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Scott Sacknoff
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SPADE Indexes develops and manages sector, theme, and regional indexes used as the basis for investment products including exchange traded funds. Included among these is the SPADE Defense Index (NYSEarca: DXS), a benchmark for companies involved with defense, security, and space. The index... More
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  • The bull case about the coming commercial aerospace boom 0 comments
    Jun 16, 2011 1:26 PM | about stocks: PPA, BA, GD, COL, PCP, GR, HON, TDG, TGI, LMIA, DCO, AIR, LLL

    In advance of the Paris Air Show, Boeing recently released its internal estimate for the commercial aerospace market over the next two years.  Below are the highlights of their forecast along with some of our comments on the market.

    1. Boeing raised its estimate of passenger jet sales to $4 trillion over the next 20 years. This includes a total of 33,500 jet sales between 2011 and 2030.  This up from last year's 30,900 jet and $3.6 trillion sales estimates.

    2. Asia is the busiest region for air travel.  Boeing's forecast includes 11,450 new passenger jets for the region.  The expansion of high-speed rail networks in China will have a impact but not enough to slow the need for jet aircraft serving the region. 

    3. Boeing and Europe's Airbus, the two leading suppliers will face competition from manufacturers in China, Canada, and Brazil for single-aisle 150-seat passenger jets which is considered the backbone for the fast-growing, low-cost airlines but Boeing and Airbus are still anticipated to dominate the market. 

    4.  Boeing's forecast sees a rise of 4.2% of passenger traffic and 5.6% of cargo traffic. 

    5. Boeing plans to boost its 737 production to 42 planes per month, up from 31.5 per month.  The firm currently has a backlog of 2,101 planes and is sold out through 2015. 

    6. Outside Asia, the Middle East represents one of the fastest growing, most lucrative markets for new, high-end jet aircraft. 

    7. Western aircraft operators will need to replace aging fleets and replace them with more fuel-efficient aircraft in order to improve margins and keep ticket price growth reasonable.

    8. Increased energy costs have put pressure on airlines however it has forced domestic suppliers to become more efficient.  By increasing the load factors on planes (ie. the number of actual passengers in the seats) and reducing the number of flights, domestic airlines have become financially more stable and able to invest in new aircraft. 

    9. It appears that the Boeing 787 Dreamliner aircraft, whose first delivery has been delayed for several years, will finally see its first delivery in September.

    10.  As Boeing ramps up its production rates, suppliers to the sector will also benefit.

    For those interested in the sector, here are some of the public companies involved: 

    Benchmark Index:
    SPADE Index (NYSE:  DXS)

    Aircraft Manufacturers: 
    Boeing (NYSE: BA)
    General Dynamics / Gulfstream: (NYSE: GD)

    Aerospace Suppliers include:
    Rockwell Collins: (COL), Precision Castparts (PCP), Moog (MOGA), Goodrich (GR), Honeywell (HON), TransDigm (TDG), Triumph Group (TGI),  LMI Aerospace (LMIA), Ducommun (DCO), and AAR Corp (AIR), L-3 (LLL)

    ETFs Tracking the SPADE Index:
    Powershares Aerospace & Defense ETF (NYSE: PPA)

     

     



    Disclosure: I have no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours.

    Additional disclosure: Scott Sacknoff is the manager of the SPADE Defense Index, an investment benchmark for companies involved in aerospace, defense, and homeland security. The index is licensed to Powershares which it tracks for their aerospace and defense ETF.
    Themes: aerospace, aircraft, ETF Stocks: PPA, BA, GD, COL, PCP, GR, HON, TDG, TGI, LMIA, DCO, AIR, LLL
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