Inflation fears are spooking Wall Street and causing investors to flee consumer discretionary stocks that could find it difficult to sell their products in the coming months. That’s having an impact on the aerospace industry, sending shares of both boeing (LICENSED IN LETTERS -5.03%) Y General Energy (GE -4.75%) up to 5% today.
It’s been a long couple of years for both the airlines and their major suppliers. The pandemic has wiped out demand for travel and with it the demand for new planes, sending shares of both airlines and companies including Boeing and jet engine supplier GE tumbling.
Friday’s inflation report brought new cause for concern. Consumers are experiencing levels of inflation not seen in some four decades, and investors are concerned that, with higher prices for basic necessities, the public will decide not to buy big-ticket items like airline tickets in the coming months.
A recession would come at an inopportune time for both Boeing and GE. General Electric is in the midst of a multi-year restructuring after a rocky decade. Before the pandemic, he hoped to use his relatively healthy aviation business to help fund repair work in other sectors. Absent a change, GE will have to continue to seek funding elsewhere or delay its transformation.
Meanwhile, Boeing entered the pandemic already plagued by quality problems. Its 737 MAX has been grounded for 18 months after a pair of fatal crashes, and other models, including the 787 Dreamliner and 777X, face new regulatory scrutiny or years of delay.
Lack of deliveries due to safety concerns and the pandemic-related slowdown has caused cash flow to shrink 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 coming quarters to begin repairing the damage done to its balance sheet.
Boeing shares could also be weak on new reports that another of its high-profile programs, the new presidential shuttle Air Force One, is facing delays as the company is struggling to find skilled workers.
It is too early to know exactly what inflation will do to the demand for planes. And that uncertainty is what is weighing on investors right now.
Going into 2022, hopes were high that the aviation industry was on the brink of an upturn, which would have been welcome news for airlines and their suppliers alike. Now, faced with a questionable economy and the still looming threat of a new wave of COVID-19, there is little reason to believe that much-needed changes at Boeing and GE will be achieved quickly.
With so much doubt and a long time frame, investors see little reason to buy.