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Will Boeing Have to Outsource Production to Remain Profitable?

The evolving trade war between the USA under Trump and everyone else is having unexpected consequences. We just wrote about Harley Davidson moving production out of the USA. No matter that Harley is an American icon. It is not a huge company. How about the leaders of American industry that are also the biggest US exporters? The question we are going to consider is this. Will Boeing have to outsource production to remain profitable? A good article on CNN looks at the top US exports.

Yes, the nation’s businesses and consumers spent $566 billion more on imported goods and services in 2017 than the United States sold in exports. But American companies still sold $2.3 trillion in goods and services to foreign businesses and consumers.

The top US exporters are these according to the CNN article.

Food, beverage and feed: $133 billion. Soybeans were the number one product in this category, with sales of $22 billion, followed by meat and poultry at $18 billion.
Crude oil, fuel and other petroleum products: $109 billion. This is one of the fastest growing areas of US exports, up 37% in just the last year.
Civilian aircraft and aircraft engines: $99 billion. This is what makes Boeing (BA) the nation’s largest single exporter.
Auto parts, engines and car tires: $86 billion. Many of these are shipped to assembly plants owned by both US and foreign automakers in Mexico and Canada.

A single company, Boeing, constitutes the vast majority of aircraft and engines exported by the USA. It is in third place behind all of US agricultural products and all of the gas and oil exporting business when measured by export dollars. What happens if Boeing gets caught up in Trump’s trade war? Will Boeing have to outsource production to remain profitable?

How Does Boeing Make Money?

Boeing makes money in defense and space systems. But, two thirds of its revenue comes from commercial airplanes. And a substantial portion of its commercial airplane business relies of foreign sales.

Will Boeing Have to Outsource Production to Remain Profitable?

Boeing is already building a plant in China. Forbes noted this in a 2015 article, Boeing To Build Its First Offshore Plane Factory in China.

Facing severe pressure from state-subsidized foreign competitors and the end of federal export financing, Boeing has decided to throw in the towel.  After a hundred years of producing its commercial aircraft exclusively in the U.S., the nation’s largest exporter will build its first offshore aircraft plant in China.

This facility will primarily be used to finish off interiors of commercial jets. Boeing maintains its position at the top of the commercial airline business because it guards its technical secretes, especially in the business of producing jets. Thus it does not want to ship valuable technological expertise to other countries. But, if the choice is to lose perhaps a third of their business, Boeing may have to outsource production of more high tech parts in order to remain profitable. This may be the price Boeing has to pay to avoid being chewed up in Trump’s trade war.

Will Boeing Have to Outsource Production to Remain Profitable? PPT





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