Three days ago I noted Boeing Will Suspend 737 Max Production: Thousands of Jobs at Risk.
On the surface the story does not seem to add up.
There were only a few hundred cancellations. And the backlog is over 4,500. To top it off, Boeing insists the 737 certification is on schedule.
Boeing 737 Max Order Backlog and Deliveries
Boeing makes at most 50 planes a month. In December it was down to 42. Thus, there is over a year’s worth of backlogs.
The lead times on orders at Boeing and Airbus stretch out for for years. It’s not as if an airline can cancel a Max and pick up the phone and get an Airbus a month later.
What’s Going On?
Several industry insiders and analysts privately emailed me in response to the article.
It a combination of new certification rules and a shortage of skilled workers on top of storage issues and foreign uncertainty.
1: Shortage of Skilled Labour
The Seattle labor market, especially for aircraft skills, is very tight. The skills needed to fix and deliver the 400 already stored aircraft is not there.
This work requires special FAA licences. Boeing just hired over 200 mechanics and has called back retirees.
What is unusual is that they did so in early December before a 2 week paid holiday. Typically Boeing hires in January. We have not seen December hiring like this this in 50 years. Thus, Boeing is locking down skilled labor.
Boeing’s production worker demographics is such that there is a very high number of older workers who could retire anytime.
2: FAA Certification Delayed
Boeing expected FAA certification of the fix in December. It now looks like April.
3: Individual Certification
The FAA announced it will certify each plane individually.
This takes a huge amount of time compared to mass certification of whatever fix the FAA ultimately accepts. Prior to the crashes, Boeing self-certified and the FAA blessed the process.
4: Storage Issues
Most of the new planes are at Plaine Field, Renton airport, Boeing Field and Moses Lake, WA. All are Boeing facilities. The key is to have aircraft stored as close as possible to Boeing facilities because that is where the skilled labor is. They could store the aircraft in Arizona and elsewhere, but remote storage is already an issue.
Besides the 400 aircraft produced since the crash, there are about 380 MAX aircraft owned by various airlines and stored all over the world. Those aircraft will be fixed on location. Boeing will send mechanics to each remote location when Boeing is already short of skilled labor.
Trump is in a huge tariff dispute with the EU. The WTO ruled against Airbus, but in a separate ruling the WTO is expected to rule against Boeing.
The EU will be in no rush to certify planes if and when the FAA does. And the EU will no longer accept Boeing’s or the FAA certification process. This adds to the uncertainty and the delays.
Ripple Through Impact
The Wall Street Journal reports GE’s 737 MAX Problem Just Got Bigger.
General Electric Co. will likely take a significant hit to its cash flow from Boeing Co. decision to halt production of the 737 MAX jetliner, which has already dented the conglomerate’s finances.
GE makes all of the MAX’s engines through a joint venture with France’s Safran SA . When Boeing in April cut monthly production of the plane to 42 from 52, it reduced GE’s quarterly cash flow by $400 million. The suspension of production Boeing announced Monday, if prolonged, could reduce cash flow by much more as analysts warn that GE won’t receive payments made as the planes are being built.
“It is going to create a significant cash drag for GE,” said John Inch, an analyst at Gordon Haskett. He added, though, that “one engine program cannot make or break the fortunes of this company.”
Southwest Airlines Co. earlier Tuesday said it was removing the 737 MAX from its flight schedule through April 13 as the airline sees uncertainty around the timing of the aircraft’s return to service.
The extended grounding has already strained GE finances, cutting cash flow by as much as $1.4 billion this year as factories produce fewer engines and GE can’t get fully paid for them. The LEAP engine is a major growth driver for the company’s aviation unit, which accounted for $4.8 billion of GE’s roughly $7 billion in industrial profits in the first nine months of 2019. GE has more than 17,000 orders for the engine.
That engine is also used on the Airbus . That is one heck of a lot of orders.
Industrial Production Rebounds after GM Strike Ends
On December 17, I commented Industrial Production Rebounds after GM Strike Ends
The current rebound is artificial, but so is the strike that preceded it. Looking ahead, Boeing is going to have a significant impact in the first quarter.
Thousands of jobs and possibly as much as 1/3 of a point of GDP as Boeing Will Suspend 737 Max Production in January.
Mike “Mish” Shedlock
Merck ends development of two potential COVID-19 vaccines – The Globe and Mail
Drugmaker Merck & Co said on Monday it would stop development of its two COVID-19 vaccines and focus pandemic research on treatments, with initial data on an experimental oral antiviral expected by the end of March.
Merck was late to join the race to develop a vaccine to protect against the coronavirus, which has so far killed more than 2 million people and continues to surge in many parts of the world including the United States.
