Will it or won’t it? Will Boeing Co (NYSE:BA) shrug off a trade war, if indeed one is brewing? Or, are owners of Boeing stock simply fretting for no good reason?
There are plenty of answers to the questions… perhaps too many. And, frustratingly, the myriad of answers land all over the spectrum, with some suggesting the aircraft manufacturer is doomed, while others say Boeing’s executives should enjoy a good chuckle over the pointless mania.
Wherever you fall on the good/bad spectrum, before settling onto one side of the fence or the other, you might want to chew on the facts and logic from both sides of the fence that some of the market’s top analysts have applied to the situation.
No Biggie for Boeing Stock
Cowen analyst Cai von Rumohr arguably makes the most cogent case that owners of Boeing stock don’t exactly have to sweat here. Though he understands that China bought 23% of the aircraft Boeing delivered last year, he doubts that China actually wants to go toe-to-toe with the U.S. in a war of tariffs.
“China is more likely to negotiate trade issues than pursue retaliatory measures. Thus, Boeing trade concerns seem overblown. It looks to us as if China has considerably more to lose than the U.S. from a trade war and is unlikely to make Boeing a retaliatory target.”
Von Rumohr also suggests that switching airplane suppliers is no simple matter. Different aircraft come in different seating capacities and require different operating costs, which are often planned and budgeted years in advance.
So, while Airbus Group (OTCMKTS:EADSY) and even China’s young aircraft company The Commercial Aircraft Corporation of China, Ltd. (COMAC) are alternative suppliers, China’s airlines are comfortable with Boeing’s planes.
There’s also the matter of the massive production planning needed by aircraft companies just to ramp-up their production capacity.
Melius Research aerospace analyst Carter Copeland explained “Airbus can’t just ramp up its production immediately. There’s not much flexibility to just switch from one manufacturer to the other,” adding that orders and plans have already been made through 2022.
In the meantime, Boeing stock owners can take some solace that the aircraft giant isn’t nearly as dependent on Chinese materials and component suppliers are many are assuming.
That’s the word from Fundstrat Global Advisors’ Tom Lee, who took a deep dive into Boeing’s numbers early this month to find that, on an input-cost and sales basis, the company isn’t as dangerously exposed to trade war risks as the market might fear. He’s even calling the trade war-related weakness from BA stock a buying opportunity.
Turbulence Ahead for Boeing Stock
Not every observer thinks Boeing will be able to simply fly through the storm of any trade war.
Mr Richard Aboulafia, VP of analysis for aerospace market analysis outfit Teal Group, is one of those doubters.
He recently commented on the matter “Unfortunately, Boeing makes an easy target for anyone wishing to retaliate against the new U.S. trade measures,” adding “A few large block orders for Airbus would send a strong message, particularly if China abstains from any Boeing orders for some time.”
AirInsight’s Michel Merluzeau agreed, also saying “Chinese air carriers would only have to place a few large orders of [Airbus”] A330-800neo and A321neo jets to hurt the newer [Boeing] aircraft’s potential.”
That new aircraft is actually several different versions of Boeing’s mid-sized planes that meet the capacity and efficiency needs of several carriers inside and outside of China.
And both industry experts point to an important aspect of aircraft companies’ part in any trade war… that whatever happens is going to take time.
If any tariffs become a permanent fixture on the trade landscape, it will slowly but surely take a toll on Boeing, as Airbus will eventually invest in its production capacity if China is willing to buy from the European company.
In the meantime, the five to six years Merluzeau thinks COMAC will need to reach a meaningful pace of airplane output roughly aligns with the point in time when Boeing’s backlog will be cleared and carriers will start paying for — and accepting delivery of — the aircraft they’ll be ordering in the very near future.
In other words, Boeing may be taking a hit right now, with nobody realizing it.
Bottom Line for Boeing Stock
Realistically speaking, the answer to the initial question is somewhere in the middle, as is the case with most truths. Boeing will likely feel the adverse impact of a targeted trade war, but when all is said and done, capitalism finds a way of making deals happen, even frustrating deals.
In other words, though it could require some turbulent adjustments, a trade war isn’t inherently a reason to dump your Boeing stock, nor will the avoidance of a trade war make Boeing stock sizzle. In the end, it’ll wind up being a relatively boring and mostly predictable story, assuming the trade war becomes one built more on rhetoric and less on actual tariffs.
Either way, it could take years for the chips to fall, and a lot can happen in the meantime. It may not be worth worrying about simply because no one can see that far into the future.
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.