Boeing share price soaring, but turbulence lies ahead

[sakura]

 

Boeing’s (BA) share price has risen an impressive 66% compared to this time last year, boosted by enthusiasm in the airline and defence markets. Increased travelling has had a positive effect on airline traffic, while rising international tensions have prompted countries to increase spending on defence. 

But there is turbulence ahead for Boeing in the shape of increased competition in its biggest operating segment, airline business, which has yielded $65 billion of the company’s $95 billion total revenue over the last two years. 

While this is unlikely to send Boeing’s share price into a tailspin, it might be expected to move sideways for the foreseeable future. 

Airbus, Boeing’s main rival in the airline business, have traditionally made bigger planes and hadn’t been able to benefit from the recent downsizing trend in the airline industry and increased demand for smaller, more fuel-efficient planes. 

However, now Airbus has taken a majority stake in Bombadier’s C series jet programme, and in an instant, has added a high-performing, smaller sized aeroplane to its range without incurring any acquisition costs. 

Some commentators see the problem being of Boeing’s own making, others describe it as comeuppance for Boeing’s attempt to shoot down Bombadier’s plane before it took off by accusing the Canadian aerospace firm of receiving state aid and getting US trade authorities to impose 300% import tariffs on the C series jet. 

The C series could now be built at Airbus’ US plant in Alabama, which may mean the plane would not be subject to any anti-subsidy or anti-dumping duties – final decisions will be made in December and February 2018. 

The irony is that the C series aircraft does not compete against any model Boeing currently makes; their request for duties was an attempt to keep that segment of the market empty in case they wanted to return to it. 

Airbus now has a controlling stake in a fuel-efficient aircraft for which most development costs have already been paid. Bombadier were planning to build around 300 C series jets, Airbus now expects to sell thousands of them. 

While Boeing dominate the “widebody” segment of the $200 billion a year industry, Airbus has already grabbed 50% of the “narrowbody” segment with acquisition of the C series, which may force Boeing into spending tens of billions of dollars launching a new “narrowbody” jet of their own, much sooner than they had planned to. 

Britain wasn’t impressed by Boeing’s bullying of Bombadier. 4,200 jobs in Northern Ireland were put in jeopardy by the tariff in a region in which the main political party is part of Prime Minister Theresa May’s coalition government. Britain’s defence secretary said the move jeopardised Boeing’s chances of winning government contracts. 

 

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