A 2.5% share price boost in Boeing Co. (NYSE: BA) stock is single-handedly keeping the Dow Jones industrials in positive territory for the day. That’s not the whole story, though, of what’s happening with Boeing Wednesday.
Last night, Boeing and its financial arm, Boeing Capital, were sued for stealing trade secrets from Xavian Holdings and Xavian Insurance related to financing aircraft purchases now that the U.S. Export-Import Bank is effectively out of business. Insurance and risk management provider Marsh & McLennan and its Marsh insurance subsidiary were also named in the complaints filed in federal District Courts in New York (Marsh) and Chicago (Boeing).
Boeing and Marsh & McLennan, along with their subsidiaries, created a firm called Aviation Finance Insurance Company (AFIC) in June 2017 to replace financial guarantees once provided by the Ex-Im Bank. Since then, AFIC has guaranteed financing on 16 Boeing aircraft with a total value of $1.5 billion. According to a source cited by Leeham News, Boeing’s profit on the sale could be as high as $800 million.
In the lawsuit, Xavian claims it invested about $5 million “developing a novel, insurance-based guarantee for commercial aircraft financing with potentially a single-A credit rating from the rating agencies like Standard & Poor’s, Moody’s, and Fitch.” Xavian signed a proprietary trade secrets agreement with Boeing Capital in 2007 and, the complaint states, shared all its information with Boeing and Marsh, which had signed a similar agreement in 2009.
In the Boeing lawsuit, Xavian is seeking disgorgement of profits that “Boeing improperly reaped by relying on an insurance-based guarantee that would have been impossible without the misappropriation of Xavian’s trade secrets.” Xavian is also demanding recovery of lost profits, reasonable damages for Boeing’s failure to pay royalties, punitive damages and attorney’s fees.
In its complaint, Xavian noted that Boeing has indicated that it expects to finance 5% of its 2018 commercial aircraft sales using AFIC’s insurance-based guarantee. The complaint continues:
The sustainable first mover advantage and the substantial barriers to entry will result in even larger numbers in future years. Xavian therefore anticipates that its damages in this case are substantial and will continue to grow.
Boeing has forecast commercial sales of more than 810 to 815 aircraft in 2018 and revenues in a range of $97 billion to $99 billion. Will the company be willing to gamble that future sales guaranteed through AFIC will stay on the company’s books? If not, how will that affect the company’s sales for the rest of this year and in the future?
Leeham News has more details, including the complaint as filed yesterday in Chicago.