Deals Take Off in Dubai; Materials Stocks to Benefit

Many of our top buys, including Hexcel (HXL), AM Castle (CAS), and Titanium Metals (TIE), have considerable commercial aerospace exposure. Specifically, these companies are primarily suppliers of key materials on next generation aircraft and are consequently driven by new aircraft deliveries. We were able to garner insights into current market conditions from news coming out of one of the world's major air shows that is currently underway in Dubai . The news coming out of the show suggests that demand for new aircraft is very strong and driven primarily by emerging international airlines.

The Dubai AirShow brings together major aerospace and airline companies, including Boeing (BA), Airbus, GE (GE), Rolls Royce, and Emirates Airlines, among many others. This show runs through November 15th. We have compiled some of the most interesting pieces of information that demonstrates the current market strength.

• The CEO of Airbus sees a record year for new aircraft orders. Total orders stand at 1,122 currently, which is the company¢s highest ever. The delivery schedule runs through 2018.
• Airbus sees 300 orders for its new, lightweight A350 by year end.
• Dubai Aerospace Enterprise signed a letter of intent for 100 planes from Boeing and 100 from Airbus worth over $27 billion.
• Air Arabia ordered $3.5 billion of aircraft from Airbus, including 34 A320s and an option for 15 more.
• Saudi Arabian Airlines ordered $1.7 billion of new A320s including 22 firm orders and an option for 8 more.
• Boeing won an order for six 787s from leasing company LCAL.
• Royal Jordanian Airlines ordered two 787s from Boeing.
• Emirates Airline signed a massive order for 78 Airbus, including eight superjumbo A380s, with an option to buy 50 more aircraft. Emirates also ordered 12 Boeing 777s.
• Saudi low cost carrier National Air Service announced that it would buy 20 A320 aircraft.
• Qatar Airways ordered 27 Boeing 777s in an effort to double its fleet to 110 aircraft by 2010.
• Dubai is building one of the world's largest airports that is capable of handling 120 million passengers annually in order to capitalize on its proximity to Europe, Asia and Africa .
• Saudi Prince Alwaleed ordered his own private A380 super-jumbo plane.
• Boeing expects Israeli airlines to invest between $6 and $10 billion over the next 20 years to improve their fleets.
• Boeing forecasts that the global fleet of world aircraft will double by 2026 to 36,400 plans at a $2.8 trillion investment.

Overall, it is clearly evident that the commercial aerospace market is strong. It is widely expected that the current cycle will last at least through 2011. Some analysts predict a super-cycle through 2020. As demonstrated above, the current demand continues to be driven by international airlines in developing economies. Nevertheless, the legacy U.S. carriers are expected to return to the market over the lightweight materials such as titanium, carbon fiber, and aluminum employed on next generation aircraft such as the Boeing 787 and Airbus A350 / A380. The current up swing in the cycle combined with materials trend should benefit our top buys, Hexcel, Titanium Metals, and AM Castle.

Disclosure: none