Sunday, November 13, 2016

Boeing's Chinese jet orders are 'vulnerable' under Trump, Morningstar analysts say

Boeing faces turbulent skies under a Donald Trump administration because of his anti-trade rhetoric and criticism of China, according to a new report by investment research firm Morningstar.

President-elect Trump's international trade criticism and tough talk on China could "ding" the commercial aerospace sector, Morningstar said in a report published Friday. Especially at risk is the industry's leading player, Boeing.

"We’re concerned about the impact of slowing trade and air travel hitting transports, aerospace manufacturers, and airlines," Morningstar analysts Keith Schoonmaker and Chris Higgins wrote.

The pair pointed to critical remarks Trump made during his campaign about Boeing’s plans to open a Chinese 737 jet completion center and potentially shift more jobs to China.

"We think Boeing’s Chinese orders – China accounts for an estimated 20 percent of the company’s commercial aircraft backlog in units – may be vulnerable," they wrote.

Boeing executives blasted Trump during the campaign, saying the Chicago-based company benefits far more from its dealings in China than do the Chinese.

Since Trump's stunning election win, however, Boeing has gone dark, saying little except to congratulate him and his fellow Republicans. Boeing Commercial Airplanes spokesman Paul Bergman in Seattle declined to comment on the Morningstar report or any of the scenarios it outlines.

"We’re a bit concerned that Trump’s tough trade rhetoric might translate into action and create headwinds for global trade and air travel demand," the analysts said. "This could crimp new aircraft orders and potentially lead to deferrals or cancellations."

"Wide-body planes like the B787, B777, and A350, which were already facing a soft market, could suffer disproportionately, in our view," they added.

The Morningstar analysts said it would be "nearly impossible" for the Chinese to satisfy its growing demand for jets solely through the government-owned Commercial Aircraft Corp. of China (COMAC), which produces the narrow-body C919 passenger aircraft and proposed making a wide-body with Russia.

"Nonetheless we could envision a scenario where the Chinese react to tougher U.S. trade policies by funneling more narrow-body orders to COMAC, China’s national champion, and favoring Airbus’ aircraft over Boeing’s."

Plans to sell aircraft to Iran "will surely be subject to increased scrutiny," they added, not just for Boeing but also Airbus, because the European manufacturer uses aircraft parts made in the U.S. that require U.S. approval.

Other aerospace suppliers like airplane structures manufacturer Spirit AeroSystems, air systems and engines maker United Technologies, aerospace components maker TransDigm and avionics and cabin interiors firm Rockwell Collins  could also be buffeted by the same winds as Boeing and Airbus if Trump persists with his anti-trade rhetoric and China criticism.

Original article can be found here: http://www.bizjournals.com

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