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China's Tariffs on Boeing Disconcerting but Likely Symbolic

China's Tariffs on Boeing Disconcerting but Likely Symbolic
Securities In This Article
Spirit AeroSystems Holdings Inc Class A
Boeing Co

Chris Higgins: China unveiled another list of possible tariffs for U.S. products, and for the first time the proposed tariffs target U.S. manufactured commercial jets. Naturally, the inclusion of Boeing aircraft is disconcerting for investors. Wide-moat Boeing is down on the back of the tariff news and is now triggering our 3-star rating, indicating that the stock is fairly valued. The other name we cover with significant exposure to Chinese aircraft demand is no-moat Spirit AeroSystems, and right now we think it's slightly undervalued.

The possible tariffs target aircraft with empty weight of 15,000 to 45,000 kilograms. Based on operating empty weights, China's weight range means only older 737 variants would be impacted. The newer 737 MAX variants wouldn't be impacted--noting that it's not clear whether the smallest MAX version (the -8) would be subject to the tariff or not, due to possibly different definitions of "empty weight." Wide-body aircraft like the 787 or 777 are clearly excluded.

On the one hand, since the older 737 is nearing the end of production and wide-bodies are excluded, the tariff seems symbolic and likely a negotiating tactic. Indeed, if the MAX 8 escapes unscathed, the tariffs really don't mean much for Boeing or for China. On the other hand, the fact that China is now targeting U.S. made aircraft--a product that Chinese airlines need to meet air travel demand--indicates that the dispute is heating up. We continue to believe that if China really wants to hurt the U.S., it's more likely to shift airline orders to Airbus.

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About the Author

Chris Higgins

Senior Equity Analyst
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Chris Higgins, CFA, is a senior equity analyst for Morningstar Research Services LLC, a wholly owned subsidiary of Morningstar, Inc. He covers aerospace and defense companies, airports, and airlines.

Before joining Morningstar in 2015, Higgins spent eight years working for Airbus Group in both the United States and Europe. While at Airbus Group, he held a variety of positions, ranging from corporate development to investor relations.

Higgins began career in strategy consulting, where he consulted leading U.S. and European aerospace and defense prime contractors. During his time in consulting, he led teams that solved business challenges ranging from merger and acquisition decisions to new product launches.

Higgins holds a bachelor’s degree in economics from Rhodes College, where he graduated as a member of Phi Beta Kappa, and a master’s degree in finance from The Henley Business School in the United Kingdom. He also holds the Chartered Financial Analyst® designation.

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