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Boeing Gains as Trade Optimism Outweighs Latest Crash Report

Boeing Gains as Trade Optimism Outweighs Latest Crash Report

(Bloomberg) -- Hopes that the drawn-out China trade negotiations are entering the home stretch are helping Boeing Co. shares shrug off the latest developments emanating from the Ethiopia crash that, while concerning, may only serve to provide incremental new information.

Ethiopia’s transport minister on Thursday said pilots on the crashed flight had followed proper procedures and still couldn’t bring the 737 Max out of a dive, adding that Boeing needs to review the flight-control system to ensure the plane’s safety. While the stance increases the pressure on Boeing, some say that since the preliminary report did not unearth anything new, it may serve as a positive.

Boeing shares rose as much as 3.2 percent on Thursday in New York, while the S&P 500 Index was trading down 0.2 percent. The gains lead the S&P’s 500 Aerospace & Defense Index, which was among the worst performing sub-sectors in Wednesday’s session. The plane maker has now recouped about half of the losses it incurred in the aftermath of the Ethiopian Airlines crash on March 10.

Boeing Gains as Trade Optimism Outweighs Latest Crash Report

The report “indicated that the pilots followed the appropriate actions but could not regain control of the plane,” Edward Jones analyst Jeff Windau said in an email interview. “The automation of the flight control system has been the focus and the report maintained that view, which is likely contributing to the positive performance of shares this morning since Boeing has already been working on the software upgrade.”

Windau has a hold rating on Boeing shares, reflecting some caution as it is still unknown when the Max will be approved for flight, and that results could be pressured due to expenses related to the additional engineering work or delays in new 737 Max deliveries.

What Bloomberg Intelligence Says

Grounding of the 737 Max will slow deliveries, prompting inventories to rise, and may curb $3.2 billion in free cash flow this year. Lawsuits and reimbursements, which could add up to $1.9 billion for a hypothetical six-month delivery pause, could become potential calls on Boeing’s $8.6 billion of cash.
-- Matthew Geudtner, BI Credit Analyst
Click here to read the research.

The stock also suffered in the second half of 2018 amid concerns about the impact from tariff negotiations with China, and often acted as a proxy for investors trying to trade on the uncertainties. With U.S. President Donald Trump set to meet Chinese Vice Premier Liu He on Thursday amid speculation that the negotiations are entering the final stages, Boeing shares are possibly getting an added boost.

In a research note published late last month, Cowen analysts said China’s grounding of the Boeing 737 Max has the “potential to become a pawn in the broader U.S.-China trade talks, potentially giving China a Boeing quid to match our Huawei quo.”

To contact the reporter on this story: Esha Dey in New York at edey@bloomberg.net

To contact the editors responsible for this story: Brad Olesen at bolesen3@bloomberg.net, Steven Fromm

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