Is Eric Cantor's Shocking Loss Horrible News for Boeing's Future?

Boeing, RwandAir Announce Order for 2 737-800s. Photo: Boeing.  

In a what could be described as the primary upset of the century, House Majority Leader Eric Cantor suffered a stunning defeat to Tea Party-backed challenger, and relative political unknown, Dave Brat. While this is undoubtedly great news for the Tea Party, Brat's win could spell major trouble for Boeing (NYSE: BA  ) . Here's why.

The Export-Import Bank controversy
You may not have heard of the Export-Import Bank, or Ex-Im, but that doesn't mean you're not financing it. Created in 1934 by President Franklin D. Roosevelt, Ex-Im's purpose is to provide taxpayer-backed loans, guarantees, and insurance, for foreign purchases of United States' goods. However, while this purpose may sound harmless, there are many who see Ex-Im as nothing more than an example of crony capitalism. Here are two of the reasons for this assertion:

Boeing 737-900ER. Photo: Boeing.

First, Ex-Im's mission states, "We assume credit and country risks that the private sector is unable or unwilling to accept." In other words, Ex-Im provides deals that private lenders aren't willing to touch -- keep in mind that taxpayers are on the hook for these deals, which now total approximately $134 billion. 

Second, Ex-Im provides favorable deals to foreign businesses, which can have a negative impact on American companies. For example, Forbes reports that 40% of Ex-Im's resources are used to back loans to foreign buyers of Boeing's jets. While this is great for Boeing, Delta Airlines (NYSE: DAL  ) , as well as a number of other American airlines, claims that this financing is negatively impacting their ability to compete against foreign airlines in the global marketplace.

The fight on Capital Hill
Those are just two of the many reasons some lawmakers want to disband Ex-Im. However, there are many -- Eric Cantor included -- who argue that Ex-Im helps drive exports, as well as provide financing to small businesses, thus helping to create jobs. In fact, Cantor was such a strong advocate for Ex-Im, that his loss puts the future of Ex-Im in jeopardy, and the reason is straightforward. 

This year, Ex-Im is up for another five-year reauthorization, and is looking to increase its lending cap from $140 billion to $160 billion. With Cantor gone, Bloomberg reports that senior policy analyst for Guggenheim Securities LLC, Chris Krueger, believes that reauthorizing Ex-Im could be an "even more high-profile/challenging fight." 

What this means for Boeing

Artist rendering of the 737 MAX 8. Photo: Boeing.

According to Bloomberg, Ex-Im's financing for foreign airlines will support $10 billion of Boeing's 2014 sales. However, if Ex-Im isn't reauthorized by Sept. 30, it won't be able to finance new deals. That's bad news for Boeing. In fact, when news of Cantor's loss hit the news, Boeing's stock dropped from $137.35 a share on June 10 at 4 p.m., to $132.50 as of June 13 at 11 a.m. Moreover, Boeing has a history of profiting from Ex-Im financing, and the loss of it could prove to be painful for Boeing's foreign airline sales. Of course, that's supposing that Ex-Im isn't reauthorized.

Right now there's no way to know for certain what Congress will do when it comes to Ex-Im. If Congress decides not to renew Ex-Im's authorization, it's likely that Boeing's stock will take another hit. However, that's not to say it's time to sell Boeing's stock. Boeing is a massive company with a backlog of $440 billion as of its first-quarter report. Further, when it comes to commercial airplane sales, Boeing is one of the biggest players in the world. As such, while the loss of Ex-Im could prove to be detrimental to Boeing's short-term stock price, it could also prove to be a great opportunity for investors looking for a long-term investment. Consequently, investors would do well to continue monitoring congressional debate over Ex-Im's future.

Top dividend stocks for the next decade
The smartest investors know that dividend stocks, like Boeing, simply crush their non-dividend paying counterparts over the long term. That's beyond dispute. They also know that a well-constructed dividend portfolio creates wealth steadily, while still allowing you to sleep like a baby. Knowing how valuable such a portfolio might be, our top analysts put together a report on a group of high-yielding stocks that should be in any income investor's portfolio. To see our free report on these stocks, just click here now.


Read/Post Comments (0) | Recommend This Article (1)

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.

Be the first one to comment on this article.

Sponsored Links

Leaked: Apple's Next Smart Device
(Warning, it may shock you)
The secret is out... experts are predicting 458 million of these types of devices will be sold per year. 1 hyper-growth company stands to rake in maximum profit - and it's NOT Apple. Show me Apple's new smart gizmo!

DocumentId: 2992951, ~/Articles/ArticleHandler.aspx, 11/24/2014 9:12:31 AM

Report This Comment

Use this area to report a comment that you believe is in violation of the community guidelines. Our team will review the entry and take any appropriate action.

Sending report...


Advertisement