Boeing Co Shares May Tank After Trade Spat, But Don’t Sweat the Stumble

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BA stock - Boeing Co Shares May Tank After Trade Spat, But Don’t Sweat the Stumble

Back in September, I penned on op-ed suggesting that a spat between Boeing Co (NYSE:BA) and Canadian plane maker Bombardier Inc (OTCMKTS:BDRBF) wasn’t really about Boeing and Bombardier. It wasn’t even of tremendous interest to current and would-be owners of BA stock. More than anything it was the manifestation of a political trade war that would get worse before it got better.

BA Stock: Boeing Co Shares May Tank After Trade Spat, But Don't Sweat the Stumble

It just got worse, and complicated … and particularly troubling for Boeing, if looking at nothing more than the headlines.

I’ll reiterate what I explained three months ago though. That is, while Boeing is overbought and the BA stock price is due for a setback (a setback that doesn’t appear to be anywhere on the horizon), don’t mistake a short-term selloff as a sign the company is crumbling under the weight of political and financial pressures. Being is going to be just fine down the road, as it’s still the top name in aircraft.

It’s Complicated

Just as a reminder in case you missed it, the hullabaloo reached a head in September when Boeing cried foul against Bombardier, claiming it sold passenger jets to U.S. air carrier Delta Air Lines, Inc. (NYSE:DAL) at a price below their market value. Boeing’s attorneys claimed the Canadian government unfairly and illegally subsidized the sale of those 75 C-Series jet, ultimately harming Boeing by crimping sales of its more expensive 737 Max 7 passenger jet that would theoretically be an alternative to Bombardier’s product.

The U.S. Commerce Department listened, imposing a 219% tariff on the so-far-undelivered planes. The International Trade Commission will decide in early 2018 if the tariff is allowable.

Fast forward to last week. With the Bombardier/Boeing matter still up in the air — and clearly working in Boeing’s favor so far — the Canadian government backed out of a deal to purchase 18 new F-18 fighter jets from Boeing. Instead, it’s going to purchase 18 used F-18 jets from Australia, with Canadian government officials making it clear that the diversion of the purchase was just a taste of a much bigger decision in the works. Canada will need 88 new fighter jets within the next few years, and while Boeing’s F-18 were in the running, the country is now strongly considering other options including the expensive F-35 from Lockheed Martin Corporation (NYSE:LMT).

This is the political war I warned would likely surface, and the ripple effect has already become palpable for BA stock owners. Not only has the UK’s government, which has strong trade ties with Canada, cautioning that this posturing could escalate, but in the meantime Delta has chosen to purchase a new batch of planes from Airbus Grp/ADR (OTCMKTS:EADSY) rather than Boeing.

It’s not exactly clear why Delta opted for the Airbus A321neo over the Boeing’s 737 Max. It’s not unreasonable to assume, however, that Delta simply didn’t want to get in the middle of the drama. It’s also likely that Delta may be sending Boeing a message about the value and price of its planes.

Reality Check on Boeing

The headlines look and feel rather damning, and truth be told, Boeing’s legal position that it was harmed by Canada’s (still unproven) subsidizing of Bombardier is a bit weak. Even Delta says so.

Of the matter in question, Delta’s senior vice president and supply chain and fleet strategy Greg May commented “Boeing did not lose this sale to Bombardier. When we chose to add the CS100 aircraft to our fleet, Boeing simply did not and does not have the right-sized aircraft.”

There’s also the not-so-small reality that, not unlike patent wars within the world of technology, trade-rule wars within the world of aircraft are the norm … and the Word Trade Organization and other oversight bodies may be unimpressed by any arguments made anymore. As Brookings contributor Geoffrey Gertz explained in October:

“The basic logic behind trade enforcement mechanisms, whether pursued unilaterally or multilaterally through the WTO, is an attempt to “level the playing field,” or to correct the market for the distortions of government interventions. The problem is, when it comes to aircraft manufacturing, there’s never been anything close to a perfectly competitive, distortion-free market: It’s politics and subsidies all the way down. Not only are there tons of subsidies on the production side, but governments are also the most important consumers of aircraft, buying both military planes and consumer planes for publicly-owned national airlines.”

In other words, Boeing’s case is a bit pointless, and only serving to create enemies rather than partners. The good news is, enemies become friends again for monetary reasons.

That’s the subtle way of saying while the headlines are dramatic, historically speaking, this kind of rhetoric and posturing actually isn’t all that unusual.

Looking Ahead for BA Stock

Don’t misread the message. While the uproar is much ado about nothing, BA stock is still itching for a pullback after a 90% gain since the end of last year. There’s a wave of profit-taking on the horizon, sooner or later.

Just don’t sweat it when it happens. Boeing is still the top name in passenger jets, and one of the top names in military aircraft. We’re moving into an era where demand for new planes and the replacement of aging planes is going to keep Boeing as busy as it wants to be. BA stock still has a bright long-term future even if there’s some short-term turbulence to fly through.

As of this writing, James Brumley did not hold a position in any of the aforementioned securities. You can follow him on Twitter, at @jbrumley.


Article printed from InvestorPlace Media, https://investorplace.com/2017/12/boeing-co-ba-stock-pullback-buy/.

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