The company will record a pre-tax discontinuation charge in the fourth quarter for vaccine candidate V591, which it acquired with the purchase of Austrian vaccine maker Themis Bioscience, and V590, developed with nonprofit research organization IAVI, Merck said in a statement.
In early trials, both vaccines generated immune responses that were inferior to those seen in people who had recovered from COVID-19 as well as those reported for other COVID-19 vaccines, the company said.
The announcement is a setback to the fight against the pandemic and comes a month after Sanofi and GlaxoSmithKline delayed launch of their shot to late 2021, underscoring the challenges of developing vaccines at record speed.
Tens of millions of doses of vaccines from rivals Pfizer Inc and German partner BioNTech as well as from Moderna Inc have so far been administered globally.
Johnson & Johnson, AstraZeneca Plc and others are also racing to develop safe and effective vaccines to protect against the virus.
Merck said it would focus COVID-19 research and manufacturing efforts on two investigational medicines: MK-7110 and MK-4482, which it now calls molnupiravir.
Molnupiravir, which is being developed in collaboration with Ridgeback Bio, is an oral antiviral being studied in both hospital and outpatient settings.
Merck said a Phase 2/3 trial of the drug was set to finish in May, but initial efficacy results were due in the first quarter and would be made public if clinically meaningful.
Merck said results from a Phase 3 study of MK-7110, an immune modulator being studied as a treatment for patients hospitalized with severe COVID-19, were expected in the first quarter.
Shares of Merck fell 1 per cent to $80.12 in trading before the bell.
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Canadian provinces push back vaccination plans as Pfizer deliveries grind to a halt – MSN Canada
Some provinces were forced to push back vaccination for health-care workers and vulnerable seniors on Monday as deliveries from a major manufacturer ground to a temporary halt.
Canada is not due to receive any Pfizer-BioNTech vaccines this week as the company revamps its operations, and deliveries are expected to be slow for the next few weeks.
Ontario announced Monday that it was pausing COVID-19 vaccinations of long-term care staff and essential caregivers so that it can focus on giving the shots to all nursing home residents.
Premier Doug Ford said the delay has taught the province that it can’t take vaccine shipments for granted.
“I want to be clear: we’re using every single vaccine we can to protect our most vulnerable,” Ford told a news conference. “But delivery delays are forcing us to be careful and cautious as we plan, to ensure we’re able to offer second doses.”
The news came as more cases of the more contagious U.K. variant of COVID-19 were detected across Ontario, including in at least one long-term care home.
Some provinces have used up nearly all their vaccine supply and have been forced to push back their vaccination schedules.
Saskatchewan announced Sunday that it had exhausted all the doses it received. However, even after technically running out, the province still managed to vaccinate another 304 people as it continued to draw extra doses from the vials it received. It had administered 102 per cent of its allotted doses by Monday, and it expected the remaining excess doses to be gone this week.
Quebec has used up more than 90 per cent of its supply. It confirmed that the delivery delay would force it to postpone its vaccination rollout in private seniors’ residences, which had been scheduled to start Monday.
“Let’s be realistic: our vaccination momentum will be reduced as of this week,” Marjaurie Cote-Boileau, press secretary to Health Minister Christian Dube, said in a text message.
“Given the important reduction of Pfizer doses we’ll receive in the next two weeks, we have had to review our vaccination calendar.”
Quebec finished giving first doses to long-term care residents last week and has vaccinated some 9,000 seniors in private homes by using leftover doses. The province gave less than 2,000 shots Sunday, compared to an average of more than 9,600 a day over the previous week.
Video: COVID-19 outbreak declared at Surrey homeless shelter (Global News)
In British Columbia, the provincial health officer said the government is extending the interval between the two doses of the COVID-19 vaccine. Dr. Bonnie Henry said further delays in the production and delivery of the Pfizer-BioNTech vaccine over the next two weeks caused the time period between the shots to be extended from 35 days to 42.
She said about about 60 per cent of more than 119,000 doses of COVID-19 vaccine administered in the province so far have gone to protecting residents of long-term care homes.
The Manitoba government also said it may soon have to put off some second-dose vaccine appointments as a result of the disruptions to the supply of the Pfizer vaccine.
Prime Minister Justin Trudeau has stressed that the delay is only temporary and that Canada is expected to receive 4 million doses of the Pfizer vaccine by the end of March.
As Parliament resumed Monday, Trudeau faced a barrage of questions from MPs of all parties as they blasted the Liberal government for what they described as a botched approach to rolling out vaccines.
Both Trudeau and Procurement Minister Anita Anand repeated the government’s promise that by the end of September, all Canadians wishing to be vaccinated will have received their shots.
Trudeau added that the country is still receiving shipments of the Moderna vaccine.
Earlier Monday, Deputy Prime Minister Chrystia Freeland said there is “tremendous pressure” on the global supply chain for vaccines that the government has tried to mitigate.
