Boeing bends the plane truth

By Jon Markman

In the stock market, the difference between hype, self-delusion and outright lying is always paper thin. At times like these, however, it is pretty much nonexistent, as the number of executives and government officials who have attempted to fool the public and shareholders to mask terrible decisions made for the most craven purposes appears to be growing faster than the national debt.

A bull market in bull? Yeah, that's about it. Let's take a quick look at three of the worst offenders: Boeing, the big banks and the U.S. Treasury.

Just plane wrong

For Exhibit A in the industry that rules the skies, we have the announcement by Boeing (BA, news, msgs) honcho Jim McNerney last week that the world's largest commercial jet manufacturer faced a delay of at least six months in the delivery of its first 787 Dreamliner to customers.

Doing his best to look nonchalant but not really succeeding, considering the millions of dollars worth of late fees he'll likely have to rebate to customers, McNerney told reporters, "We remain confident in the design of the 787, and in the fundamental innovation and technologies that underpin it."

• Slide show: Boeing 787 Dreamliner

Hmm, that so? For the past two years, McNerney has steadfastly told stakeholders that the plane was on time and dismissed every suggestion of the potential for delays with total scorn.

When I wrote a column last year concluding that the plane would almost certainly not hit its deadlines, "Boeing shares could fall from the sky," the company's PR attack machine told me I was way off base. All I had observed was that Boeing in the past had rarely built a new aircraft on time when the planes were constructed in the Greater Seattle area. But somehow it had convinced investors that this time -- when much of the plane is being built overseas from hard-to-handle materials, organized with a glitchy new software system and lashed together with hard-to-get fasteners -- Boeing would not only keep production on schedule but actually build planes at a record clip.

Well, if you believed Boeing then, you'll really love it now -- the company contends that the schedule miss won't have any effect on its earnings forecast for the next year. This may be partially true because of all the shenanigans that defense contractors can play with program accounting: moving revenue from one pocket to another and reordering payment milestones, for example. But the fact is, we probably have not seen the end of schedule delays or earnings shortfalls.

Boeing's new calendar provides just eight months between the plane's first flight and its delivery, which is 20% shorter than usual. This super-aggressive schedule assumes that the new plane will pass its federal flight certification with flying colors and require no modifications. The problem: If regulators demand changes after they've seen the new bird fly, all 40 planes that then will be near completion also will have to be changed.

Is a clear-cut path to certification likely for the most complicated piece of machinery ever built for mass manufacturing? Don't think so.

• Video: Reaction to the Dreamliner delay

Boeing has said it plans to deliver 109 Dreamliners through the end of 2009. If it gets even 100 out the door by then, it will be a miracle. All told, figure Boeing earnings will come in well below the 2009 consensus, now around $7.55. My guess is that it'll be around $7. If you put a 14X multiple on that, you get a target price of $98 for the next year, which is about the current price. That's not as attractive a picture as I envisioned when I lost my head for a few days and bought into their con in a column back in May.

Banking's Bloody Mary

Meanwhile, over in banking land, we have the spectacle of several of the nation's largest financial services companies trying to team up with each other, some European counterparts and the U.S. Treasury to create a $100 billion "superfund" to hold the damaged mortgage assets now held in off-balance-sheet entities called "special investment vehicles," or SIVs.

It's pretty interesting that they're calling this new "conduit" a superfund, considering that was the name given to the federal program used to mitigate toxic-waste dumps in the 1980s after the Love Canal debacle.

Continued: A terrible idea proposed for a terrible reason

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