Both Boeing (BA) and Airbus (AIR. France) had a record-breaking showing at the 2023 Paris Air Show, but their stocks dropped nonetheless. Along with suppliers General Electric (GE) and Raytheon Technologies (RTX), all four companies experienced an average loss of almost 4%.
However, it doesn’t make sense to attribute the drop to the companies’ performance at the air show. To the contrary, orders for planes hit a record high, with customers agreeing to purchase more than 1,100 planes. This is a significant increase from the 2018 total at the U.K.’s Farnborough show of just over 1,000 jets.
Per Vertical Research Partners Rob Stallard’s report on Thursday, “The tone from the Airshow was (unsurprisingly) very positive….with demand continuing to outstrip supply…Everyone loves aero…with the continuing strong recovery in the aviation sector, it is hardly surprising that aerospace remains a consensus long with investors.”
So what gives? Some of the stocks’ losses come down to timing. Investors buy the rumor and sell the news, and in this case, the air show was considered “the news.” But all four stocks are up over the past month, with an average rise of about 1% in anticipation of positive news from Paris. Additionally, over the past 12 months, all four stocks rose by an average of more than 50%, indicating that despite the weekly drop, investors are confident in the future of these commercial aerospace companies.
Labor Troubles and Supply Chain Issues Affecting Aerospace Industry
The aerospace industry is facing several challenges that have been impacting production, causing concerns among investors. While demand appears to be strong, supply chain issues and labor troubles are causing disruptions in the industry.
Spirit AeroSystems (SPR) has been facing labor trouble, with workers voting down a new labor agreement. As a result, Spirit has shut down production, which could affect the entire industry since the company supplies both Boeing and Airbus. However, experts say a short pause may not have too significant an impact.
Another significant area of concern is the production ramp-up after the pandemic. While most companies agree that the supply chain has improved, it remains challenged and may stay that way until at least 2025. Companies are struggling to cope with finding qualified workers and retraining those who left the industry during the pandemic.
Production up and down the value chain has become the most important issue for investors to keep an eye on in the coming months. Meanwhile, it seems that demand is not a significant problem in the industry.
Despite the challenges being faced by many aerospace companies, there is still optimism about commercial aerospace’s future. Stallard recommends companies exposed to the aerospace aftermarket as they seem to be doing well, including GE, a larger-capitalization engine maker, and small-cap repair-service providers such as AAR (AIR) and FTAI Aviation (FTAI). Overall, it is crucial for investors to pay attention to production trends in the industry.
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