“We are working on this every single day, because we know how important vaccines are to Canadians, to first and foremost the lives of Canadians and also to our economy,” she told a news conference in Ottawa by video.
Despite the vaccine delay, some provinces continued to report encouraging drops in the number of new cases and hospitalizations. Ontario reported fewer than 2,000 cases, as well as fewer people in hospital. It was a similar story in Quebec, where hospitalizations dropped for a sixth straight day.
Newfoundland and Labrador also reported no new cases of COVID-19 for a third straight day.
Alberta reported only 362 new cases of COVID-19 on Monday, compared with daily numbers peaking as high as 1,800 in mid-December. But the big concern for health officials was a case of the U.K. variant that could not be directly traced to international travel.
Alberta Health Minister Tyler Shandro said that while it is one case, the variant could quickly overwhelm hospitals if not checked.
“There’s no question that this kind of exponential growth would push our health-care system to the brink,” Shandro told a news conference. “It would significantly impact the health care and the services available to all Albertans.”
This report by The Canadian Press was first published Jan. 25, 2021.
— With files from Shawn Jeffords, Jordan Press, Dean Bennett and Stephanie Levitz.
Morgan Lowrie, The Canadian Press
GameStop’s volatile rally smashes Wall St price targets – Aljazeera.com
The video game retailer’s stock surged as much as 145 percent to $159.18 on Monday, triggering at least nine trading halts.
To see how far GameStop Corp. has outrun anyone’s ability to render sensible analysis, consider what its current dizzying rally has done to Wall Street’s best guesses of its value.
Now perched close to $75 a share, hoisted by a short squeeze ignited and arguably organized in chat rooms, the game retailer’s stock is about $60 above the average forecast of equity handicappers tracked by Bloomberg. The ratio between the two is by far the biggest in the Russell 3000 and jumped for a third day, as crazed trading capped a stretch in which the 37-year-old company burned bears who had shorted 139% of its shares.
It’s happening in a stock that before 2020 had fallen six straight years as earnings shrunk, and which isn’t projected to turn a profit before fiscal 2023. While fundamentals may one day matter again, GameStop has now become the latest show of force by newbie day traders in a market that seems more like their plaything each day.
The stock surged as much as 145% to $159.18 on Monday, at one point triggering at least nine trading halts. It briefly turned negative before bouncing back to trade up 22% to $79.56 at 2 p.m. in New York. The shares have advanced more than 320% since the start of the year.
“It doesn’t make business sense,” said Doug Clinton, co-founder of Loup Ventures. “It makes sense from an investor psychology standpoint. I think there’s a tendency where there is heavy retail interest for those types of traders to think about stocks differently than institutional investors in terms of what they’re willing to pay.”
Right now, they’re willing to pay 471% more than what analysts consider reasonable, on average. While perhaps fairly priced relative to its annual sales of about $5.2 billion in the 12 months through October, those sales are down 40% in just two years. The company is expected to report a per-share loss in both fiscal 2021 and 2022. To get a price-earnings multiple it’s necessary to look two years into the future, where the P/E is around 58.
Bears have seen more than $6.1 billion mark-to-market losses this year, according to financial analytics firm S3 Partners.
While Wall Street may have no clue what GameStop shares are worth, it does have ideas on what the company should do with them: sell.
“GameStop can issue equity and should sell stock to pay down debt,” said Wedbush Securities Inc. analyst Michael Pachter, who had a price target of $16 for GameStop as of Jan. 11. Doing so would involve “minimal dilution at these levels” and provide protection against an economic downturn. “They should do as much as the market will absorb,” he said.
Separately, Telsey Advisory Group analyst Joseph Feldman double-downgraded the stock to underperform from outperform on Monday, removing GameStop’s only buy-or-equivalent recommendation.
Whatever the future holds, the recent past has been a bonanza for anyone who dared own the stock — or, even better, bullish options. Calls expiring Jan. 29 with a strike price of $115 were the most-traded GameStop contract early Monday. Other similar wagers had correspondingly heady gains as contracts once seen as long-shot upward bets suddenly were in the money.
At investment research firm Hedgeye, analysts advised clients to not go short the stock, despite removing it from their “best idea long list” to reanalyze fundamentals. “Wouldn’t dare do that given the positive catalysts we think will be coming down the pike as the year progresses” with a very bullish calendar on the horizon, Brian McGough and Jeremy McLean wrote.
GameStop “has become a cult stock because of Ryan Cohen’s success with Chewy,” Wedbush’s Pachter said, referring to the activist investor and co-founder of online pet retailer Chewy Inc., who joined GameStop’s board this month. “I cannot discount Mr. Cohen’s past successes and don’t know what he has in mind going forward, but I need to see their strategy before I give them credit for materially higher earnings power.”
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