Boeing Stock Faces Domestic Political Threat from Trump White House
Following the victory of Donald Trump in the U.S. presidential elections, Washington could change its positions vis-à-vis Iran. This is a big deal for Boeing Co (NYSE:BA). Indeed, Boeing stock, which has been flying lately, could take a major hit.
The Regulatory Commission in the U.S. House of Representatives is trying to prevent the sale of 80 airliners to Iran. That’s a deal worth some $27.0 billion. Boeing stock would certainly suffer, given that the Iran Air order was one of the most significant single orders in years.
But that’s just the initial order. Iran needs a complete overhaul of its commercial aviation industry, which has taken a major blow after years of debilitating sanctions. The Regulatory Commission has already passed the draft text of a bill to pull the United States away from the Iran deal.
Such a bill, if it were to pass the Senate and the White House, would override the Treasury Department’s permission for Boeing to sell the planes to Iran. (Source: “U.S. Officials Approve Deal With Iran For Boeing Planes,” NPR, September 22, 2016.)
For the sake of Boeing stock shareholders, it would be best if such a bill were to be presented before the end of this year.
Indeed, should the Senate ratify the anti-Iran draft bill, President Barack Obama would likely block it, using his veto. But, in such a scenario, it would be up to President-elect Donald Trump—who has often voiced his opposition to the nuclear deal with Iran—to approve it.
The question is whether Trump has the stomach—and the shortsightedness—to approve such a law. As much as he has criticized the Iran nuclear deal, a $27.0-billion contract is merely the first economic prize that the United States has gained from the deal. The deal guarantees many American jobs. BA stock has gained some 26% year-to-date.
Scrapping Iran Deal Sends Terrible Signal to American Goods Importers
Washington would present an unreliable face to foreign buyers if it scrapped the Iran deal. In turn, it would weaken American political strength abroad, because scrapping the deal says: Washington does not honor its commitments. The text was adopted by 243 votes to 174. Eight Democrats joined the Republicans in favor of the bill. This blocks the Treasury Department from granting the licenses that U.S. banks require to finance the sale of commercial aircraft. (Source: “U.S. House Votes to Stop Sales of Boeing Jetliners to Iran,” Bloomberg, November 17, 2016.)
Airbus Group SE (EPA:AIR) and Boeing’s contracts for the sale or lease of more than 200 aircraft to Iran Air are essential. Iran needs to modernize and expand its aging aircraft fleet, which is kept up-to-date by smuggling or copying—reverse engineering—parts. However, the bill is unlikely to be adopted under the present mandate. The Senate still has to vote on it, and the Democrats have the numbers to put up strong opposition. President Obama has promised to veto the law.
The anti-Iran bill could surface again. Donald Trump, who will succeed Barack Obama on January 20, won’t be so quick to veto it if Congress passes another similarly intended draft in 2017.
Would Trump be so ideological as to compromise the very American jobs, and the many American investors, who keep Boeing stock a top Dow component in their portfolios? What’s more, it’s not just Boeing that loses. Many American suppliers from jet engine producers to landing gear makers would also lose.
It Would Be Embarrassing to Force Boeing to Give up Billions of Dollars in Sales
Airbus, which also needs U.S. Treasury permission—many important components on Airbus planes are made by U.S. suppliers—gets as much political support from European authorities as possible.
In that case, President Trump would have to think three or four times before scrapping the Iran deal. Boeing is America’s top exporter. Forcing it to give up the sale would give rival Airbus, and a slew of European and Japanese suppliers, a major boost. This would have a negative impact on Boeing stock.
The Europeans would put considerable pressure on the United States. It would source components from Europe or a growing number of Chinese and Japanese manufacturers. Indeed, faced with a threat to tens of billions of dollars in contracts with Iran, the EU would likely get cozier with Russia, which has significant aerospace experience.
If Europe were to lose the ability to sell Airbus planes to Iran, it would turn the screws on U.S. tech companies in Europe. It could slap higher taxes, antitrust rulings, and all kinds of legislation to send the message. Germany, which was party to the nuclear deal, is a major Airbus shareholder.
This is not an occasion to hail in the “freedom fries” or “liberty cabbage” (sauerkraut). Scrapping the Iran deal could mean dozens of billions in lost economic opportunities. Boeing stock is merely the most visible one.