Boeing to Lose $20 Billion as Trump Exits Iran Deal

Boeing to Lose $20 Billion as Trump Exits Iran Deal

 
US President Donald Trump unilaterally withdrew from the Obama-era nuclear deal with Iran. The decision was made against the advice given by the European allies. In 2015, Iran accepted the Joint Comprehensive Plan of Action (JCPOA), which curbed its nuclear activities, in return for the lifting of sanctions that had been imposed by the US, EU and UN. Following Trump’s announcement, the US Treasury stated the economic sanctions will not take into effect immediately, but would be subject to 90-day and 180-day wind-down periods. So, Trump’s decision places a question mark on the $20 billion deal Boeing Company (NYSE: BA) signed with the Iranian airlines. However, as explained below, Boeing will not be affected due to Trump’s announcement. We expect Boeing to remain strong due to reasons given below.

On Tuesday, the US Treasury Secretary Steven Mnuchin announced that licenses for Boeing and Airbus to sell passenger jets to Iran will be revoked. In December 2016, Boeing signed an agreement with Iranian Airlines to sell 80 jets, which includes 50 of the 737 MAX 8 model. It is the largest deal ever signed with Iran Air. In April 2017, Iran Aseman Airlines signed an agreement to purchase 30 Boeing 737 MAX planes, with an option to acquire another 30. Put together, the value of orders received by Boeing was roughly about $20 billion. Airbus, the European competitor of Boeing, received an order for 100 aircraft worth another $20 billion. After inking the deal, at that time, Boeing had stated the Iran Air deal would support 100,000 US jobs. With sanctions in place, investors may be afraid that Boeing’s performance will decline. However, it is not the case.

Firstly, Boeing has not delivered even a single Jet to Iran. Secondly, the agreement was not entered into their order book. This means, there is no change in the backlog. Dennis Muilenburg, CEO of Boeing had mentioned last month that deliveries to Iran had been deferred beyond 2018. Furthermore, the production plans do not include sales to Iran. Therefore, Boeing’s aircraft production rate is not dependent on the orders from Iran.  All these facts implies that Boeing will not be affected by the sanctions in any manner.

It should be remembered that Boeing had a backlog of over 5,800 airplanes at the end of first quarter. This includes more than 4,600 orders for 737s. Therefore, the loss of Iranian order will not have any impact on Boeing.

Boeing’s spokesperson said “Following today’s announcement, we will consult with the U.S. government on next steps. As we have throughout this process, we’ll continue to follow the U.S. government’s lead.”

Therefore, the stock of Boeing will continue to remain fundamentally strong, despite the loss of aircraft orders from Iran.

Technically, the stock of Boeing has formed a bullish flag pattern, as shown in the image below. Furthermore, the accumulation/distribution indicator is rising. Therefore, we are expecting the stock to rally in the short-term.

Boeing - Technical Analysis - 10th May 2018

We believe that it would be beneficial to acquire a call option from a binary broker when the stock of Boeing is trading near $338 in the NYSE. At the time of investing, we will select an option contract which would remain active until May 18th.

Disclaimer: The trading analysis offered here is our opinion. It is not provided as trading advice, merely an indication of our trading plan. We cannot guarantee success and we encourage traders to incorporate a strong money management strategy to limit losses. Please use this article as part of your own research before formulating strategies prior to trading. 


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