Boeing: Up, Up and Away

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Regular readers of Investing Daily know that our experts are bullish on Boeing (NYSE: BA), and with good reason.

As managing director John Persinos points out in his June 24 article and contributing editor Chad Fraser in his February 27 piece, Boeing is flying ever-higher these days.

The aircraft manufacturing giant is the beneficiary of several multi-billion manufacturing orders, and the future looks like a smooth flight, with global airlines set to order $3.5 trillion worth of new airplanes over the next two decades.

All that has propelled Boeing’s stock airborne, from $70 per share in September 2012 to $107 per share in September 2013, and that’s good news to ID investors who listened to analysts Persinos and Fraser, who touted Boeing as a major buy earlier in 2013.

I expect Boeing’s wild ride to continue, but for reasons that you won’t really find in many stock analyst charts.

Specifically, I’m referring to Boeing’s “favorite son” designation from the Export-Import Bank. Few investors know much about the institution, and that’s by the design of the political power players in Washington, DC who are the architects of the Ex-Im Bank.

By and large, the Ex-Im bank, as it’s more informally known, acts as the official export credit agency of the US government. It’s an independent government agency whose charter is to finance the sales of US exports to overseas customers, who may be otherwise unwilling to accept the credit risk conditions that often go, part and parcel, with foreign buyers of US goods and services.

Its legacy seems, on the surface, unchallengeable. After all, funding risk-averse foreign buyers who turn around and buy US goods is beneficial to the American economy, and for the domestic! employment market.

But as usual, a look under the hood of this “independent” US government lending arm shows that the same companies keep popping up on the Export-Import Bank’s list of beneficiaries. These are companies that are tied to Washington pols like a barnacle to the hull of an old fishing boat.

In particular, consider the bank’s long-time lending record that helps out (you guessed it) Boeing. In point of fact, the manufacturer has been the recipient of about two-thirds of all Ex-Im loans in past years.

Consider 2007-2008, when the Ex-Im Bank provided about 65 percent of its entire loan guarantees to Boeing, according to the Pew Foundation.

“In FY2007 and FY2008 combined, Ex-Im issued $15.3 billion in long-term loan guarantees. Of that total, almost $10 billion, or an average of 65 percent, went toward the purchase of commercial aircraft made by the Boeing Company, the world’s largest manufacturer of commercial jetliners and military aircraft combined,” Pew reports.

That scenario hasn’t changed since 2008. Last year, the Ex-Im Bank issued $12.2 billion in long-term loan guarantees to Boeing, a staggering 83 percent of all loan guarantees issued by Ex-Im to prop up Boeing’s sales.

The greatest portion of Ex-Im’s financial commitments, are tied up in long-term loan guarantees, the organization adds, where Boeing is the largest beneficiary by far.

“The Export-Import Bank helps many American companies be more competitive in the international marketplace,” explained Marcus Peacock, director of Pew’s Subsidyscope Project. “But it is interesting to see such significant support going to a profitable private enterprise.”

Of course, all that favoritism by Uncle Sam toward one aircraft builder leaves other manufacturers less competitive. That’s the point Delta Air Lines (NYSE: DAL) made when it sought to block the Ex-Im Bank for handing over all that cash ! to Boeing! .

Delta points out that US airline manufacturers have slashed jobs and cut flight routes in a system where the US government underwrites equipment financing for foreign airlines. The airline estimates the Ex-Im Bank costs the US economy 7,500 jobs and $684 million annually.

But Boeing has a cushy, insider’s seat at the table with Ex-Im Bank directors.

The bank’s Fiscal Year 2013 Advisory Committee includes Christine Gregoire, governor of Washington (home to Boeing), and Owen Herrnstadt of the International Association of Machinists and Aerospace Workers, the main union shop at Boeing.

That “favorite son” status isn’t likely to change anytime soon, as Ex-Im continues to earn its nickname as “Boeing’s Bank.” For investors, that’s the good news, as the company’s tight credentials with Ex-Im Bank are just about unmatched on the US business/political landscape.

The financial picture certainly looks promising, as well.

In the first six months of 2013, Boeing’s commercial airline division generated $24.3 billion in revenue, accounting for 60 percent of the company’s total revenues.

The company’s 737 series is especially lucrative, generating $20.8 billion in revenue for Boeing in the same time period. The company is now developing a new line of more fuel-efficient 737s, set for takeoff in 2017.

The company also beefed up its quarterly dividend by 48.5 cents per share, giving shareholders a decent dividend rate of 1.8 percent.

Then there’s the China story.

Industry analysts expect Boeing to reap aircraft construction orders totaling $800 billion from China alone over the next two decades, giving the company a huge leg up, especially in a region where Ex-Im is supporting Boeing with its loan guarantees. Right now, Boeing has about $400 billion in order backlogs, suggesting short-term growth is just as strong.

As long as Boeing can meet the huge productio! n commitm! ents stemming from its Ex-Im Bank financial bonanza (and with some problems linked to its 787 Dreamliner aircraft behind it, there’s no reason to think it shouldn’t), this stock should really move.

Your mission? Don’t be left on the ground when Boeing does take off even higher in the last few months of 2013.

Brian O’Connell is an investment analyst at Investing Daily. He has frequently appeared as an expert financial commentator on CNN, NPR, Fox News, Bloomberg, CNBC, C-Span, CBS Radio, and many other media broadcast outlets.