BA

Our Take on United Techologies’ Second Quarter

by

United Technologies (UTX) posted excellent second-quarter results Wednesday, with sales advancing 9% (6% organic) and net income jumping nearly 20% from the prior-year period. The firm’s operating margin for the quarter was 15.9%, 120 basis points higher than last year. Impressively, the firm noted that for the first time since mid-2008, all six of its business segments showed organic growth in the period. Further, order rates at Otis were up 23% thanks to strong demand from Asia and China, while order rates for commercial HVAC new equipment at Carrier jumped 13%. The firm’s aerospace segments continue to perform well, and we expect such strength to continue as Boeing (BA) and Airbus (EADSY.PK) continue to ramp up commercial aircraft deliveries in … Read more

AMR’s Second-Quarter Results: Good News for the Shorts

by

AMR Corp. (AMR), the parent of American Airlines, reported dismal second-quarter results Tuesday, as the rapid escalation in fuel prices pushed it into a deep loss during the period. Though revenue rose 8% from the same period a year ago, the company reported a net loss of $286 million, or $0.85 per share, which compares to a net loss of $0.03 per share last year. Due largely to its fuel-inefficient fleet, the carrier paid nearly 31% more in fuel costs during the period from last year’s quarter, amounting to an incremental $500 million-plus headwind. American’s mainline load factor fell 0.3 percentage points from the year ago period, suggesting that demand is not keeping up with capacity additions. We maintain our bearish … Read more

Are Boeing’s Competitive Advantages Waning? We Think So.

by

Michael J. Mauboussin, when working at CSFB in 2002, published an excellent piece on the concept of an economic moat. Warren Buffet is often given the credit of coining the term. Morningstar (MORN) and other research firms like Valuentum (via its ValueCreation rating) have embraced this compelling idea, embedding the concept in their research framework. In this article, we discuss whether we think Boeing (BA) has lost its moat, in light of the recent split-order of 460 planes from American Airlines (AMR). First of all, we think the market is completely misunderstanding the long-term implications of the recently announced and massive AMR order to replace its narrowbody fleet (which was split between Boeing and Airbus). Though receiving orders is, in itself, positive, this particular order comes at the expense of Boeing’s exclusivity with AMR — the carrier currently flies … Read more

AMR Likely to Split Massive Order Between Boeing, Airbus

by

This article appeared on Seeking Alpha. Please view disclosures: https://seekingalpha.com/article/280307-amr-likely-to-split-massive-order-between-boeing-airbus As we outlined a few weeks ago in “AMR’s Big Order to Pressure Cash Flow, Boeing in Precarious Position,” we indicated the increasing likelihood that AMR (which holds American Airlines) may split a massive $15 billion-plus order between Boeing (BA) and Airbus to replace its aging fleet of narrowbodies. This would represent a huge shift at the major carrier, as AMR currently flies all-Boeing aircraft. Verbatim from our July 1 report: Boeing is in a rather precarious position. Airbus has claimed all along that it will capture customers currently flying the 737 with its A320neo (new engine option), an upgrade to its A320 that has the option to sport more fuel-efficient engines. The … Read more

Merger Mania in the Brazilian Air Travel Market: A Net Positive

by

This article appeared on Seeking Alpha. Please view disclosures: https://seekingalpha.com/article/278846-merger-mania-in-the-brazilian-air-travel-market-a-net-positive As long-time followers of Valuentum know, we’re not too fond of airline stocks. Essentially, we view them as merely a speculative bet on the trajectory of economic growth and the direction of jet fuel prices. But while the price of black gold remains largely out of airline executives’ control, it’s hard not to like the economic growth prospects of the Brazilian air travel market, which has been on a tear during the past several years thanks in part to heavy discounts on fares offered by low-cost carriers such as Gol (GOL). Plus, the 2014 World Cup and the 2016 Olympics, both to be held in Brazil, will serve as temporary and … Read more

