Inflation fears are spooking Wall Street and causing investors to flee from consumer discretionary stocks that might find it hard to sell their goods in the months to come. That’s having an impact on the aerospace industry, sending shares of both Boeing (NYSE: BA) and General Electric (NYSE: GE) down as much as 5% today.
It has been a long couple of years for both airlines and their major suppliers. The pandemic wiped out travel demand, and with it demand for new aircraft, sending shares of both the airlines and companies like Boeing and jet engine supplier GE tumbling.
Friday’s inflation report brought fresh reason for worry. Consumers are experiencing inflation levels unseen for about four decades, and investors are worried that, faced with higher prices for basic needs, the public might decide against purchasing pricey items like plane tickets in the months to come.
A recession would come at an inopportune time for both Boeing and GE. General Electric is in the middle of a multiyear restructuring after a difficult decade. Prior to the pandemic, it had hoped to use its relatively healthy aviation business to help fund repair work to other sectors. Absent a turnaround, GE will have to continue to look elsewhere for funds, or delay its transformation.
Boeing, meanwhile, came into the pandemic already plagued by quality issues. Its 737 MAX was grounded for 18 months after a pair of fatal crashes, and other models including the 787 Dreamliner and 777X are either facing fresh regulatory scrutiny or years behind schedule.
The lack of deliveries due to safety concerns and pandemic-related slowdowns has led to a reduction in cash flow at Boeing. The company’s debt has ballooned by more than 400% since the start of the pandemic, and Boeing needs strong demand from airlines in the quarters to come to begin to repair the damage done to its balance sheet.
Boeing shares could also be weak due to fresh reports that another one of its high-profile programs, the new Air Force One presidential transport, is facing delays because the company is struggling to find qualified workers.
It’s too soon to know exactly what inflation will do to aircraft demand. And that uncertainty is what is weighing on investors right now.
Coming into 2022, there were high hopes that the aviation industry was on the verge of a rebound, which would have been good news for both airlines and their suppliers. Now, faced with a questionable economy and the still-looming threat of a new COVID-19 wave, there isn’t a lot of reason to believe the much-needed turnarounds at Boeing and GE will be accomplished quickly.
With so much doubt and a long time frame, investors are seeing little reason to buy in.