Sanctions on Iran

On May 8, President Donald Trump announced that the US would withdraw from the nuclear deal with Iran. The statement resurrected fears of the US re-imposing sanctions on Iran. While the other world leaders of countries such as Germany, France, and the United Kingdom reiterated their support for the deal, the US sang a different song. President Trump was of the view that Iran has used the nuclear pact and diverted oil receipts to create anarchy in the Middle East.

Will President Trump’s Sanctions on Iran Hurt Boeing?

Will Boeing be affected by Trump’s views on Iran?

The largest aerospace company in the world along with rival Airbus will likely be hit by President Trump’s decision regarding the Iran deal. After the sanctions were lifted on Iran in 2016, Boeing along with Airbus in 2016 signed combined deals worth $40.0 billion to supply jetliners to Iran.

Boeing’s CEO, Dennis Muilenburg, disclosed that the company has contracts worth $20.0 billion with airline companies in Iran for the delivery of 110 aircraft. The most notable aspect of Muilenburg’s disclosure was non-inclusion of these contracts in the company’s order book. The company’s CEO stated that the company hasn’t started building or reserved production slots for orders from Iranian airliners. However, Boeing’s rival Airbus had already completed delivery of three aircraft as a part of a 100-plane order from Iran Air.

Apart from that, Airbus receives around 10% of aircraft parts from the United States. With the US’s new position on Iran, this could also impact Airbus. Interestingly, Airbus has revealed that the company would comply with the US sanctions on Iran. At the end of Q1 2018, Boeing had a backlog of 5,800 aircraft valued at $415.0 billion. Looking at Boeing’s strong balance sheet and robust operating margins, Trump’s action on Iran wouldn’t mean much to the company. However, rival Airbus seems to be in a catch 22.

ETF discussion

Investors looking for opportunities to invest in US aerospace and defense companies can consider the iShares U.S. Aerospace & Defense ETF (ITA). Among all the ETFs covering Boeing, ITA has the most exposure of 11.4% to the company’s stock. The other major industrial companies in ITA’s holdings in descending order are United Technologies (UTX) at 7.7%, Lockheed Martin (LMT) at 7.0%, and Raytheon (RTN) at 6.3%.

In the next part, we’ll look at Boeing’s revolutionary wing folding mechanics.

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