Heydays Back for the Aerospace Industry? - Analyst Blog

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If reports from the Paris Air Show are anything to go by, the global commercial aviation industry has clearly booked its ticket for an upward flight after a prolonged cessation due to an anemic macroeconomic environment and spending cuts by big-ticket players. So, is the beleaguered Aerospace industry getting back to its hay days?

Latest data from the exhibition reveal that jet engine makers had booked orders and service contracts worth $24 billion, signifying an avid interest in the industry to replace fuel-guzzling aircrafts with fuel-saving jets as gasoline reserves get hollowed out each day and environmental safety issues take the driving seat.

In addition, the industry is likely to face increased demand as the International Air Transport Association trade group projects that passenger traffic is expected to grow at an annual rate of 5% in the near future.

Consequently, aircraft manufacturers across the globe are focusing on introducing new plane designs, which will further push the envelope of flight performance and efficiency measures, through technological innovations and automation of factories. Experts believe that in the next few years, highly skilled aircraft manufacturing jobs could be done by machines and engine parts could be delicately fabricated by an industrial 3-D printer or a paint job could be applied by a robot.

As the industry gets flooded with a huge order pile, more and more companies are gearing up to open their wallets for investments in automation to produce high volume at low costs. Industry players foresee that such initiatives could eventually help in delivering over 35,000 jets in the next 20 years for a cumulative value of about $4.8 trillion. Aviation expos like the Paris Air Show, which is one of the world's oldest and largest aviation exhibitions, have emerged to be such an avenue to turn the tide in favor of the aircraft manufacturers and generate a buzz in the industry.

Leading jet manufacturers like Airbus and The Boeing Company ( BA ) have garnered healthy business at the exhibition for 908 aircraft, estimated to be worth $134.7 billion at list prices. While Airbus raked in orders for manufacturing 466 aircrafts, Boeing was not too far behind at 442.

CFM International, a 50-50 joint venture between Snecma S.A., a French multinational aircraft manufacturer and subsidiary of Safran SA ( SAFRY ); and GE Aviation Systems, an operating unit of General Electric Company ( GE ), procured an aviation contract worth $13.06 billion, bringing its tally for the show to $15 billion to date.

Others in the fray included Sikorsky Aircraft Corp., a subsidiary of diversified business conglomerate United Technologies Corp. ( UTX ), which generated significant customer interest for its diversified helicopter fleet. Even Pratt & Whitney, one of the other operating segments of United Technologies, booked large orders for manufacturing engines for various aircraft.

However, despite the encouraging findings, critics are cautious about the ambitious production plans of the industry and remain wary of the fallouts of huge investments failing to justify the returns. Nevertheless, we believe that a potential global market will shield the aeronautical sector from regional shocks, and the bullishness is here to stay.



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The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of The NASDAQ OMX Group, Inc.



This article appears in: Investing , Business , Stocks

Referenced Stocks: BA , GE , SAFRY , UTX

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