Is It Time to Sell Boeing?

In case you couldn't guess from last month's test flight cancellation, or the subsequent cancellation of 15 orders for the 787 Dreamliner, all's not well at Boeing (NYSE: BA). The latest news, that Boeing is in negotiations to take one of its suppliers in-house, just confirms it.

On Wednesday, widespread reports pegged Boeing as closing in on purchasing Vought Aircraft, a South Carolina facility that makes sections of the 787's fuselage. Boeing bulls argue this is good news, with The Wall Street Journal this morning putting on a happy face, arguing that:

• "Boeing... needs to take a more direct role in the manufacturing process of its marquee product."
• Boeing erred in outsourcing too much 787 work to suppliers like Honeywell (NYSE: HON), United Technologies (NYSE: UTX), Spirit AeroSystems (NYSE: SPR) ... and Vought. "Bringing more of the production in-house could increase Boeing's ability to manage the complex project."
• Buying the South Carolina operation "potentially paves the way for a second 787 assembly line."

I disagree.

The party line
Oh, I admit that the Journal's minor premises have merit. Boeing's troubles with its supply chain are well documented, and berthing suppliers at the mothership could help unkink the chain. Also, seeing as the 787 is already two years behind schedule, opening a second assembly line to accelerate production and delivery to impatient customers like AMR (NYSE: AMR), Delta (NYSE: DAL), and Continental (NYSE: CAL) may be prudent.

But while there's logic to the party line, for my part, I prefer to ...

Read between the lines
And what I see there is Boeing admitting that as bad a state as the 787 program appears to be in, it's in fact quite a bit worse than Boeing lets on. Up until a few weeks ago, we'd been led to believe that Boeing had generally gotten its problems under control. The Dreamliner's maiden voyage was on schedule. Actual delivery of the plane was just around the corner.

Investors who slapped the snooze alarm and dreamed happy dreams through last month's test-flight buzz, however, cannot afford to ignore the resurgent alarm bells today. You need to ask yourself: If all is well, the structural weak spots that forced the test flight's cancellation will soon be fixed, and production put back on track ... then why did Boeing feel it necessary to bring more manufacturing in-house today?