I asked myself a month or two ago.. How long can the airlines go without newer planes?
Very similar to the question I asked myself last year.. How long could companies go without upgrading their IT infrastructure?.. That was answered resoundingly by explosive growth across all facets of IT spending in the last year and continuing into this year.
Why did this happen? Easy. Cost savings and new technology enabling companies to offer innovative new services.
Why order new planes? Easy. Number one: FUEL efficiency... Also, the entire world economy pulled billions of dollars of capital expenditure projects during the recession. Now its like a tsunami of built up, necessary spending. The airlines have probably been holding off the longest, considering the mid-2008 super spike in oil. These new planes carry more people AND are more fuel efficient.
In regards to aerospace, I think the answers are forming right now with earnings calls this quarter...
Alcoa kicked it off 2 weeks ago when they said: “It seems that some airlines, or the airlines sector in general, is turning the corner.” Also: Orders are “up significantly.” And “Growth is pretty much in all regions driven very strongly by increased global activities.”
Some of those "global activities" might be related to FedEx's news release a few weeks ago: http://online.wsj.com/article/SB10001424052748703283004575363093049611562.html
"FedEx, which won't disclose what it is paying for the planes, took delivery of its first six 777s in September, and expects to add six more to its fleet over the next 12 months." <-- Those are specially made Boeing planes for FedEx.
I think Boeing and Airbus are about to boost the entire aerospace sector for the next few years.. Its just beginning right now.
I just listened to PCP (Precision Castparts) conference call (7/22/2010) and they are primed to ride along with them with the roll-out of the Dreamliner 787 and the Airbus A380. (Testing is well over halfway complete for the Dreamliner, first actual sales should be coming within a year and there is a HUGE backlog of orders for years)
PCP makes a lot of parts for airplanes, most importantly the fasteners that hold the planes together.
Nearly all of their product lines are about to experience a big boost from Boeing, Airbus, China and India over the next 2 quarters and "accelerating into next year." <-- Straight from the mouth of PCP CEO.
Along with that boost, the next quarter or two should be even more solid due to restocking inventories from China. According to PCP CEO, big orders from China and aerospace companies are anticipated over the next few quarters due to restocking inventories that were drawn down during China's recent government mandated slowdown, this is in addition to the new 787 related orders. He said their fastener orders are still lagging the uptick in aerospace demand. This is due to everyone drawing down their inventories... Well guess what? They have to be restocked to keep up with demand, thus the ACCELERATING growth into next year.
The straight up, easy play would be Boeing themselves, but that is no fun is it?
Here is a fantastic list of suppliers from non other than Jim Cramer... I don't care what anyone says about him, he knows his stocks.
AA (Alcoa) - Fasteners and tail stabilizers
GR (Goodrich) - Take/off and Landing Equipment
COL (Rockwell Collins) - Electronics for planes: Cockpits, radios, GPS, entertainment -- 50% sales from commercial airline business
Dreamliner: Communications, surveillance, pilot control systems.
PCP (Precision Castparts) - Fasteners and engine components
SPR (Spirit Aerosystems) - Fuselage, leading edge of wings
Parts are in EVERY Boeing plane in production
HXL (Hexcel) - Lightweight composite materials
$1.3 million and $1.6 million in each Dreamliner
$3 million in each Airbus A380
ATI (Alleghany Tech) - Skin of the plane
UTX (United Technologies) - engines/parts
BEAV (BE Aerospace) - Seating, storage
TGI (Triumph Group) - Components/accessories
CW (Curtiss-Wright) - Precision components
AME (Ametek) - Instrument systems
AAR (Amr Corp) - Airplane Parts and services
HON (Honeywell) - Cockpits (only one small part of Honeywell's business)
TXT (Textron) - Owns light/medium sized business jet maker. Also a key global helicopter manufacturer.
I could also make a case for the derivative play on these parts suppliers... Maybe look at TIE (Titanium Metals) as a lot of the parts for the planes (fasteners, etc) are made with titanium.
A lot of these can gain 50+% before they even reach their highs from 2007... My current favorite is PCP - unless I find a better play after further research. PCP is only 30% from its 2007 high.
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