BA obviously can’t land its 2009 numbers. So when does arrogance become fraud?

Anyone who has ever flown on most any commercial airline is familiar with this scenario: Your plane is supposed to depart in the next few minutes. The big board says the flight is on time. The lady behind the counter is all smiles.

But you haven’t actually boarded or anything. In fact, as you squint out the window, you can see that there is no plane available to board, a fact that the oblivious clerk seems unable or unwilling to acknowledge.

Thirty minutes after your takeoff slot has come and gone, the ubiquitous screens that decorate the departure lounge’s walls suddenly blur, flicker and light up with the announcement that some flights may be delayed… by 10 minutes.

Airlines Crash and Burn

I’ve always wondered: Is this just wishful thinking? “Maybe pixies will make a plane appear!” Or more probably, “Maybe if we say nothing, no one will complain.”

When does arrogance and stupidity become plain and simple fraud?

This unwillingness to admit to the obvious appears to be endemic to the entire air biz. Note the recent behavior of aircraft manufacturer Boeing (BA: NYSE).

Let’s be frank – things really stink these days for the airlines. Bookings are way off, and fuel costs are rising again. As a group, shares are off some 59% over the past 12 months. I have a report on my desk noting that various U.S. and international airlines are looking to mothball some 2,302 planes this year.

Does Boeing care? Does it even deign to notice?

Naaah!

Delays? What Delays? Of Course We’ll Board on Time!

For months now, management has stood firm on previous forecasts for 2009 profits, despite Boeing’s commercial division receiving as many current “contract deferments” as there are fresh future sales. FedEx alone is talking about canceling between 15 and 30 planes. On the military side of the house, the Pentagon is canceling the LMT/BA F-22 Raptor program (at roughly $137.5 million per plane) and cutting off a good chunk of BA’s missile biz.

Faced with (as CEO Jim McNerney put it back in April) “economic times that are more difficult than many of us have ever seen,” BA dramatically hauled back on production, halving Q1 profits along the away. They have completely abandoned even the pretense of a prediction regarding 2010.

And yet they still insist the original projections for 2009 are intact. “Your flight is still on time – honest!” And you know what the most amazing part of it all is? Investors believed every word of it... for a while anyway.

Dreamliner Nightmare

In fact, it wasn’t until BA’s much ballyhooed 787 “Dreamliner” failed to fly in time for the annual Paris Air Show that folks began to wonder about the company’s veracity.

BA’s plane-of-the-future was already about two years behind schedule when top exec Scott Carson stood at the Paris podium on June 16 and promised – Scout’s honor – that the beast would see its maiden flight June 30. Over the course of that two-year delay, BA’s share price lost some 70%.

Now to be fair, that loss parallels the general demise of the American – and global – stock market. But word of the Dreamliner’s launch had managed to prop things up a bit, with BA shares recovering 82% between March and early June.

Failure to Launch

Problem is, Scott Carson’s performance in Paris was BA’s fifth such promise. And just one short week later, BA engineers have revealed that the plane’s ultra-light hybrid plastic/metal wing attachment points would require substantial modifications. They are calling this a minor problem to be expected in the development of a new plane.

I somehow think that keeping the wings on is a tad more than minor.

And now investors are (finally!) noticing that there are no planes loading – indeed, not even any planes at the gate. BA shares are off 20% since word of the 787 debacle began to break, including a 6% single day loss last Tuesday. And there is every technical indication that this downside trend is just getting started. I anticipate BA hitting the low $30s, if not high $20s shortly.

Other Related Topics: Airline Industry , Editor Adam Lass , Market Analysis , WaveStrength Options Weekly

Article brought to you by Taipan Publishing Group. Additional valuable content can be found at www.taipanpublishinggroup.com. Republish without charge. Required: Author attribution and links back to original content.

Comments (0)