Financial Advisors Eye Boeing as It Enjoys Support from Washington in Trade Row with Bombardier

The US stock market further gained ground last week, despite a rocky start on Monday. Dow Jones inched up by 0.25% in the trading week between September 25 and September 29, even though it registered its first four-day losing streak since June on Tuesday. The S&P 500 and the tech-heavy NASDAQ 100 registered a much better performance with gains of 0.66% and 0.80%, respectively, helped by Facebook Inc (NASDAQ:FB), which advanced by 4% between Wednesday and Friday. Technology and Financials were the best performing sectors in the S&P 500, having appreciated by 1% and 1.5% last week. The financial sector received a boost on Wednesday amid reports that President Donald Trump and GOP leaders are planning to reform the tax system, which would reduce the corporate tax rate to 20% from 35%. On Thursday, White House chief economic advisor Gary Cohn said during an interview on CNBC that the 20% corporate tax rate was non-negotiable.

Meanwhile, the most searched tickers among financial advisors remained relatively unchanged, according to TrackStar, the official newsletter of Investing Channel’s Intuition. Apple Inc (NASDAQ:AAPL) maintained its leading position, as information regarding the production and sales of the two recently-released iPhone models continues to pour in., Inc. (NASDAQ:AMZN) ranked on the second spot following the announcement of new products, General Electric Company (NYSE:GE) moved lower to the seventh spot from the fifth it had held the previous week, following the official announcement of the sale of its industrial unit to ABB and some updates regarding its diesel locomotive factory in India. Gilead Sciences, Inc. (NASDAQ:GILD) advanced a few positions and was the fifth most-searched ticker last week as its rival Merck & Co., Inc. (NYSE:MRK) said it would drop the development of new treatments for the hepatitis C virus (Gilead is the largest player on the HCV market).

To quote John Oliver, our main story is Boeing Co (NYSE:BA), which ranked as the fourth most-searched tickers among financial advisors last week. Boeing Co (NYSE:BA)’s stock inched down by 0.90% last week, although it jumped close to its 52-week high on Wednesday morning. A day earlier, it was reported that the US Commerce Department’s International Trade Commission ruled that Canadian Bombardier airplanes should be slapped with a 219.63% tariff. The ruling was made after Boeing Co (NYSE:BA) complained that Bombardier was subsidized by the Canadian government, which allowed it to sell its C Series airplanes at a discount.

The complaint was made after Delta Air Lines, Inc. (NYSE:DAL) placed an order to purchase 125 Bombardier C Series planes, which Boeing Co (NYSE:BA) alleges were sold at below cost due to government subsidies. In a statement, Boeing said that the complaint “has nothing to do with limiting innovation or competition, which [they] welcome. Rather, it has everything to do with maintaining a level playing field and ensuring that aerospace companies abide by trade agreements.” However, the Canadian Foreign Affairs Minister Chrystia Freeland was quoted as saying that the move “is clearly aimed at eliminating Bombardier’s C Series aircraft from the US market.” Freeland also pointed out that the C Series airplanes are made using American components, which support around 23,000 jobs in the US.

The price for the C series airplanes is around $80 million, but carriers usually receive discounts of up to 50%. Boeing claims that Delta Airlines received the airplanes for $19 million per unit. The new tariff would more than triple the cost of an aircraft. The tariff will be imposed if the International Trade Commission rules in favor of Boeing in its final decision expected in 2018. Boeing, reportedly asked for a lower tariff and the ITC did not provide information on how it came up with the 220% import duty.

Bombardier, which is headquartered in Montreal, called ITC’s ruling “absurd and divorced from reality.” It also accused Boeing Co (NYSE:BA) of “seeking to use a skewed process to stifle competition and prevent U.S. airlines and their passengers from benefiting from the C Series.”

Delta Airlines defended Bombardier in a statement cited by Reuters, saying that “no US manufacturer is at risk, because neither Boeing nor any other US manufacturer makes any 100-110 seat aircraft that competes with the CS100.” JetBlue, another airline, also came to Bombardier’s aid sending a letter to the ITC, in which it said that the import duty would be a threat to its ability to “continue to innovate and provide benefits to the flying public.” According to Bloomberg, JetBlue is planning changes to its fleet, which includes replacing its Embraer SA E190s airplanes, which are likely to be replaced with C series, as it has held talks with the Canadian aircraft manufacturer.

Following the ITC’s ruling, Canadian Prime Minister Justin Trudeau ordered to put on hold the government’s $5.2 billion order for Boeing F/A-18 Super Hornet fighter jets, saying that the Canadian government couldn’t engage in “business with a company that’s busy trying to sue us and put our aerospace workers out of business.” 

The dispute might have many repercussions as the US and Canada are currently in talks to re-negotiate the North American Free Trade Agreement together with Mexico. The row between the two companies also implicates the UK government because Bombardier has a large plant in Belfast, Northern Ireland where it employs 4,000 people. British Prime Minister Theresa May even asked President Trump to intervene and prevent the imposition of tariffs. However, according to Bloomberg, which cites unnamed officials, the private position of the British government is that Canada is to blame for the Bombardier-Boeing dispute because it provided too much aid to the aircraft-maker.

In this way, Boeing Co (NYSE:BA)’s latest trade dispute shows that it won’t spare any means to remain dominant. It has used its ties with Washington in the recent months to persuade president Trump to keep the US Export-Import Bank and might use them in the future. Even though it’s true that Bombardier is much smaller in size compared to Boeing and its C Series planes indeed don’t compete with Boeing’s airplanes, Boeing’s complaint and the ITC ruling might send a signal to other companies, such as Chinese commercial aircraft manufacturer Comac, whose airplanes are in the late stages of development.

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