Aerospace Spring Stock Market Outlook
The Airlines and Aerospace Industry is being currently dramatically affected due to the current global outbreak of the coronavirus. Thousands and thousands of flights are being cancelled on a daily basis as countries are closing their borders in efforts to prevent the spread of the virus. With travel restrictions in place to highly populated areas the operations strategies of major airlines to target these densely populated areas is being directly affected.
Airlines operate on tight margins and need to maximize load factors to be able to generate profits on the daily operations of running an airline. At the start of the outbreak we noticed fuel prices drop down significantly after OPEC asked oil mining countries to reduce production to stabilize the prices. Russia refusing the reduce production resulted in the Saudi nations to decide to increase production which as a result cause the prices of a barrel to drop significantly. This is due to the ability of oil being refined at such a low cost in the middle east.
With prices of fueling going to lows that the market has not seen in a long time it has made the operating cost for the airlines lower. Although with the drop in demand for international travel the fuel saving where unrecognized. Overall when you look up airlines stocks on the web to day the highlight in the press is how the airlines are crashing and will all need to be bailed out because they are “too big to fail.”
Although the airlines have been one of the greatest sectors in the aerospace to be impacted by the global pandemic many other aerospace companies have also been strongly affected while others have shown very little affect.
Airlines
This week Emirates Airline announced that they were going to suspend a majority of their flights. Flying a fleet of primarily A380 this aircraft load capacity is double, even triple the size of most commercial airlines. Many critics and analyst have recognized that the A380 may have been a prime catalyst for the spreading of the coronavirus. With over 500 individual in the aircraft for sometimes periods of hoer 12 hours flight it can potentially be a incubator for germs to spread.
With a primary portion of their operations being based in the Asian region of the world it was essential that suspending a majority of flights in that area of the world.
When we look at the companies that are publicly traded on the NYSE the well known and respected airlines that have been flying over our heads for years are seeing prices drop back down to record lows. The last time prices were ever this low were back in 2008 when the stock market crashed and airline stocks fell down below $5.
Many analyst have seen a pattern that the market could potentially repeat itself towards reaching back towards those same levels again. Of course the big conversation in the U.S. is if the airlines will be able to receive relief funds to be able to maintain in business. The real question is if this will aid the situation or just simply be a band-aid to a bigger problem.
With airlines being one of the greatest contributors to GDP in the U.S. not having our airlines flying would be a dramatic issue for the world as we provide services to networks around the world.
Over the last two weeks the market dropping has sent companies down to the current prices:
| Company | Current Price |
|---|---|
| Delta (DAL) | 21.55 |
| American Airlines (AAL) | 10.46 |
| United Airlines (UAL) | 25.16 |
| Jet Blue (JBLU) | 7.10 |
| Southwest (LUV) | 32.05 |
| Alaska (ALK) | 22.88 |
| Copa (CPA) | 29.32 |
| Spirit Airlines (SAVE) | 8.99 |
Defense
Defense Companies have shown to still be able to hold some value in the current market. Part of the reason being their biggest clients are the military of governments and private defense companies. Considering their essential need for certain product they have managed to remain valuable. Part of this also has to do with how their earn cash-flow.
Unlike commercial companies that earn progressively overtime and will budget costs accordingly to keep up with the balance and flow of cash defense companies often work in contracts.
When the contract is signed depending on the deal the funds could be all transferred upfront, once the product has been delivered or progressively through the course of the deal. Regardless the funds are assured and the business has already secured those profits and can continue operational without a lack of cash flow.
Defense aerospace companies also are making different kind of products that are use more for specialized mission objectives. with that being said as our global status demands for various specialized mobility operations and satellites for navigation and surveillance this puts defense companies in a good position to remain profitable and operational during a time of global pandemic.
Some of the aerospace Defense companies with the most active trading volume are:
| Company | Current Price |
|---|---|
| Boeing (BA) | 98.82 |
| Honeywell (HON) | 105.18 |
| Lockheed Martin (LMT) | 280.11 |
| General Dynamics (GD) | 108.9 |
| Northrop Grumman (NOC) | 287.45 |
| Textron (TXT) | 22.41 |
| Aerojet Rocketdyne (AJRD) | 36.68 |
| AeroVironment (AVAV) | 53.4 |
Services
Aerospace Service companies have certainly also been greatly affected with the grounding of thousands of aircraft worldwide. As these service companies are often small and very niche to a specific task as soon as the client is no longer requiring the service the business quickly starts to slow down as a result.
As the tables start to turn in the next coming weeks demand may surge back up once the okay is given and then it could slowly start to peak as consumers will be a bit more cautious about their travel itinerary going into the future. During the time of the demand curve with supply of service providers being so low due to the many of the organization shutting down it will give space for a new bread of business to then enter the market.
More innovative strategies will be developed to be able to provide to same level of service while protecting the company from future downfall of events. One can never predict certain global pandemics can come about so it is always important to maintain a certain level of risk assessment in the market. As when times are going extremely well people often think it will last for ever. The same goes for when time are bad. Just because the market is currently experiencing a downfall does not mean that times are going to remain bad forever.
Innovation and patience are going to be the leaders in this global market. As we look to see the sun shine again after this storm service companies have the potential to position themselves appropriately to be able to receive more request than than they will be able to service. With service companies needing to lay off individuals due to lack of flights once the flights start picking up again we can expect to see a hiring frenzy as companies will be looking to fill the ramp up again with individuals ready to help out.
In terms of service companies in aviation it also applies for financial services. Aircraft leasing companies are anticipating a surge in demand for leased aircraft for airlines who will have greater demand than their fleet can manage and will be looking to expand their fleet without having to expose to much risk by purchasing a new aircraft.
A few service companies that we are watching for these next few weeks are:
| Company | Current Price |
|---|---|
| Aircastle (AYR) | 31.00 |
| Air Lease (AL) | 16.05 |
| Heico (HEI) | 67.04 |
| Air Transport Services (ATSG) | 18.07 |
| Expedia (EXPE) | 49.00 |
| Skykwest (SKYW) | 19.67 |
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