Buy-the-Dip, No. 79: Boeing: Another Great Investment Opportunity

Boeing is another great opportunity in our series: Buy-the-Dip.

Trading at a small multiple of just under 50, this is a stock that'll be going places just as soon as Boeing gets its 737MAX certified to go places [re-certified, that is], as the following interview with CEO, David Calhoun, reveals.

CNBC: You believe in this airplane? Calhoun: Absolutely, absolutely ... CNBC: Why should people have confidence in the [737]MAX? Calhoun: If we didn't believe we were going to field an airplane that was safer than the safest demonstrated airplane that's out there today, we wouldn't do it. So says the accountant with no expertise in engineering, let alone aviation, but the author of the CD album "Day Drinkin'".

Seems like Calhoun must have had a few before the interview.

Anyone who knows anything about the problems with the 737MAX knows it's a fundamentally flawed aircraft, being inherently unstable and requiring a computer-controlled stabilization mechanism to keep it in level flight.

So even if the totally crap stabilization mechanism (MCAS, maneuvering characteristics Augmentation System, which is bullshit for Anti-Stall System or ASS) worked with total reliability, which it totally didn't, the plane would be vastly inferior in fundamental safety to any of a multitude of planes already out there.

Related:
CanSpeccy: Boeing: Building Planes Designed by Clowns Supervised By Monkeys

Boeing Corporation's Board of Directors and the Anticipation of Aviation Disasters

The English novelist and aviation engineer, Nevil Shute, wrote two books about air disasters. The first, his 1948 novel, No Highway, centered on the crash of a newly introduced British airliner, the Reindeer, a crash attributed to pilot error until an obscure aviation engineering researcher concluded, and ultimately proved, that structural failure due to metal fatigue was the cause. The story eerily foreshadowed two 1954 crashes of the deHavilland airliner named the Comet (after Santa's Reindeer?) due to structural failure.

Shute's second air disaster story comprised a major portion of his autobiography, Slide Rule, and concerned Britain's government-sponsored entry into airship aviation. Two ships were commissioned by the government, the R100 which was built by a subsidiary of the engineering firm Vickers-Armstrong, the other, the R101, constructed by the British Air Ministry. Shute, was the chief stress engineer and, in the final stages of construction, chief engineer, of the R100 project.

The R100 closely complied with the design specs and completed a successful round-trip flight from England to Canada in June, 1930. Shortly thereafter, the greatly overweight, Government-built R101 crashed and burned near Beauvais, France on the first night of its maiden voyage from England to India. The disaster led the Government to terminate the airships program and the successful, private-sector R100 was broken up.

Comparing the two programs, Shute concluded that the bureaucrats overseeing the Air Ministry program lacked the motivation necessary to make the tough decisions required to ensure that the R101 was developed and put into service in a prudent fashion. In contrast, Shute argued, a private company such as built the R100 has a board of directors who not only have a large financial stake in the viability of the business, but deep knowledge of the industry in which the business operates and hence the judgement necessary to ensure that the business is conducted in a prudent fashion.

But today, Shute's assumptions as to the competence and the financial commitment of the directors of a large company such as Boeing seem no longer valid. The only Boeing Board member with advanced engineering experience is Dennis A. Muilenburg, who has the titles of President, Chairman, and CEO. Muilenburg holds a BS in Aerospace Engineering and an MS in Aeronautics and Astronautics.

The rest of the talent appears to be in anything but aviation engineering:

Robert E. Bradway, BS Biol.;

D.L. Calhoun, BS Accounting;

A.D. Collins, Jr., who holds an MBA and is author of Childrens' book series: Adventures of Archibald and the Jackabeb;

K. Duberstein, Chief of Staff to President Reagan, graduate in Law;

Admiral E.P. Giambastiani, Jr., a graduate in Law, with good credentials in submarine handling;

 Lynn J. Good, a graduate in Systems Analysis and Accounting;

Larry Kellner, a former airline exec. with a degree in Accounting;

Caroline Kennedy, daughter of JFK, former US ambassador, and a lawyer;

Ronald A. Williams, a management consultant;

Mike Zafirovski, a Jack Welch protegé at GE and a swimming scholar at Edinboro U, (discipline? swimming perhaps);

and last but by no means least, Nikki Hailey, currently a board member nominee, who's done just about everything, from being a US Congresswoman, (former) Canadian, state governor, and most recently, Trump's ambassador to the UN.

That's a team I'd trust to do a cover-up of the 737MAX's inherent instability and the inept effort to fix it.

But who want's to risk their life as a passenger on a plane built by those guys?

Related:
Boeing Didn't Tell Southwest Or FAA That It Had Disabled Critical Safety Alerts On 737 MAXHow Boeing might represent the greatest indictment of 21st-century capitalism

Boeing, Going, Gone?

