Kim Parlee: It is that time of the day, where Andy usually gets –

Andrew Bell: Usually prevails, let’s face it.

KP: See, you’re slow to talk he fills it in, it’s only fair.

AB: Boeing, we’re going to talk about Boeing. This strike by the machinists never seems to end, dragging on. It began in September. What about Boeing, I mean the stock is down almost 50 per cent this year.

KP: Four-year lows.

AB: Four-year lows. Four-year lows, plunging after that huge run-up as they creamed Airbus in the race to come out with a dominant player, a dominant aircraft for the rest of the 21st century. Of course, the 787 Dreamliner.

KP: The question is whether it really will actually happen. They’ve designed it, will it actually get produced in a time before somebody else actually designs something and comes up with something.

AB: Don’t hold your breath! Anyway, I’ve got the bull case on Boeing.

KP: We’re not there yet. Here’s how you play it first off, obviously just buying a Boeing stock, so BA, if we take a look at the shares on the New York Stock Exchange. A Dow component of course, it’s one of the few that have bounced. But look at that, off 4.2 per cent today, much more than the rest of the Dow, and if we take a look how we are playing this today, here are the sides. I get to be the cute cuddly bear. I do appreciate you letting me be the bear because I do hate that bull picture.

AB: You don’t like that bull, it doesn’t flatter anyone.

KP: So those are the sides that we are taking, and to help us make the decision on who will in this argument we have Rick Wolfe on the line, president of PostStone Corporation. He’s going to be listening in and adjudicating the process. Rick, can you hear us?

Rick Wolfe: I sure can.

KP: Are you all set?

RW: I’m ready.

KP: OK, here we go. I’m going to let Andy start things first with the star case, despite the fact that it’s sold off.

AB: It’s a true growth story this, you could argue that this thing’s got a tidal wave of cash coming in as evidenced by its buy backs and its rich dividend yield. They’ve got a quarter trillion dollar backlog and they have the whole military card to play as well. So let’s actually have a look at some of the finances for this company. The stock right now yields around 3.4 per cent, plus they’ve been buying back $4 billion worth of stock every year, almost 10 per cent of the whole float. We’ve moved on there to their military firepower. Now their new boss McNerney, what’s he been doing? He managed to get them back into the competition for the tanker, to supply the U.S. military with an airborne tanker. After they were squeezed out, of course, he actually managed to convince the politicians that you couldn’t just have one company, Lockheed, bidding on this. He’s also, Boeing also has the C-17, and where are you going to be sending tanks over the next little while? You’re going to be sending them to the Caucasus, places like that. You can’t move an Abrams M1 tank without a C-17, it’s as simple as that. Finally, what is their backlog? Their backlog is $285 billion. But isn’t that tied to the U.S. economy? No, only 11 per cent of it is tied to U.S. airlines that are under pressure. The massive backlog – huge amount of cash – it works out at a return to shareholders, the buyback and dividend of 12 per cent per year, plus the military card. It’s hard to argue against Boeing at this really depressed level. A year from now it’s almost certain to be higher.

KP: Now let me give you the other side of the argument. Never mind the fact that it’s cyclical and it’s going to move with the economy, and that’s unattractive. You’ve got a long nasty strike going on and you might have another one beginning soon. Airplane financing, do I need to say anything else? Financing. Finally, let’s talk about their credit-worthy clients, I have an interesting stat that I think is going to make Andy gulp a little bit. First things first, they are now the 38th day of a strike, and take a look at some of the impacts of the strike overall. They lose $100 million in sales per day for every day they’re off; 38 days, you do the math at $3.8 billion. They lose 25 cents in earnings per share every month they’re on strike. Oh, and by the way, of the 27,000 machinists that are on strike, 21,000 engineers also are set to strike on December 1 if their demands aren’t met. Boeing is paid on delivery. What happens when you go on strike? You don’t deliver. So their cash flow is going to get stretched, and even the union was saying they’re burning through their cash reserve right now. Of course, they’re going to say that because it’s advantageous to their position, but it’s in a very bad place right now never mind a recession. Secondly, take a look at this. Some of their customers may have trouble financing right now. You have to borrow a lot of money to buy planes. Goldman says watch out for the U.S. Legacy carriers, the European flag carriers and the leasing companies, that’s one third of their business. And here’s the ugly one, take a look at this chart. I love this, I did not know this, and I was surprised. Half – 46 per cent – of Boeing’s 2009 deliveries are to customers with junk credit ratings (below investment grade).

AB: But airlines always have low credit ratings and they always make it through.

KP: It’s not just the airlines right now, and they don’t always make it through Andy.

AB: You don’t see AAA-rated airlines, that’s pretty rare.

