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Category Archives: Aerospace

4 Commercial Aerospace Plays for 2014

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Last year was a bumper year for equities, but it wasn't a great one for the economy. However, the commercial aerospace sector stood out, because according to the International Air Transport Association, or IATA, end market conditions progressively improved through 2013. Moreover, the IATA is forecasting an even better year in 2014, so prospects for commercial aerospace plays like Boeing (NYSE: BA) , cabin manufacturer BE Aerospace (NASDAQ: BEAV) ,aviation services company AAR Corp (NYSE: AIR) and airframe product manufacturer Precision Castparts (NYSE: PCP) are looking good, too.

IATA Industry Forecasts The following graph demonstrates how the IATA's expectations for commercial airline profitability in 2013 progressively got better through the year. Meanwhile, its forecast for world economic growth actually declined over the period. In September of 2012, the IATA forecasted world economic growth in 2013 to be 2.5%, while the latest forecast from December of this year was just 2%. http://www.iata.org/whatwedo/Documents/economics/IATA-Economic-Briefing-Financial-Forecast-December-2013.pdf

Source: IATA.

Moreover, its latest forecast for 2014 sees global net profits expanding to $19.7 billion from 2013, an increase of 52%. Among these improvements, there is a remarkable turnaround taking place in terms of regional prospects.

Back in 2010, Asia-Pacific airlines generated $11.1 billion in profit, while North American airlines only made $4.2 billion. However, the IATA is forecasting North American airline commercial airline profits to increase to $8.3 billion in 2014 from $5.8 billion this year. Meanwhile, Asia-Pacific commercial airline profits are forecast to be only $4.1 billion in 2014.

The obvious answer would be that passenger traffic growth must have gone up, but according to the IATA, North American growth isn't going up by much, and is still noticeably less than in the Asia-Pacific region.

Source: IATA.

So how and why have North American (and to a lesser extent European) airlines suddenly become more profitable, and how can Foolish investors take advantage?

More pricing power, more efficiency There are two primary reasons for this increased profitability. First, North American airlines are seeing greater pricing power thanks to a slowly improved economy. Second, they are taking substantive productivity measures to increase profitability. These two factors will combine to drive growth in the future.

You can see the pricing power in the fact that the IATA forecasts that global net profit per departing passenger in 2014 will be at $5.94 in 2014 -- a level not seen since the peak of 2007. Western airlines' willingness to improve productivity includes buying more modern and efficient planes from Boeing and Airbus. It's significant that the airlines placing the largest orders for Boeing planes as of mid-December this year were American Airlines and European budget carrier Ryanair, with 143 and 175, respectively, out of Boeing's total of 1074. Furthermore, Boeing can look forward to a strong order book in 2014 because the IATA predicts that overall passenger load factors (a measure of airplane capacity utilization) will rise to 81.3% in 2014. In other words, capacity pressures are likely to encourage more investment in new airplanes.

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4 Commercial Aerospace Plays for 2014

Defense and Aerospace Stocks Are Lifting Off

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Exchange-traded funds offer a convenient way to invest in sectors or niches that interest you. If you'd like to add some aerospace stocks to your portfolio but don't have the time or expertise to hand-pick a few, the PowerShares Aerospace & Defense ETF (NYSEMKT: PPA) could save you a lot of trouble. Instead of trying to figure out which aerospace stocks will perform best, you can use this ETF to invest in lots of them simultaneously.

The basics ETFs often sport lower expense ratios than their mutual-fund cousins. This ETF, focused on defense and aerospace stocks, sports an expense ratio -- an annual fee -- of 0.66%. The fund is fairly small, too, so if you're thinking of buying, beware of possiblelarge spreads between bid and ask prices. Consider using a limit order if you want to buy in.

This aerospace stocks ETF has trounced the world market over the past year, and also topped it over the past three and five years. As with most investments, of course, we can't expect outstanding performances in every quarter or year. Investors with conviction need to wait for their holdings to deliver.

Why defense and aerospace stocks? Customers might not be eager to spend hundreds of millions of dollars on new airplanes and other defense and aerospace equipment, but as commercial fleets age, they do inevitably need to be replaced. And until our military shrinks considerably in size, it will continue to stock its hangars and storage areas. Thus, defense and aerospace stocks can count on plenty of future business -- eventually. (Newer airplanes that are more energy-efficient are also a strong draw, given the rising cost of fuel.)

More than a handful of defense and aerospace stocks had strong performances over the past year. Oshkosh (NYSE: OSK) surged 53%. The maker of military trucks and other things disappointed investors with its fourth-quarter report, which featured revenue down 16% and management significantly scaling back expectations for 2014 as military spending cuts continue hurting its defense business. On the plus side, though, it did recently win a $105 million contract extension with the Department of Defense. Oshkosh is aiming to boost profit margins via cost-cutting, among other measures. The stock yields 1.2%.

