What Message Are Boeing Insiders Sending From Insider Trading?

The skies are not so smooth for Boeing these days. The past few years, the airplane manufacturer has experienced a constant stream of disruptions, crashes, revelations of malfeasance, missed expectations, and has seen its stock price fall nearly 45% since 2017 as a result. The current conundrum is missed Q3 profit and revenue estimates due to higher costs from defense-development programs combined with technical issues. The company did report free cash flows of $2.9 billion which is on track to have positive cash flows for the year, but $1.5 billion of this figure came from a tax refund. Regardless, president and CEO David Calhoun expressed optimism in the company's turnaround in a recent call with analysts, saying such an effort would take time. Clearly, management is not deterred by these obstacles and is optimistic about overcoming them, but does their insider trading activity align with this sentiment? We will investigate.

Boeing's profit concerns of this year are far from the only challenges it's faced in recent time. Most of us will remember the two crashes in 2018 and 2019 on its 737 MAX airplanes that killed 346 people combined, which resulted in the grounding of all 387 of those aircraft that were in service at the time. Mr. Calhoun, who joined the company in January 2020, has slashed thousands of jobs and settled criminal probes with the Department of Justice regarding the MAX aircraft, costing the firm $2.5 billion in fines. 

The company also understandably faced difficulty due to decreased air travel during the COVID-19 lockdowns, being forced to revise forecasts significantly downward. Boeing decided not to accept the subsequent handouts offered to them by Congress in the CARES Act, opting to stand out while many airlines accepted $25 billion in payroll relief. 

To turn such a large company around amid these monumental challenges would not be an easy feat for anyone, let alone Mr. Calhoun. At 64, the CEO caused the company to raise the retirement age from 65 to 70 in order to ensure he could remain working there long enough to oversee the recovery. Nevertheless, he has been adamant about being the guy needed to steer the Boeing bus back onto its proper course. In order to see if his order book aligns with his words, let's take a look at his insider trading activity and find out if it agrees.

First, we will show the firm-specific insider trading plot for Boeing Co generated on insidersentiment.com. Active subscribers can easily and quickly generate these plots for any public company. That picture is below:

On the initial look at this picture, it doesn't look like much is happening. This is because this code only considers P and S transactions when creating the graph, and there are not too many P or S transactions for Boeing in the past two years. We can learn more by examining all transactions, using the "All Insider Trading" screen.

Upon doing so, we see first that there are several awards to various insiders under what is called Boeing's "Deferred Compensation Plan". One such transaction is here. These transactions are small in quantity and involve less informed insiders, so we will ignore them. 

Moving back to Mr. Calhoun, we can see that while he does participate in the Plan, he also has made several transactions on his own. His most recent large compensation-based acquisition was in February of this year, when he was awarded slightly over 39,000 shares of common stock worth $8.5 million, vesting in February 2025. He was also awarded stock options controlling over 100,000 shares which become exercisable in full at the same time. Those awards are highly valuable, with a Black-Scholes price of about $115 each due to their 2032 expiration date. Hence, the total stock-based compensation is in the neighborhood of $20 million. This will certainly provide incentive for Mr. Calhoun to perform well over the coming years as these options will become much more profitable as Boeing's stock price rises. There are other similar transactions in previous years, corresponding to stocks that will vest in 2023 and 2024, adding further incentives.

Now turning to look at the sales, we do see one large sale this year that also occurred in February 2022 for 4,047 shares, worth over $780,000 in total. This sale occurred on the same day as the vesting of 10,344 shares awarded to Mr. Calhoun all the way back in February of 2020. As a result, this single sale amounts to quite a significant chunk of Mr. Calhoun's saleable holdings. While it represents 17% of all of his vested shares at that time, it also is over 39% of the shares that vested on that exact day. (It should be noted that these transactions are sold under the transaction code "F", rather than the usual sale code "S", but for the purposes of this analysis there is no material difference between the two.) A very similar transaction also occurred last year, worth over $860,000. 

With such a large sell transaction occurring somewhat regularly, the overall picture is murky.  We do not see a clear reason for optimism based on insider trading here. The presence of such large sales in February of this year and last year is not exactly a vote of confidence in the turnaround plan. We will continue to monitor for further developments.

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