifted briefly from China to Europe and then to Mexico and Canada; with mutual removal of tariffs and so on. It is a significant ceasefire in North America and should move USMCA (that I call NAFTA 2.0) considerably forward. It's not coincidental and I already did suggest we needed to see progress given the politics on a global basis.  

Trade deals with Canada & Mexico add pressures on China; suggesting that momentum for the US and multilateral ties with our neighbors and the EU are favorable; so in some ways that strengthens our position with respect to China. That's also a reason I have speculated about a possible bilateral U.K./U.S. 'deal', and that might be the case even-if Boris Johnson were to be Prime Minister by the time Trump gets to London :). Speaking of a topic I just sense we'll be discussing next month.  

There is an expectation of things moving faster; clearing the decks ahead of Presidents Trump & Xi meeting on the G20 sidelines next month. Yes this had to happen to get USMCA passed; but it really matters. So does delay of auto tariffs on Europe; as believed behind this week's rally more than China. It makes USMCA passage likely and will help with China. The China ball is in their court now, so to speak. Recriminations of 'what if' aren't needed.