Here Is What Boeing's Defeat Before the WTO Means for Its Shares

Since President-elect Donald Trump's surprise election victory, trade is back in the spotlight in a way that it hasn't been, arguably, since the 1990s.

That is no surprise, given his tough talk during the campaign, which included calling the North American Free Trade Agreement "the worst trade deal ever signed" and dubbing the Trans-Pacific Partnership a "disaster" that he would abandon on day one of his presidency.

Into that charged atmosphere came Monday's ruling against aerospace giant Boeing (BA)  by the World Trade Organization. The stock fell 0.17% on Monday, and is down again slightly on Tuesday.

The WTO ruled that the company received a tax break from Washington State where it is based in 2013 that violated the trade body's rules. In response, it recommended that the U.S. withdraw the incentive within 90 days.

The tax reduction is tied to Boeing's forthcoming 777X passenger jet. Specifically, it is contingent on the company using wings made in Washington State.

Boeing is already committed to do that, at a facility specifically built to produce the wings in Puget Sound.

The requirement raised red flags at Boeing rival Airbus, and the European Union disputed it and other incentives on the company's behalf.

As with many things surrounding the companies' decade-long brawl over subsidies, it is tough to pin down exactly how much money is at stake.

EU Trade Commissioner Cecilia Malstrom has claimed that it is $5.7 billion, but a statement from Boeing cited "future incentives of no more than $50 million a year."

What is clear is that lawyers for both sides will be busy for years to come, as the ruling comes in the wake of a WTO judgment against Airbus and the EU in September, which is under appeal. The U.S. will likely appeal this round on behalf of Boeing, too.

In the background is a global aircraft business where subsidies are commonplace. The Canadian province of Quebec, for example, recently invested C$1 billion in Bombardier, a move that Brazil, home to rival business jet maker Embraer -- itself no stranger to direct and indirect subsidies -- has also questioned at the WTO.

The dispute is a nuisance for Boeing and its shareholders, but it is mostly background noise. The company remains an attractive investment that is more than worthy of investor attention.

For starters, any investment in Boeing needs to come with the understanding that the airline business, which accounts for about two-thirds of the company's revenue, is cyclical. And there have been signs of a slowdown after airlines went on an upgrade binge post-recession.

But the long-term outlook still looks bright.

Boeing recently increased its forecast for jetliner demand, saying that global airlines would need 40,000 planes through 2035, up 5% from last year's projection.

The company is also making a big push into the lucrative parts and services business, which should help steady its revenue stream. To that end, it has set up the Boeing Global Services division.

Boeing has a lot of room for growth.

It controls about 7% of the market for commercial-plane parts and 9% on the military side. The company hopes to triple its parts and services revenue by 2025.

The company is also well equipped to ride out any slowdown in the fleet-upgrade cycle, thanks to its massive backlog, which consists of 5,600 orders worth $462 billion or 4.8 years' worth of revenue. It also boasts a healthy balance sheet, with $10.5 billion in long-term debt that is almost totally offset by its $9.7 billion in cash and short-term investments.

Those strengths should ensure Boeing's dividend, which yields 2.9% and has more than doubled in the past five years.

Investors shouldn't let the headlines keep them away from Boeing. Long-term trends and the company's growth plans still point to strong long-term gains for its stock.


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The author is an independent contributor who at the time of publication owned none of the stocks mentioned.

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