L-3 Communications (NYSE: LLL) soared 39% in the past year. It's near a 52-week high, and it yields 2.1%. Its third quarter featured revenue a bit below expectations, but earnings handily beat estimates and were 13% above last year's level. Still, it, too, is smarting from military spending cutbacks. It's more nimble than some rivals, but it's also quite dependent on the U.S. government for much of its revenue. Over the past few years, though, revenue and free cash flow have been dropping,as have operating margins. L-3 Communications' P/E ratio near 12 looks low, but remember that the company isn't growing briskly.

Honeywell (NYSE: HON) also popped 39%, is also near a 52-week high, and yields 2%. Honeywell plans to buy back up to $5 billion worth of its shares, which could benefit shareholders as long as the stock isn't overvalued. With a recent P/E ratio near 22, above its five-year average of 19, Honeywell stock doesn't seem a screaming bargain. The company's CEO recently ratcheted down expectations, due to a sluggish global economy.

United Technologies (NYSE: UTX) jumped 36%, and yields 2.2%. It looks like more of a bargain than Honeywell, but it isn't generating as much cash as it might, given the many contracts it's raking in. United Technologies had such a strong 2013 (in part benefiting from Boeing's success) that some wonder if it's still attractive. It may not be the most attractive stock around, but shareholders might want to hang onfor the dividend and solid balance sheet.

Other companies didn't do quite as well over the last year, but could see their fortunes change in the coming years. FLIR Systems, for example, did gain a hefty 24%, but that still underperformed the S%P 500 in this strong year.

The big picture If you're interested in adding some defense and aerospace stocks to your portfolio, consider doing so via an ETF. A well-chosen ETF can grant you instant diversification across any industry or group of companies -- and make investing in it and profiting from it that much easier.

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Defense and Aerospace Stocks Are Lifting Off

Inslee to speak at Lynnwood aerospace conference

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Published: Tuesday, January 14, 2014

Inslee to speak at Lynnwood aerospace conference

By Jim Davis HBJ Editor

LYNNWOOD - Gov. Jay Inslee will be the keynote dinner speaker at 6 p.m. Feb. 5 Pacific Northwest Aerospace Alliance's 13th Annual Aerospace Conference.

It will be the second year in a row that the governor will speak at the conference, the aerospace group announced Tuesday.

"Last year, the governor laid out his vision for Washington's Aerospace Industry," said PNAA Executive Director Melanie Jordan in a statement. "This year, will be an excellent opportunity for him to address changes and opportunities in the aerospace industry,"

The vote by Boeing's Machinists secured Boeing's future in Washington for the next decade, but it also demonstrated how fragile the industry could be, said JC Hall, the aerospace group's chairman, in the press release.

"With a large portion of our workforce ready to retire in five years, we need to know that the Governor is working to keep our industry healthy and strong," Hall said in the statement.

This year's conference, What's Driving Change in the Aerospace Industry, features commercial and defense industry forecasts by aerospace analyst Richard Aboulafia; product and program updates from top level executives from Boeing, Airbus, Bombardier, Embraer, Rolls Royce, GE, Pratt & Whitney; and other insight by industry experts.

The Pacific Northwest Aerospace Alliance is a non-profit organization that has been promoting the growth and success of the aerospace industry in the Northwest for more than13 years.

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Inslee to speak at Lynnwood aerospace conference

Will we ever say "no" to Boeing?

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The list of concessions to the aerospace giant is a mile long - and growing. How will we know when we've crossed the line?

What else will we give up to keep Boeing in Washington? ThierryB/Flickr

Mon, Dec 2, 1 a.m.

It's not the only corporation whose practices may be getting too sweet treatment from politicians here.

The "win" of keeping Boeing's 777X project in-state was ugly, but a win nonetheless, and Gov. Jay Inslee and other lawmakers are breathing a sigh of relief that Boeing wasn't "lost" on their watch.

No one seems ready to plunge into the next round of Boeing's sure-to-come demands. As one official told me last week, those who worked so hard to keep Boeing happy want to take at least a few moments to enjoy their victory. But as Dominic Gates, a Seattle Times writer on the Boeing beat, pointed out in his after-the-deal overview, there will be a lot of future opportunities for the aerospace giant to strong-arm the state.

Quoting aerospace consultant Scott Hamilton, Gates writes: "When the jet-maker launches its next new airplanes, likely a 757 replacement around 2019 or a 737 replacement around 2020, 'Boeing will take us through this all over again.' "

Consider these odds and ends:

A governor's task force is still looking at revising the so-called "fish consumption" water quality standards. Boeing and other industries have pressed for lower standards regarding pollutants that can be released. The Department of Ecology is expected to announce new rules sometime early in the year.

The new, stalled state transportation plan? While it wasn't locked in to keep the 777X here, the company does want to see road improvements both in Everett and Paine Field. Alex Pietsch, who heads the state's Office of Aerospace, says Boeing employees travel 8.5 million miles on Washington roads every year; the 777X promises to increase that traffic statewide. Thus, Boeing has a vested interest in improvements on I-405, SR-520 and elsewhere.

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Will we ever say "no" to Boeing?


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