Why Trumponomics Could Make or Break Boeing
This Friday, Boeing will unveil its 787-10 airplane model at its plant in North Charleston, S.C., and it has been widely reported that President Trump will attend the event. That’s only fitting: Shares of Boeing have been flying high as of late, and Trump’s policy decisions are likely to have a major impact on whether they keep doing so.
Since releasing its quarterly earnings in late January, the airline manufacturing giant has seen its stock (BA) jump 5%. The price bump is part of a larger surge in the last year that has seen shares of Boeing rise 55%, to new highs.
Boeing has pleasantly surprised analysts the last three quarters, most recently posting a forth quarter profit of $1.63 billion, up significantly from a year earlier, when the company posted $1.03 billion in earnings.
The guidance Boeing issued for 2017 is a mixed bag. The company projects $3 billion less in revenue than it generated in 2016, as airlines move away from purchasing the 747 and 777 passenger jet models, instead opting for the cheaper 737. However, the company expects free cash flow to go up by $550 million, to $8.5 billion. Some of that cash could fuel increased dividends or a stock buyback, which should give investors more incentive to buy.
Airlines aren’t where all the action is. The company generates a little less than a third of its revenue, but 54% of its profit, from its Defense, Space & Security division. (The defense division carries a profit margin higher than 10%, as opposed to the 4.8% the commercial division produces.) This looms large, as President Trump has positioned himself as a security and defense stalwart, which could translate to more military purchases in the future.
But Trump’s America First stance might also cast a negative shadow on the company, because he may very well set off trade wars with other nations. Foreign companies account for 60% to 70% of Boeing’s commercial sales, so even a slight change to the status quo will likely negatively affect Boeing’s bottom line. Last month, an editorial in the Global Times, a Chinese newspaper run by the Communist Party’s official People’s Daily, expressed interest in resolving any trade issues with the U.S., but warned that the Party was not afraid of a trade war, specifically singling out Boeing as a company that would suffer in any dispute. Boeing, which estimates China will need to spend over $1 trillion on 6,800 new jetliners over the next 20 years, would be in a very tough spot if the threat has teeth.
Boeing has also recently made headlines as it fights against efforts to unionize workers at its 787 Dreamliner manufacturing plant in North Charleston, where a vote on whether to unionize is scheduled for Wednesday. The International Association of Machinists and Aerospace Workers, which has already unionized Boeing’s other Dreamliner factory in Washington state, is looking to bring the Charleston plant into the fold. Boeing has been fiercely opposed to such a move, claiming the union creates hostility with management and causes work stoppages that are most costly than they are worth for both sides.
If Trump does indeed show up to boost the company on Friday, it’ll be a much appreciated sign of a happy relationship. That’s noteworthy, considering that Trump not long ago chided the company via Twitter over the $4 billion Boeing was charging to build two new Air Force Ones.