(via ZEXPR) With the pandemic coming to an end as various countries are introducing the vaccine, one market that seeks to benefit the most from this has got to be the aviation market.
The commercial aviation industry for one is well on its way to embark on a multi-year recovery, and this exactly why keeping track of aeroplane manufacturers that plan on benefitting the most from this is imperative.
One such aerospace stock has got to be the Boeing stock (BA). RichmondSuper analyst Mark Schmitt overviews the dominant position that this aerospace stock enjoys in the industry and how this stock could be the one to call for curious investors.
The Recovery Of The Aerospace Industry
Now, with the commercial aviation industry taking off, things are expected to pick up soon enough. Considering how the risk is still eminent with ongoing lockdowns and travel restrictions prevalent in some countries, the pace of the pickup is expected to be a little slow.
However, air traffic data continues to improve with each passing day with a slew of leading aerospace companies such as Raytheon Technologies and General Electric depicting a multi-year recovery plan.
RichmondSuper analyst Mark Schmitt explains, “Even though global vaccination programs are in place and travel restrictions continue to ease up, we still are counting a lot more on the “what if” factor and this can prove to be daunting for any industry- much less the aviation industry.”
The aviation industry could not have had a worse year than the 2020 pandemic. Their big plans for 2021 saw discrepancies with the second and third wave of the pandemic. However, they are well on their way to make the most of the current situation.
This is exactly why drawing a comparison by taking the aviation giant Boeing into account helps build a better perspective.
Boeing has gone through a whirlwind of instances from its recovery to its impending profit potential. While the company has always relied on earnings from Boeing Commercial Airplanes (BCA), things took a different turn after two separate crashes of the 737 MAX in 2018 and 2019. This led to the subsequent worldwide grounding in 2019 and well, then hit the 2020 pandemic.
Even though Boeing Defense, Space and Security lent a helping hand with the decent support that it offered, it was lacklustre at best.
Dave Calhoun, the Boeing CEO, spoke further on this matter at the last earnings call where he highlighted the fact that the COVID-19 response will take up more government spending which will subsequently add pressure to the global defence spending in the years ahead.
While on the other hand, it seems like Raytheon Technologies has other plans with its CEO Greg Hayes believing that his company can work towards growing its defence revenue instead.
Either way, there is a lot more that needs to be taken into consideration with such plans for the company will have to garner international strength and exposure to “high-growth areas”. This refers to the defence systems, intelligence and missiles as opposed to the “flat budgetary environment which he currently foresees.
RichmondSuper analyst Mark Schmitt believes that even with Boeing Global Services recovering as passenger fights make a comeback, it still would not have the same significant impact that Boeing Commercial Airplanes (BCA) would bring.
Future Prospects In Place
Even though it seems pretty obvious that BCA needs to work on its revenue growth in order to build its future earnings, however, its profit margin is mainly reliant on production growth.
This lowers the unit cost of production as the airline production ramps up, which subsequently would mean that each plane that is produced will showcase a high-profit margin. This will lead to an increase in profit margin as both the production and the revenue go up.
In 2019, former CEO Dennis Muilenburg depicted how the production ramp on the 737 MAX could help BCA pick up its margin rate to 15% compared to the 13.9% recorded in 2018.
The company planned on building revenue from the orders coming in for the narrow-body 737 MAX. Not only that, Boeing wanted to begin a wide-body replacement cycle at the beginning of this decade with 777X and 787 aircraft orders.
However, it seems like domestic air travel is expected to recover more quickly as compared to international travels. So, keeping that in mind the narrow-body aircraft demand will recover first and the company is geared up for it.
Redeeming Former Glories
While Boeing needs orders on its narrow-body flagship – the 737 in order to redeem itself, it still has a long way to go.
The commercial aviation market is a lot different today with seemingly being a buyers’ market. The good news for Boeing is that orders are starting to come in. Recent reports of Boeing winning an order from Southwest Airlines for 100 737 MAX brings in an added leverage over its biggest competitor Airbus.
The Dallas based airline showcasing confidence in Boeing will definitely help build the company’s profile as it is determined to make a solid come back in the market.
Disclaimer: Our content is intended to be used for informational purposes only.
It is very important to do your own research before making any investment based on your own personal circumstances.
You should take independent financial advice from a professional in connection with, or independently research and verify, any information that you find on this article and wish to rely upon, whether for the purpose of making an investment decision or otherwise.