Aerospace stocks and the Farnborough Air Show
Ahead of Farnborough’s annual Air Show running July 14-20, Colin Cieszynski looks at the expectations of this year and what this could mean for the aerospace industry.
Within the report Colin discusses:
• How aircraft manufacturers use the air show to announce new orders and programmes
• The expectations of this year’s air show looking at Boeing, Airbus and Bombardier
• Whether Boeing’s shares are vulnerable to a correction
The Farnborough Air Show, which alternates with Paris as the aerospace industry’s main event of the year, is fast approaching, running July 14-20 this year.
Historically, the trade show element of the event which runs for the first four days is a key showcase for the industry. Aircraft manufacturers tend to use the event to announce large orders, launch new aircraft programs and debut new aircraft when ready to fly.
This year, there aren’t any major new aircraft programs expected to be launched, so the struggles of aircraft in testing may be a dominant theme of the shows both Airbus (with the A350) and Bombardier (with the CSeries) are looking for a turnaround from recent problems.
Boeing comes into this year’s show with the best momentum, having 499 net orders for aircraft after accounting for 54 cancellations. It appears to have put the teething pains of its 787 Dreamliner program behind it and is bringing its new 787-9 aircraft to the show.
Airbus, meanwhile, has only booked 290 net orders after being knocked down by 225 cancellations, including the loss of a $16 billion order for 70 A350 planes from Emirates. For Airbus, the road to catching up to Boeing in order flow starts at Farnborough.
Bombardier heads into the show looking to bounce back from recent struggles following an engine fire during CSeries testing and the loss of the Air Canada contract, considered a potentially large customer. Success in the regional jet, business jet or turboprop markets, or an indication of when flight testing on the CSeries may resume could attract attention.
With the potential for major announcements, the days running up to and following the Farnborough and Paris Air shows tend to be active for trading in aerospace stocks. The table below shows that over the last ten years, aerospace stocks have seen a bounce during and after the shows. Aircraft and engine producers have tended to show similar performance while European companies have outperformed their American counterparts in recent years.
Looking at individual stocks, there has been a significant difference in trading action between Boeing and EADS, with Boeing tending to outperform ahead of the show and EADS outperforming on average once the show actually starts. This could be due to EADS having greater success in exceeding street order expectations at some of the shows, and perhaps also due to a home field advantage.
There also is a significant difference in regional jet producers. Bombardier and Embraer have historically performed similarly ahead of the show but after the start Embraer has then outperformed Bombardier by a wide margin. This could be related to Bombardier’s continuing struggles in attracting CSeries orders overshadowing successes in other programs.
Stock in Focus: Boeing
Although Boeing appears to have strong business momentum heading into Farnborough, its stock appears to have stalled after a big run in 2013. In recent months, the shares have been trading in the $120-$145 range.
A recent correction appears to have run its course with the RSI bouncing up off oversold levels indicating selling pressure has started to ease heading into the show, potentially setting the stage for a rebound within its established trading range.
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