AMR’s Big Order to Pressure Cash Flow, Boeing in Precarious Position

by

This article originally appeared on Seeking Alpha. Please view disclosures: https://seekingalpha.com/article/277628-amrs-big-order-to-pressure-cash-flow-boeing-in-precarious-position Shortly after we released our analysis of the fleets of the largest domestic carriers, The Wall Street Journal reported that AMR Corp. (AMR) is interested in ordering as many as 250 planes from either Boeing (BA) or Airbus (EADSY.PK). Our analysis, the summary graph of which we provide below, indicated that AMR is roughly on par with Delta (DAL) for having the oldest fleet (read fuel-inefficient) among the Big 4 domestic majors, so we view this move as inevitable. (Click chart to expand) The Wall Street Journal also indicated that the order value could be as high as $15 billion (comprising about 250 planes), and we suspect the new aircraft being evaluated will … Read more

How Profitable is Boeing’s 787 Dreamliner? Not Very.

by

This article originally appeared on Seeking Alpha. Please view disclosures: https://seekingalpha.com/article/277504-how-profitable-is-boeings-787-dreamliner-not-very With Boeing’s (BA) 787 Dreamliner in the final stages of testing, we thought it would be helpful to clarify the profitability of this program (or perhaps more appropriate, the lack thereof), at least in its early stages. The growth potential of this program has been well-documented, but the 787 platform’s profitability will be nowhere near what management had expected before it experienced the first of many delays of its Dreamliner.  We think investors should be made aware of just how much leeway Boeing has in determining earnings, and why Boeing is one of the more difficult firms for the analyst community to get their arms around due to the lack of transparency. We believe Boeing will set the initial 787 accounting … Read more

Airbus Has Boeing’s Back Against the Wall, Seek Opportunities in Supply Chain

by

This article originally appeared on Seeking Alpha. Please view disclosures: https://seekingalpha.com/article/276439-airbus-has-boeings-back-against-the-wall-seek-opportunities-in-supply-chain Last week in anticipation of the Paris Air Show–a huge event for the aviation industry–we outlined our forecasts for market share in the narrowbody aircraft segment, which showed Airbus’ A320 gaining a clear lead during the next few decades.  So far during the show, Airbus has received a plethora of orders for its A320neo (new engine option), a re-engining of its popular A320, which competes with Boeing’s 737NG [and within a few years, entrants from around the globe: Comac’s C919 from China, Bombardier’s (BDRBF.PK) CSeries, and the Irkut/UAC MS-21 from Russia]. Orders for the A320neo are coming from around the globe, with Airbus garnering wins from India’s Indigo, Chile’s LAN Airlines (LFL), and domestic carrier Republic (RJET). We’re currently watching for any major shifts within the discount airline … Read more

Word of Caution: Boeing’s Narrowbody Build Rate Is Unsustainable

by

This article originally appeared on Seeking Alpha. Please view disclosures: https://seekingalpha.com/article/275567-word-of-caution-boeings-narrowbody-build-rate-is-unsustainable  Competition in the narrowbody market continues to heat up, and recent events only support our view that the large commercial jet-making duopoly of Boeing (BA) and Airbus will be shattered in coming years. First, last Wednesday, Boeing released plans to increase production of its 737 workhorse to 42 jets per month by the first half of 2014. We view this strictly as a competitive response to clear its massive narrowbody backlog in the face of firming global competition, not as an indication of incremental demand for Boeing’s soon-to-be-legacy 737NG (it will be replaced with either a re-engined model or a brand new build in coming years). Frequent readers were aware … Read more

A Serious Blow to Boeing is Looming

by

This article was referenced on Seeking Alpha. Please view disclosures: https://seekingalpha.com/article/275567-word-of-caution-boeings-narrowbody-build-rate-is-unsustainable As competition in the narrowbody market heats up before the Paris Air Show next week, Boeing appears to be losing favor with two of its best customers, Southwest and Ryanair. For those unfamiliar with Southwest’s and Ryanair’s fleets, they are all-Boeing 737 airplanes, and recent actions by these two carriers give us pause, especially as Boeing drags its feet on deciding what to do next with its workhorse 737. As Bloomberg reported some time ago, Southwest’s CEO Gary Kelly is not all that thrilled by Boeing’s delay in responding to Airbus’ A320neo and the CSeries offered by Bombardier–both planes offering cost advantages better than the 737NG in their corresponding seat … Read more