Boeing (BA) shares are down nearly 3% in pre-market trading in the U.S. after reports that China has instructed its domestic airlines to halt the receipt of additional aircraft from the American manufacturer, amid the escalating trade war between the U.S. and China.
- According to Bloomberg, citing anonymous sources familiar with the matter, Beijing has also reportedly asked Chinese carriers to suspend purchases of aviation equipment and parts from U.S. companies. Theoretically, if Boeing is unable to deliver aircraft to China, there is a risk that the life cycle of older planes will be extended—meaning they will remain in operation longer instead of being replaced.
- This appears to support the business of certain U.S.-based companies such as Heico (HEI.US), which is closely tied to Boeing, by potentially increasing demand for aircraft servicing and replacement parts. Airlines may also be forced to step up repair and maintenance efforts to keep their fleets operational. Heico shares are up nearly 1% pre-market today; also the company has a very low exposure to Chinese market.
The new tariffs on U.S. imports more than double the cost of American-made aircraft and parts, effectively making it impractical for Chinese airlines to accept Boeing deliveries. Boeing shares are down over 10% year-to-date, and the company has yet to respond to a request for comment. The ongoing trade war is deepening Boeing’s strategic challenges.
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Source: xStation5
