Megadeal negotiation

Boeing (BA) is reportedly negotiating a deal with Chinese authorities that’s believed to be the company’s largest ever order for its wide-body aircraft.

Citing anonymous sources, Bloomberg reported on June 5 that the aircraft manufacturer was discussing orders for ~100 twin-aisle jets.

Boeing Is Reportedly in Talks with China for a $30 Billion Order

As per the report, the company is pitching two variants of its twin-aisle planes: the 787 Dreamliner and the 777X. The negotiation is mainly focused on Boeing’s new long-range 777-9 model, which is expected to debut its first flight by the end of this month. The 777-9 variant is also Boeing’s costliest plane, with a price tag of $442.2 million.

On June 5, Boeing stock gained 1.2% on the news. The stock has returned 8.1% in the year so far and has underperformed the gains of the iShares US Aerospace & Defense ETF (ITA), which invests in US-based manufacturers, assemblers, and distributors of airplane and defense equipment. The ETF has returned 21.6% YTD (year-to-date). Boeing’s peers United Technologies (UTX), Lockheed Martin (LMT), and L3 Technologies (LLL) are up 23.4%, 34.7%, and 47.2%, respectively, YTD.

No deal is imminent

It’s expected that the deal will be worth over $30 billion. However, Bloomberg has stated that no agreement is imminent due to escalated trade war complications between the US and China.

The trade dispute between the world’s two largest economies has intensified since the Trump administration raised tariffs on $200 billion worth of Chinese imports to 25% from 10% on May 10. In retaliation, the Chinese Ministry of Commerce announced on May 13 that China would increase tariffs on $60 billion worth of US imports starting on June 1.

The tensions between the US and China further escalated on June 1 after Chinese Minister of National Defense Wei Fenghe warned the US not to interfere in security disputes related to the South China Sea and Taiwan. In response to this warning, acting US Defense Secretary Patrick Shanahan said that the US “would no longer ‘tiptoe’ around Chinese behavior in Asia,” Reuters reported on June 1.

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