Boeing To Halt 737 Production: ETF Losers & One Likely Winner

Boeing (NYSE:BA) is for the time being halting production of its 737 MAX airliner after the Federal Aviation Administration (FAA) said last week it would not approve the aircraft’s return to service 0.5 percentage points off gross-domestic-product growth in the first quarter of 2020. The production cut will weigh on the company's inventory growth and hurt U.S. GDP growth, per the economist. Plus, several parts manufacturers depend on the aircraft for a steady source of revenues.

The grounding of the plane around the world has already cost the company a reported has no timeframe for restarting production as yet.

The suspension in production will halve the $4.4 billion in cash that Boeing has “Jefferies LLC analyst Sheila Kahyaoglu estimated , as quoted on Wall Street Journal. Halting production will push up costs over time by spreading fixed expenses over fewer planes.

Losers

iShares U.S. Aerospace & Defense ETF ( (HM:ITA) )

Among all aerospace ETFs, ITA has the maximum weight at 19.19% and is thus the most dependent on Boeing’s performance. The fund also has more than 2% weight Aerospace and Defense ETFs Gain Despite Mixed Q3 Earnings ).

SPDR Dow Jones Industrial Average (NYSE:DIA) ETF ( (TSXV:DIA) )

This Dow Jones ETF has lagged its peers like S&P 500-heavy and the Nasdaq-heavy ETFs this year, mainly due to Boeing’s underperformance. The fund invests about 7.85% of its total assets in Boeing. Though easing in U.S.-China trade tensions bodes well for the industrial-heavy Dow Jones index, Boeing’s continuing pain may cut into some gains of DIA in 2020.

Industrial Select Sector SPDR Fund (XLI )

This industrial fund is also heavy on Boeing, with around 7% exposure. Apart from the direct impact from Boeing, supply chain issue may be a drag on the overall manufacturing sector in the near term and hurt the fund. Investors should note that XLI may suffer from General Electric’s (NYSE:GE) likely underperformance. The fund invests about 4% in GE. Notably, CFM International, a all industrial ETFs here).

Gainer

iShares MSCI France ETF (EWQ )

Boeing’s loss can prove profitable for its European competitor Airbus. By the end of November 2019, Boeing's deliveries for the year were 345, while its peer handed Alongwith some analysts , we believe that Boeing is likely to “lose out to Airbus in annual orders for the sixth time in the past seven years.”

Airbus currently has a Zacks Rank #2 (Buy). The stock has 4.97% exposure to the fund EWQ. Airbus’ potential gains and super-easy monetary policy in the Euro zone may benefit the fund. The fund has gained 2.1% in the past week. One concern is that EWQ has about 3% weight in Boeing’s supplier Safran too, which is a negative for the fund.

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