KP: Actually, the people who are buying planes right now, you’ve got the Middle East carriers, U.S. legacy carriers, European flag carriers, low-cost carriers, Indo-China, all others, they break it out. And that’s how they break it out, and it’s amazing – half! Half of your customers, before we’ve really gotten into the real trenches of the credit crisis, are already junk. Do you think they’re going to have some problems borrowing some money? The airlines are saying, ‘Oh, Boeing will just ramp up Boeing Capital Corporation to lend the money.

AB: With all that cash, that’s what they say they’re going to do.

KP: Well, if they want to get into the lending business right now, that’s a great idea.

AB: There’s no doubt that earnings will fall, and there’s no doubt that some orders, maybe many orders, will be cancelled, but with that massive backlog you’re guaranteed revenue and earnings for years.

KP: Do you know they overbook things? Because you never know what’s going to happen with backlogs. All that backlog’s not going to happen.

AB: Well people are waiting five years for a plane, so of course, yeah, they are anxious.

KP: And longer if it’s a Dreamliner because they keep delaying it.

AB: That’s right, it looks like it probably won’t come out now until 2011, but it will come out and it’s a fantastic aircraft: composite, super light, super efficient on fuel.

KP: So light it’s almost transparent, you can’t see it.

AB: It’s the invisible airline! James McNerney, of course he was an executive at 3M, ran 3M, he came from GE. He’s one tough customer. He managed to get the Pentagon to agree to put Boeing back in the running as I said for that oil tanker contract. I should have pointed out actually their rival there is Northrop and EADS, the Airbus parent, it’s not Lockheed.

KP: What’s your killer blow?

AB: My killer blow is simply a chart. What is the story with Boeing? Observers call them a global titan, they’re like Procter & Gamble, they’re like IBM. This is a chart of the U.S. dollar. It started tanking after a brief rally a few days ago. Boeing doesn’t care. If you’re thinking about buying a U.S. stock, why wouldn’t you buy Boeing? Because of course as the U.S. dollar drops, as a massive exporter they’re laughing because a lower U.S. dollar means higher profits for them when they actually repatriate the profits. So Boeing is a great hedge against probably an inevitable decline in the greenback as America’s status as a reserve currency is at least threatened.

KP: What do you need to repatriate profits? Oh, you need to deliver planes, that's what it is. Let me get to my killer blow right now, and that’s part of the problem right now with Boeing, is just the fact that they’re going to probably make a few customers pretty angry right now because everything is taking so long. This strike means yet another delay for Dreamliner first off. Goldman has some numbers here, and never mind the fact that, oh, delay may happen may not, they’ve cut November deliveries to 42 planes from 116, that’s what they’re saying right now. They also went out and cut their 2010 deliveries to 392 from 524. If you are selling only 392 planes versus the 524 you were supposed to, tell me that’s not going to have a huge impact on the bottom line.

AB: The stock, yeah, for sure, but it’s temporary. The strike will end and they’ll get the Dreamliner out there, it’s not going to be indefinitely delayed.

KP: They’ve put themselves behind now for the next little while.

AB: At least a year it’s going to be delayed.

KP: They’re buzzing you.

AB: The stock’s at only eight times earnings, it’s a bargain.

KP: All right, someone just got in my ear and said ‘Shut up.’ Let’s bring in Rick Wolfe, president of PostStone Corporation. He’s been listening to both sides. This is not an easy one Rick.

RW: It isn’t an easy one, you guys picked a really great debate because there are so many points and facts on both sides, and this company and its competitor, they can be called the essential industry. They’re almost a utility in the sense that they can’t be replaced, they’re too big to be replaced, and the global economy grinds to a halt without them. And as you said Andy, the ability of the West to wage war grinds to a halt without Boeing and probably Airbus too. So what a tough call. I really agree with Kim that execution risk is the really scary thing with this company, along with globalization risk. If the global economy goes south then Boeing goes south. If McNerney and team can’t execute then the stock keeps falling. But that brings us back to the fact that the stock has fallen and fallen and fallen, and I have to agree with Andy that I think the stock has pretty much hit a floor. Because I think the stock has pretty much hit a floor and because I too think that the Dreamliner is an amazing aircraft I think I have to ever so slightly edge toward the bull.

AB: Thanks Rick. They all count Rick, thank you very much.

KP: Wow. Rick, thank you.

RW: My pleasure.

AB: We’ve only got about 30 seconds, any gossip from retail land? I know you’re a keen observer, how are the store doing right now?

RW: Well the gossip from retail land is that Santa Claus is staying home this year. That article in the Globe yesterday, that Richard Baker, the new owner of HBC is a happy guy, that’s the only encouraging thing I’ve heard out of retail in a long, long time.

KP: All right. Some sobering thoughts, but we appreciate them. Rick, thanks so much.

RW: Thanks, good talking to you.

KP: Rick Wolfe, president of PostStone Corporation, and picking Andy.

AB: Well that’s the way it goes. So it’s going to be kind of a barbell, the first day of the week and then I win Friday, so you’re against the eight ball here.

KP: Stay with us, when we come back we’ll have Andy’s star and dog.