Forget the Trade War, Here's the War That Really Counts for Boeing

There's an old business maxim that tells us "All business is war."

And the one company, more than any other, that's currently bringing that maxim to life is The Boeing Co. (NYSE: BA).

Indeed, to hear the experts tell it, Boeing is right now fighting two "wars."

There's the so-called "order war" - the year-in, year-out skirmish Boeing fights with its European perennial archnemesis, Airbus SE (OTCMKTS: EADSY).

And there's now the "trade war" - or the potential for one - stemming from the Trump administration's institution of tariffs on steel and aluminum - two materials it's mighty hard to skimp on when you're building thousands of jetliners.

If you've been a reader for a long time, you know we'll come back to look at the tariffs and "trade war" impact on Boeing when it's fully warranted.

Today, I want to talk about the more urgent conflict as far as shareholders are concerned: the war raging between boardrooms in Chicago, Ill., and Toulouse, France, right now.

It's all going our way...

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Boeing Just Put a Big One in the "W" Column

Boeing

The "order war" is a never-ending series of battles between the American and European aerospace juggernauts to supply the world's airlines with new airliners.

And on this front, Boeing just scored a win.

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A big win - a "signature" win, in fact.

Here's why.

Hawaiian Holdings Inc. (Nasdaq: HA) is a carrier that serves Hawaii, the U.S. West Coast, East Asia, and the South Pacific.

Well, this carrier - which had a tentative agreement to go with Airbus - just "flipped" its commitment to Boeing.

This is a "signature deal" - for a lot of reasons.

This company, which operates as Hawaiian Airlines, is the flag carrier and the biggest airline operating in Hawaii. Based in Honolulu, it's actually the 10th-largest commercial carrier in the U.S. market.

Hawaiian Airlines' roots go all the way back to 1929, and it operated in its formative years as Inter-Island Airways.

Indeed, IIA was well known for the Sikorsky S-38 "flying boats" that took folks from Honolulu to Hilo, with stop-offs on both Molokai and Maui. (If you ever saw the movie "The Aviator," about Howard Hughes, the flying boat he used to court actress Katharine Hepburn was a Sikorsky S-38.)

The company changed its name to Hawaiian Airlines in 1941. And it remained one of the top carriers in the South Pacific.

Boeing

Transocean aviation in those pre-World War II days was really remarkable. Huge flying boats, called "Clippers" after the old ships of that name, flew from the U.S. mainland to Hawaii and on to "exotic" destinations like Midway, Hong Kong, and New Zealand.

Boeing naturally built a big flying boat of its own, the 314 Clipper, using the massive wing from one of its prototype bombers to achieve the long range needed to make those journeys.

Hawaiian Airlines seems to have kept some of that old-school cachet as it operates today: It is the oldest continuously operating carrier that has never had a fatal accident or a hull loss in its history. Folks like Zagat, Travel + Leisure, and Conde Nast Traveler each rate Hawaiian as the best carrier serving "The Islands."

In fact, the airline is perennially one of the highest-rated U.S. airlines - thanks to low rates of flight cancelation, baggage losses, and overbooking.

Because of its high profile, any jetliner deal with Hawaiian is certain to be impactful - indeed, as I said, a "signature deal."

A "W" for Our Money, Too

So here's what happened with in the latest Boeing-Airbus skirmish.

You see, Hawaiian had earlier agreed to buy six Airbus A330-800s.

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But it canceled that order and instead ordered 10 Boeing 787-9 Dreamliners - valued at $2.82 billion at "list" prices. It has an option to buy 10 more.

As a guy who's followed the aviation industry his whole life, I can tell you that it is super rare for a plane maker to "flip" a carrier's jet choice - especially when you're talking about one that flies the globe.

The fact that Boeing did this to Airbus is a sweet, sweet victory in and of itself. Adding layers to this "victory cake" is the fact that Boeing flipped Hawaiian - and potentially walked away with more than three times the orders.

Finally, in a move that's akin to some very thick icing on this multilayered cake, the prestigious Hawaiian named the Dreamliner as its flagship jet.

It doesn't get much better than that.

If Boeing had to "cut ice" and really deal hard to get that order - more power to 'em, I say.

Again, with this "signature deal," Boeing won this round in the "order war."

Boeing

Boeing CEO Dennis Muilenburg said on Friday that his company has enough financial heft to invest internally for growth, to return money to stockholders, and to keep making deals - like some recent ones focused on drones, or the in-the-works deal to buy $4.6 billion Brazilian aerospace conglomerate Embraer SA (NYSE ADR: ERJ).

"Acquisitions of the scale of Embraer are not only very doable for us, they are also things we can selectively do, aligned with our (cash deployment) strategy," Muilenburg told reporters.

Since first recommending the company back in September 2011, the shares have skyrocketed 470%. Indeed, since early 2013 - when we reiterated our "Buy" call on Boeing after the stock was "knocked out" by the whole "Dreamliner Battery Mess" - the shares are up 430%.

And you're getting paid - well paid, in fact - to own this stock.

In September 2011, when we first recommended Boeing, the stock was trading at $61.92 and was paying a dividend of $1.68 a year - a yield of about 2.7%.

Now the stock is trading at about $333.

But get this.

The dividend is now up to $6.84 a year. So the "yield on cost" (the current payout as a percentage of the $61.92 you originally paid for Boeing) is 11.04%.

That's right: You're essentially getting an 11% yield on a blue-chip stock.

With all the growth we see in civil and military aviation over the next several decades, expect that payout to keep rising over time.

And if something "bad" happens to Boeing, it's absolutely critical to study the situation closely before you run for cover: We continue to rate this as an "Accumulate" stock, because Boeing has a tendency to keep coming back.

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About the Author

Before he moved into the investment-research business in 2005, William (Bill) Patalon III spent 22 years as an award-winning financial reporter, columnist, and editor. Today he is the Executive Editor and Senior Research Analyst for Money Morning at Money Map Press.

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