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Why Boeing Was the Worst Dow 30 Index Performer on December 6

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Dec. 7 2018, Published 8:06 a.m. ET

Boeing’s stock plunged

Boeing (BA) stock fell ~3.1% on December 6, making it the day’s worst-performing stock among the Dow Jones Industrial Average’s 30 stocks. The stock opened 3.7% down and fell as much as 7.4% during yesterday’s trading session due to two main reasons: the broader market sell-off on possible trade tension escalation between the US and China and news of Lion Air considering canceling orders for Boeing’s 737 Max jets.

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The initial blow to Boeing’s stock came due to the broader market sell-off triggered by the arrest of Huawei Technologies’ CFO, which raised fears of a potentially worsening trade relationship between the US and China. The massive sell-off led to over a 300-point plunge in Dow during the start of yesterday’s trading session.

Canadian authorities this Wednesday said that they had detained Huawei’s CFO, Meng Wanzhou, on December 1 on possible violations of US sanctions against Iran. The United States has sought extradition of Wanzhou.

However, neither the US officials nor Canadian authorities have provided detailed information about why Wanzhou was arrested or how she was violating US sanctions on Iran. Yesterday, China strongly criticized the arrest and demanded clarification about the reasons for detention from the US and Canadian governments.

The timing of the arrest has made investors worried about whether a trade dispute deal between the US and China is really happening in the near future. During last Saturday’s meeting in Argentina, US and Chinese presidents Donald Trump and Xi Jinping announced a cease-fire deal on the tariff war.

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Lion Air may cancel Boeing’s order

Boeing’s stock was also battered on news of Indonesia’s Lion Air considering canceling orders for its fastest selling 787 Max jets after the planemaker put all the blame on the air carrier for the October 29 crash. Lion Air’s 610 flight, which was Boeing’s 787 Max 8 model, crashed in the Java Sea on October 29, killing all 189 passengers and crew members on board.

On December 5, Investor’s Business Daily reported that Lion Air’s co-founder, Rusdi Kirana, said, “I feel betrayed” during a telephone conversation with the news agency. He further said, “I’m preparing documents to propose cancellations. Everything is still under consideration now.”

The Indonesian air carrier is the third-largest buyer of Boeing’s 787 Max planes behind Flydubai and Southwest Airlines (LUV). According to Reuters, Lion Air has already purchased and taken delivery of 197 of these jets and has ordered another 190 planes.

Cancellation of orders from Lion Air would lead to a massive loss of future revenues and cash flows for Boeing. The 737 Max model is one of the biggest contributors to Boeing’s revenue growth. The model is its fastest-selling plane in history. As of September 30, the company has received 4,783 orders from 98 customers worldwide.

Boeing’s 737 Max customers include major air carriers (JETS) Southwest Airlines, American Airlines (AAL), and United Continental (UAL). United Continental and American Airlines have ordered 100 planes each while Southwest Airlines has ordered 280.

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