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Boeing (NYSE: BA) is trading lower today amid reports that China has asked its airlines to halt deliveries of the US-based aircraft company amid the escalating trade war. US President Donald Trump has slapped China with 125% “reciprocal tariffs” on top of the 20% fentanyl-related tariffs that he previously imposed.
US-China Trade War
China too has announced tit-for-tat tariffs which has led to an escalation in the trade war between the world’s two largest economies. The two countries gradually increased the tariffs as China retaliated against Trump’s reciprocal tariffs of 34%. Along with the tariffs, China also restricted the exports of rare earth minerals while classifying some US companies are “unreliable entities” which amounts to blacklisting them.
Meanwhile, amid concerns over the tariffs pushing the US economy into a recession, Trump walked back on the reciprocal tariffs on tech goods like smartphones and computers. The announcement was a big relief to companies like Apple and HP which rely heavily on imports from China.
China Reportedly Halts Boeing Deliveries
Just when it seemed that the trade war between the two countries had stabilized, reports of China halting deliveries of Boeing aircraft popped up. The reports are not exactly surprising as even during the 2018 trade war during Trump’s first tenure, China threatened to replace Boeing with Airbus. The Europe-based aircraft maker is already the dominant player in China and Boeing risks losing market share further in the Communist country which is among its key growth markets along with India.
Boeing has always been a flashpoint between the US and China. China was the first country to ground Boeing’s 737 MAX jets after two fatal crashes in 2018 and 2019 and was among the last to allow the model into service.
Notably, around 10 Boeing 737s are in the process of entering the fleet of Chinese airline companies. While some of these are waiting at Boeing’s manufacturing plants in Seattle, they might escape the tariffs as their paperwork and payments were reportedly completed ahead of the tariffs. Incidentally, several companies made arrangements to offset the tariffs in the short term and increased their inventory.
Boeing Could Face Another Headwind
Meanwhile, China halting Boeing deliveries could not come at a worse time for the Virginia-based company as it had just started to recover from the 737-crisis emanating from whistleblower allegations of the company cutting corners on the popular models to boost profits.
After the second incident, the aircraft was grounded globally for 20 months. Boeing eventually reached a $2.5 billion deferred prosecution agreement with the Department of Justice (DOJ) to avoid prosecution on a single charge of fraud.
In January 2024, the door panel of a 737 Max jet blew off during an Alaska Airlines flight. Subsequently, the same year, the engine cover on a Southwest Airlines Boeing 737-800 fell off during takeoff in April.
In his explosive testimony last month, whistleblower Sam Salehpour reiterated Boeing was very much in the know about the safety issues but not only ignored them but also retaliated against him when he brought these to the notice.
Boeing Got a New CEO Last Year
Last year, Kelly Ortberg who has been in the aerospace industry for over 3 decades and was leading Rockwell Collins between 2013 to 2021, took over the baton as Boeing’s CEO. He replaced Dave Calhoun under whose leadership Boeing stock has sagged and underperformed markets by a wide margin.
Incidentally, Calhoun became the CEO in early 2020 shortly after two new 737 Max jets crashed in quick succession, just a few months apart, between 2018 and 2019, in Indonesia and Ethiopia.
Under his tenure, Boeing’s reputation in terms of safety deteriorated even further and several of its aircraft were involved in safety-related incidents with the management widely seen to be hushing up rather than addressing the structural issues that cause such repeated incidents.
Among others, Ortberg is pushing for a cultural change at Boeing. During the Q4 2024 earnings call, he said, “This (culture change) will be a multiyear journey, but we’re already making progress. Our leaders are getting more engaged with their teams and customers. We’re having the frank discussions about what we need to change.”
Boeing Hasn’t Posted an Annual Profit Since 2018
Boeing hasn’t posted an annual operating profit since 2018 – which coincides with its safety woes. The company has been burning cash and expects to post negative cash flows in 2025 also. Amid Boeing’s safety woes rival Airbus has outpaced it in orders and deliveries for six consecutive years.
China Is targeting Aircraft Manufacturing
Notably, Chinese state-owned plane maker COMAC is also trying to expand internationally. While COMAC is arguably an untested player for global airlines and not many foreign airlines might order from them, Boeing does not have any laurels to its name either when it comes to credibility – or at least that’s what the general perception has been about the brand over the last couple of years.
Meanwhile, by halting the fresh deliveries of Boeing aircraft, China might only escalate the trade war with the US as Boeing is among the symbols of American manufacturing.
