Is That a Knife in Your Back, Boeing?

By Rich Smith (TMF Ditty) | More Articles
November 19, 2009 | Comments (8)

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The first time the Obama administration did a hatchet job on Boeing (NYSE: BA), it was just business. This time, it feels ... personal.

Strapped for cash back in April, but stuck with two wars to fight (and fund), Obama cut a mighty wide arc as he swung his budget axe. While it's true that Boeing took the brunt of the damage as first Airborne Laser, then the C-17 transport, and finally Future Combat Systems got cut or scaled back. Boeing wasn't the only target of Pentagon budget-cutting madness. Lockheed Martin (NYSE: LMT) lost its prized Raptor fighter jets. Northrop Grumman's (NYSE: NOC) the Kinetic Interceptor ... 

In short, if Boeing was miserable, it had plenty of company. But not so today. This time, it's only Boeing bawling, as the administration snubs the nation's premier airplance builder in favor or improved relations with China.

ARJ? A-OK!
Aiming to allay Chinese concerns that the U.S. isn't treating its products fairly, the president promised this week to "push for closer technical collaboration and eventual U.S. safety approval" for China's ARJ21 regional jet -- a plane not even China has yet certified as safe.

Now, as I explained back in September, ARJ21 does not pose an imminent threat to Boeing. Its small size makes this plane a more natural competitor to the small business jets built by General Dynamics (NYSE: GD) and Textron (NYSE: TXT). The fear, however, is that the president is setting a precedent -- one that will lead to preferential treatment for China's next big thing, a 160-seat airliner aimed squarely at the international Boeing-Airbus duopoly. China says its "C919" will offer operating costs fully 10% cheaper than those of comparable Western airliners -- which makes this impending airplane a real threat to Boeing's profits.

Why, O(bama), why?
So what's the deal here, folks? Does the president "have it in" for Boeing? Boeing shareholders must feel that way today, but if you think about it, there really is method to Mr. Obama's madness.

As president of all of America, Obama is charged with defending the economic interests of all companies. And with fully half the parts on the ARJ21 being "Made in the U.S.A." (and similar prospects for the C919), the president surely feels that even if the arrival of Chinese airliners is bad for Boeing ... it could be very good indeed for parts suppliers like Honeywell (NYSE: HON) and General Electric (NYSE: GE). Perhaps a few eggs need to be broken to spread out some business and improve already frosty trade relations with a rising superpower.

Small consolation to Boeing shareholders, to be sure. But at least we can take comfort in knowing: It's not personal. It's just business.

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Fool contributor Rich Smith owns shares of Boeing. General Dynamics is a Motley Fool Inside Value pick. The Motley Fool's disclosure policy would like to trade you our fish airplane tray for the chicken, and we'll throw in a bag of peanuts.

Comments from our Foolish Readers

Help us keep this a respectfully Foolish area! This is a place for our readers to discuss, debate, and learn more about the Foolish investing topic you read about above. Help us keep it clean and safe. If you believe a comment is abusive or otherwise violates our Fool's Rules, please report it via the Report this Comment Report this Comment icon found on every comment.

  • Report this Comment On November 19, 2009, at 4:26 PM, carlos3c wrote:

    Your comment relative to Obama doing things for "all the USA" might be put in the more prevalent idea that I have - Obama helps his own, I.e., unions and GE - the same people he sleeps with. Please do not give him kudos for being "fair" or unbiased. I do not know, but did he "bow" to any of the Chinese leaders - I do know he took a little heavy criticism for his handling (screwing up) the USA economy - so he might do anything to receive more favourable reviews.

  • Report this Comment On November 19, 2009, at 4:31 PM, brokenhalfshaft wrote:

    It's hard for me to have any sympathy for Boeing after the amount of international outsourcing they have done over the past 10-15 years.

    Boeing mgmt. themselves use the, "it's a global ecomony" excuse when laying off thousands of American employees, so that it can profit from cheaper foreign suppliers.

    To say nothing of the amount of aerospace technology and know-how Boeing has provided to foreign companies as part of it's "globalization".

    Hell, no one has been more important in creating new competitors for Boeing than Boeing itself.

  • Report this Comment On November 19, 2009, at 4:43 PM, EirikRaude2000 wrote:

    Having sold enough Treasury Bills to become the largest debtor to China in the history of time, with the support of every whiner out there opposing this natural course of events, president Obama may not have the luxury of ignoring demands from China for more favorable treatment.

    Just wait for the global environmental changes to disrupt grain production enough to make China demand access to the U.S. grain markets in the next decade, and we will see who really has the upper hand in the relationship.

    This in stark contrast to the '70s situation when the U.S. imposed export embargos on grain in order to maintain lower price levels and curb inflationary pressures here at home due to rising grain prices world-wide.

    Bottom line: the U.S. may no longer be in a position to oppose China in that arena, either. Loss of sovereignty generally is the price of over-extending one-self over extended periods of time. Thank Ronald Reagan and whoever succeeded him.

    I believe Jimmy Carter was the last president ever to advocate some restraints.

  • Report this Comment On November 19, 2009, at 7:35 PM, floopicus wrote:

    This may be less an issue with Obama than it is with Aerospace sector's loss of political influence over the last 20 years. Look at the impending loss of 7.5 billion dollar sale to Dassault Aviation SA, of 36 warplanes to Brazil, just because of Republican Senators hold on confirmation of the US Ambassador to Brazil.

    Either way, this is a good thing for those who believe in "Free Market" :)

  • Report this Comment On November 19, 2009, at 7:42 PM, jonashad wrote:

    Next thing you know, he'll be shipping China a couple of F-22s so they can copy them and build their own version at half the price "so they can protect their interests on the Formosa strait." So what if the Chinese are using government funds to start up their own aircraft industry to compete against Boeing and put it out of business with cheap non-union labor. Gotta keep those Chinese purchases of US Treasuries motoring along as we drive the USA into eventual collapse . . .

  • Report this Comment On November 19, 2009, at 8:10 PM, NOTvuffett wrote:

    Why is it that the current administration can only work to shave costs in defense, but any other type of spending will stimulate the economy? Even if there are not Boeing engineers/insiders here, there will be those that will tell you the government canceled some of their large programs involved with lasers.

  • Report this Comment On November 20, 2009, at 10:44 AM, kabgw wrote:

    Most of the stuff I didn't need but purchased anyway from China has since broken, worn out or simply works no longer.

    Sure don't want to fly in an airplane made in China. Yikes! That is down right spooky!!

  • Report this Comment On November 28, 2009, at 11:44 AM, tc1aaa wrote:

    "Why, O(bama), why?"

    "It's not personal. It's just business."

    Obama does Not Do business. He Does Do personal. This is payback for boeing setting up a second 787 plant in Union Unfriendly Right To Work state South Carolina instead of Seattle owned by the unions.

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