Concerning Boeing's crash-prone 737MAX airplane, a commenter at the Unz Review states:

@Erebus: ‘…what I find astonishing is that Boeing engineers specified, designed, tested, and then implemented a system (MCAS) that overrides all other controls and systems, including the pilot’s, but is itself so fault intolerant that in case of malfunction in a single component would fly the airplane into the ground unless disabled. How is that possible in a company as engineering intense as Boeing? That Boeing then compounded the mis-engineering by keeping it secret moves it beyond astonishing and into criminal territory. That the FAA then certified it amounts to dereliction of its duty to the public. Head’s should roll all ’round.’…

Most of what is known in answer to the question how such craziness occurred is stated with clarity in a response in the same discussion thread:

@FB: These questions are the crux of the matter…and answers are emerging… Flawed analysis, failed oversight: How Boeing, FAA certified the suspect 737 MAX flight control system This is a tremendous piece of journalism published yesterday in the Seattle Times and reveals that concerned Boeing engineers and FAA officials spoke to the Times BEFORE the Ethiopian crash occurred…and what they revealed pulls back the curtain on a truly astonishing level of what can only be called corruption… Here are the main points… 1. Boeing effectively browbeat the FAA into the letting the company sign off on crucial safety issues, instead of FAA officials 2. The extent to which the MCAS system is able to control the airplane is four times as much as what the FAA and airline customers were led to believe 3. The FAA allowed Boeing to sign off on using only a single AOA sensor to feed the MCAS system, based on faulty and unrealistic risk assumptions of something going wrong So we have both Boeing and FAA insiders now stepping forward to whistle-blow…in fact this Seattle Times story was in the works long before the Ethiopian crash, and both the Boeing and the FAA were provided with copies of the story and the opportunity to respond before publication…in the meantime the second 737 MAX crashed… and much more

And here (thanks to FB at Unz Review) a comment from the Moon of Alabama on how Wall Street made Boeing turn bad.

Boeing shares could yet have a long way to fall: like to zero?

Related: 
Zero Hedge: Boeing's Problem Is Not Software
Zero Hedge: Boeing Tumbles On Grand Jury Subpoena Probing 737 MAX Approval
Zero Hedge: Boeing Slides As BEA Confirms "Clear Similarities" In 737 Crashes, Ethiopian Air Freezes Orders

What's Wrong With Boeing's 737MAX Airliner?

Moon of Alabama provides a good summary of what is now believed to be the reason Boeing's 737MAX airliner is crash prone.

Four factors seem to be responsible.

Suboptimal design:

In 2010 Airbus decided to offer its A-320 with a New Engine Option (NEO) which uses less fuel. To counter the Airbus move Boeing had to follow up. The 737 would also get new engines for a more efficient flight and longer range. The new engines on the 737 MAX are bigger and needed to be placed a bit different than on the older version. That again changed the flight characteristics of the plane by giving it a nose up attitude.

The plane is low slung for easy access to the baggage hold, but with larger engine nacelles it was necessary to raise the top of the nacelles above the leading edge of the wing, thereby creating additional lift. Thus, whereas, in most aircraft, if the pilot takes his hand off the stick, the plane will continue in level flight, the 737MAX is inherently unstable and tends to go nose up, leading to a stall.

Deceptive marketing:

The new flight characteristic of the 737 MAX would have require a retraining of the pilots. But Boeing's marketing people had told their customers all along that the 737 MAX would not require extensive new training. Instead of expensive simulator training for the new type, experienced 737 pilots would only have to read some documentation about the changes between the old and the new versions. To make that viable, Boeing's engineers used a little trick. They added a "maneuver characteristics augmentation system" (MCAS) that pitches the nose of the plane down if a sensor detects a too high angle of attack that might lead to a stall. That made the flight characteristic of the new 737 version similar to the old one.

By calling the automated anti-stall system (ASS) the "Maneuver Characteristics Augmentation System" (MCAS) deliberately or otherwise deflected attention from the vital importance of that system.

A poorly designed engineering solution to the plane's inherent instability:

The 737 MAX has two flight control computers. Each is connected to only one of the two angle of attack sensors. During a flight only one of two computer runs the MCAS control. If it detects a too high angle of attack it trims the horizontal stabilizer down for some 10 seconds. It then waits for 5 seconds and reads the sensor again. If the sensor continues to show a too high angle of attack it again trims the stabilizer to pitch the plane's nose done. MCSA is independent of the autopilot. It is even active in manual flight. There is a procedure to deactivate it but it takes some time. One of the angle of attack sensors on the Indonesian flight was faulty. Unfortunately it was the one connected to the computer that ran the MCAS on that flight. Shortly after take off the sensor signaled a too high angle of attack even as the plane was flying in a normal climb. The MCAS engaged and put the planes nose down. The pilots reacted by disabling the autopilot and pulling the control stick back. The MCAS engaged again pitching the plane further down. The pilots again pulled the stick. This happened some 12 times in a row before the plane crashed into the sea. To implement a security relevant automatism that depends on only one sensor is extremely bad design. To have a flight control automatism engaged even when the pilot flies manually is also a bad choice. But the real criminality was that Boeing hid the feature.

Concealment of a Fundamental System Vulnerability:

With seeming insanity, Boeing failed to inform pilots of how the "solution" to the plane's tendency to stall worked, or might fail to work, or if necessary, might be shut off to allow the aircraft to be flown manually:

Neither the airlines that bought the planes nor the pilots who flew it were told about MCAS. They did not know that it exists. They were not aware of an automatic system that controlled the stabilizer even when the autopilot was off. They had no idea how it could be deactivated.

Boeing's best way forward would appear to be the resignation of the entire board of directors and their replacement by responsible people with relevant qualifications. Likewise, the top guys at the Federal Aviation Administration which was responsible for giving the plane a certificate of airworthiness should, but won't, go now.

Related: 
CanSpeccy:
Way to Go: Foundering Boeing Corp. Replaces Aeronautical Engineer With Real Estate Developer as CEO
FAA’s close ties to Boeing questioned after 2 deadly crashesPiece Found At Ethiopian Airlines Crash Site Shows Jet Was Set To DiveNew Satellite Network Offers Clues Into Boeing 737 Max CrashesSomething was extraordinarily wrong: Doomed Boing Swung Up and Down Hundreds of Feet

Boeing 737 Max 8 pilots in U.S. complained about suspected safety flaw