The Harsh Reality: Boeing to Close Kansas Operations
Tim is a member of The Motley Fool Blog Network -- entries represent the personal opinion of the blogger and are not formally edited.
It was bound to happen. Defense budget cuts were eventually going to have a significant impact on Boeing employees, and that time is now. Yesterday’s closed door meeting with plant employees ended as expected, the plant will close entirely by 2013 costing 2,160 Jayhawks their jobs, with the work sent to other facilities. Though as many as 1,400 jobs will be created in Oklahoma, New Mexico and Washington State, that’s little consolation for the folks in Wichita. The lay-offs will begin the second half of this year.
The news was not unexpected as Boeing (NYSE: BA) announced last November they were going to take a hard look at closing the plant. Even with the order for 139 jets from the U.S. Air Force last February, the 2 million square feet of space housed in 97 different buildings was deemed too expensive by management. You can imagine the politicos in Kansas are less than thrilled too after helping Boeing land the contract they thought would bring more jobs to the state.
Though Boeing hasn’t said how much they expect to save with the move, the harsh reality is that it will likely help by cutting expenses significantly, possibly enough to positively impact margins. Today’s drop probably has more to do with the expected announcement that BA is going to fall short on plane order deliveries, not the plant closure. This is especially painful considering Airbus, the largest airline manufacturer in the world, just announced they beat their objective by delivering over 530 planes. Boeing was targeting 485 to 495. This will be nine years running Boeing's come in second.
What does all this mean for 2012? Not much has changed for investors; Boeing is still a sound investment though they may not the best of the bunch; at least not yet. They ended 2011 with a huge plane order from Dubai-based Emirates Airlines for 50 extended range planes worth a cool $18 billion. As if that wasn’t good enough, Emirates holds an option for 20 more that would push the contract to $26 billion. And this is on top of the multi-billion dollar order the foks in Kansas were working on. If the company is able to work out some of the glitches that caused delivery problems last year, 2012 could be a whopper.
An earlier article on Lockheed Martin’s (NYSE: LMT) recent coup (a contract with Japan to equip them with fighter jets) is another indication of what appears to be a strong year ahead. Lockheed’s 2.64% dividend and 10 P/E provide one of the industry’s biggest upsides, at least in the near-term. This compares to Boeing’s P/E of 14.5 and 1.68% yield. For the same reasons, both General Dynamics (NYSE: GD) and Northrup Grumman (NYSE: NOC) remain solid investment alternatives as well.
With the entire sector taking a bit of a hit right now, investors would be wise to consider buying on the sell off. Several good investment opportunities are getting even better with each downtick.
The investment opinions included are just that, opinions. Tim is not a licensed investment professional, nor has he been for several years. Investing involves risk, as you well know, so consider your decisions wisely.