“Financial engineering.” That is the unexpected two-word phrase that cropped up when NPR took a look at Boeing and advanced the notion of just what truly went wrong at the aircraft maker. The idea is fairly simple, but has wide-reaching connotations. Investors, meanwhile, shrugged off NPR’s assessment, sending shares down fractionally in Tuesday afternoon’s trading.
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The NPR report examined the Boeing situation and discovered that the aforementioned “financial engineering” was much of the cause of Boeing’s problem. While the term sounds more complex than it really is, what NPR noted that meant was that Boeing focused more on making money than they should have on making airplanes.
This might sound counter-intuitive; after all, if a business does not make money, it cannot make, in this case, airplanes. But the NPR report noted that there is a point at which you focus so much on making money that you fail to make money, by not keeping up things like product quality. Which makes a certain amount of sense: focusing on cost-cutting can turn into corner-cutting, and that hurts the long-term ability of a company to make money.
Flights to Nowhere
This point may have come back to haunt Boeing recently, as two Boeing flights turned into flights to nowhere recently. Business Insider noted that a KLM flight departed Amsterdam, heading for the capital of Suriname, Paramaribo. But after two hours’ flight time, the plane turned around and returned to Amsterdam, due mainly to what was described as a “small leak.”
Meanwhile, a New York Post report noted that a similar incident happened in a flight from Chicago to Las Vegas. The flight ultimately had to backtrack to O’Hare after “multiple door warning light indications.” However, this seemed to be repaired quickly enough; the flight left at 8 a.m. local time but still managed to reach its destination by 2 p.m. local time.
Is Boeing a Good Stock to Buy Right Now?
Turning to Wall Street, analysts have a Moderate Buy consensus rating on BA stock based on 15 Buys, six Holds and two Sells assigned in the past three months, as indicated by the graphic below. After a 33.5% loss in its share price over the past year, the average BA price target of $193.38 per share implies 23.86% upside potential.
