Boeing is a company in crisis and plans to return to capital markets to raise up to $15 billion in cash to address liquidity issues. Unfortunately, Boeing has wasted more than $43 billion on stock buybacks over the past decade, cash it could desperately use now.
I'm not here to debate the pros and cons of stock buybacks, but rather to discuss how Boeing's management, dominated by financial executives obsessed with cost cutting and stock valuation, has taken control of what was once one of America's leading engineering and manufacturing companies. I would like to highlight another example of how Japan has been weakened.
In 2018 and 2019 alone, Boeing wasted $11.7 billion in cash buying back 33 million shares, worth more than $350 per share. can't believe it.
That said, I generally disagree with my pro-capitalist friends about the practice of stock buybacks. I have observed over the years how harmful this management technique can be. Companies often buy back their own stock when their business is doing well, they have plenty of cash, and their stock prices are high, and they use stock buybacks to push prices even higher. But when bad times come and stock prices fall, companies are forced to issue new shares at much lower prices.
The argument for stock buybacks is that cash-rich companies return surplus funds to shareholders through stock buybacks. This action spreads the company's market capitalization over fewer shares, increasing the value of the remaining shares.
The problem is that the company primarily uses funds from stock buybacks.
former Shareholders — those who sell their shares. Dividends, in contrast, provide benefits to ongoing shareholders. Even better, keeping cash to invest in your company can lead to better products, new revenue streams, and ultimately increased profits. Other smart options include paying down debt or simply holding on to cash for future needs.
But these options don't boost stock prices in the short term. Not coincidentally, today's senior executives often receive significant compensation based on stock performance. In other words, depleting a company's cash reserves through stock buybacks may help executives move from seven-figure to eight-figure annual salaries, but it may not build long-term value or support future growth. You cannot.
In recent years, there has been a spate of terrible stories involving Boeing, including planes falling from the sky, the 737 MAX running aground, doors blown off mid-flight, and astronauts stranded in space. . Everything is starting to have an impact. Operations and Cash Flow.
CNBC reported Boeing plans to cut 10% of its workforce, or about 17,000 workers, it was announced last week, as a machinists' strike has shut down manufacturing for more than a month. The launch of Boeing's important new 777 aircraft has been delayed until 2026. We are already several years behind schedule. Boeing has suspended flight tests after discovering structural damage to the plane.
This is a polite way of saying that the company discovered engineering negligence and poor design. Once upon a time, engineering negligence was unthinkable at Boeing. But the business school graduates currently in charge have long since displaced those who value high-quality design and production from corporate leadership.
According to CNBC:
Boeing announced in a surprise release Friday that it plans to report a loss of $9.97 per share in the third quarter. Pre-tax charges are expected to be $3 billion for the commercial aircraft division and $2 billion for the defense business. Boeing said in preliminary financial results that it expects to have operating cash outflows of $1.3 billion in the third quarter.
Despite all this confusion and neglect, Boeing's CEO
Dave Calhoun earned $32.8 million. Total compensation in 2023 will increase from $22.6 million in 2022.
To be fair, Boeing's board of directors allowed it, so Boeing executives were able to loot the company and redistribute shareholder capital to themselves. They are accomplices.
The table below shows the breakdown of Boeing's $43.5 billion share buybacks from 2013 to 2019. Notably, Boeing's stock price is currently around $150 per share.
Below are some important observations.
- The average price per share of the $43.5 billion in cash that Boeing poured out over seven years to improve its stock price was $172.
- The issuance of $15 billion of stock at $150 per share means that 100 million shares will be reissued at a price of $22 per share less than the original buyback. To summarize the math, Boeing drained a net $2.2 billion of much-needed cash by buying the same 100 million shares high and selling low. It's great financial wizardry.
- In 2018 and 2019 alone, Boeing spent a total of $11.7 billion in cash buying back 33 million shares, worth more than $350 per share. can't believe it. The cash is gone, and Boeing stock is once again trading at just $150 per share.
- Boeing is in dire need of cash to pay off more than $55 billion in debt. The $43.5 billion it drained could be useful right now.
The costly and deadly mismanagement of Boeing, which prioritized cost cutting and stock price manipulation, provides an excellent example for business schools. Unfortunately, the very management practices that cost Boeing so much are the same ones that are now being taught in elite business schools.
