With the election of Donald Trump as the next president, financial analysts on Wednesday think his presidency will mean more spending on defense, including military aircraft.
But they are less certain on what it will mean for the commercial aircraft and business jet sectors.
“In the near term, it should support defense stocks, with a moderate negative impact for commercial aero that may be in line with the market as a whole,” J.P. Morgan analyst Seth Seifman wrote in a note to investors on Wednesday.
Higher defense spending could be good for Spirit AeroSystems and perhaps Textron Aviation. Spirit, whose business is largely building major parts of all Boeing and some Airbus commercial jetliners, also has a smaller portfolio of defense work on programs including the new B-21 Bomber, the Navy’s P-8A Poseidon, Air Force KC-46 air refueling tanker and Sikorsky’s CH-53K heavy lift helicopter for the Marine Corps.
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Textron Aviation also produces the Beechcraft T-6 Trainer and AT-6 light-attack turboprop aircraft and is developing the Scorpion jet. But neither aircraft types have new orders from the U.S. military.
“Now, with the President and both houses as Republican, it should enable stronger budget growth for defense over time,” Wells Fargo Securities senior analyst Sam Pearlstein wrote in an investor note on Wednesday.
Cowen & Co. analyst Cai von Rumohr said in his note Wednesday that even with the possibility of stronger defense spending, Trump has said the Defense Department could “buy smarter,” and that “could suggest a tougher attitude on contractor profitability.”
While Seifman, Pearlstein and two other analysts expect greater defense spending with Trump, they aren’t clear what his presidency means for commercial airplanes and business jets.
“Bizjet OEMs have long blamed uncertainty as one of the issues that … has been holding down new bizjet demand, and the uncertainty level (h)as arguably moved up another notch,” Vertical Research Partners analyst Robert Stallard wrote in a note Wednesday about Trump winning the election.
Stallard and J.P. Morgan’s Seifman wrote that uncertainty extends to airlines and commercial aircraft manufacturers.
“Moreover, hostility toward trade animated Trump’s campaign and Boeing is the biggest US manufacturing exporter, creating vulnerability to an increase in global trade barriers, should they emerge,” Seifman wrote.
Concerns from outside the U.S. about what a Trump presidency means for international relations could also affect the airline industry, which is Boeing and Airbus’ customers.
“We would expect any real impact from the Trump Administration to take some time to flow through to global airline results, and the demand for new aircraft,” Stallard wrote.