Why Brexit May Be Great For Boeing

| About: The Boeing (BA)

Summary

Boeing established its European headquarters in the United Kingdom in the months leading up to the Brexit.

Such a move could be a highly attractive proposition to British airlines should the United Kingdom leave the single market.

Moreover, demand for Boeing's widebody fleet will likely increase significantly as the UK begins to negotiate trade deals with emerging markets.

In my previous analysis of Boeing (NYSE:BA), I made the argument that as a result of an increasing shift in the airline industry to narrow-body aircraft and prioritizing of short-haul routes, Boeing's widebody models could come to see a decline in the coming years as Airbus (OTCPK:EADSY) has traditionally been the leader in the narrowbody space. However, in light of a vote by the United Kingdom to leave the European Union, the future of travel from the country will likely change quite dramatically and provide a significant opportunity for Boeing.

Traditionally, London Heathrow Airport has been one of the busiest international airports worldwide and a leading airport in Europe. However, as Ryanair has continued to expand short-haul travel routes across Europe, and competing airports such as Amsterdam Schiphol have continued to add capacity and number of destinations served, the UK's status as a global airline hub began to feel competitive pressures.

In light of a Brexit and the resulting risk of the country leaving the European Union's single market, the country's intention to negotiate trade deals with emerging markets such as China and India necessitates the capacity to serve further long-haul routes. As one example, Heathrow Airport currently serves four primary destinations in mainland China, while Amsterdam Schiphol serves six. While this is one example, the implications of an exit means that the issue of a third runway for Heathrow Airport has become more urgent in order to add flight capacity and serve a higher range of emerging market destinations and with greater frequency.

So, what does all this mean for Boeing? Well, quite a lot given the company's decision to make Britain its new European headquarters - this decision made at a time when the possibility of the country leaving the European Union was clearly on the table. As mentioned, Boeing has traditionally dominated the widebody market with the flagship Boeing 777 model as well as significant demand by British Airways for the Boeing 787 Dreamliner - the company having just received further 787-9 models in June.

Moreover, the implications of geographical proximity by Boeing in this regard are quite significant. With Boeing having its central European hub in Britain, the company will likely be increasingly favoured by long-haul carriers across the UK over Airbus. I envisage this will especially be the case if the UK eventually leaves the single market, which would likely lead to tariffs on aircraft imports. In this regard, British airlines will find it a much more attractive proposition to source airlines from a local source; i.e. from Boeing's UK hub.

The debates of the UK leaving the European Union have been numerous. However, it seems that Boeing could not have timed the move more perfectly. Should the UK airline industry as a whole redirect its efforts towards emerging market destinations and other long-haul routes, Boeing would likely benefit hugely from such a scenario.

Disclosure: I/we have no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours.

I wrote this article myself, and it expresses my own opinions. I am not receiving compensation for it (other than from Seeking Alpha). I have no business relationship with any company whose stock is mentioned in this article.