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On the upswing: Aircraft industry: Why the shares of aircraft manufacturers are now taking off | message

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, On the upswing: Aircraft industry: Why the shares of aircraft manufacturers are now taking off | message, Forex-News, Forex-News
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by Klaus Schachinger, Euro am Sonntag

A.uf to Mallorca: From the pandemic-related low level in April, flight bookings by German tourists to their favorite sunny island have increased 25-fold. Lufthansa will soon be using larger aircraft for the two-hour flight from Frankfurt, such as the Boeing 747 with 364 seats. In Munich, the similarly large Airbus SE A350 is scheduled to take off at the same time. More than a fifth of tourists in Spain are vacationers from Germany. According to the figures of the market researchers from Cirium, who specialize in the aviation industry, they are clearly at the top. This dynamic also lifts the mood in the factories of aircraft manufacturers and their suppliers. Business in China has been going better for some time. With the successful vaccination campaigns, business in the aircraft industry is now also picking up in the USA and Europe.

Airbus wants to cautiously ramp up production of the most popular A320 and A220 models. Boeing is also hoping for a recovery in deliveries after a bumpy start to the year. The base model 737, a competitor to the Airbus A320, is the most successful aircraft in the Chicago-based company. Berenberg expects 379 aircraft of this type to be built this year. In the previous year there were only 43, mainly because of the disasters of the 737 Max.

At Airbus, compared to the previous year, ten percent more A320 planes should roll off the assembly line – a total of 490 aircraft. This is good news for the plant in Hamburg, where the machine is manufactured. Compared to Boeing’s 737, the difference to production in the previous year is small. The jets of the Toulouse aircraft manufacturer have remained because of the fuel-saving engines.

Most of the turbines for the A320 family are developed, built and supplied by the consortium of Raytheon Technologies subsidiary Pratt & Whitney and Munich-based MTU Aero Engines. Airbus will build a total of 620 aircraft in 2021, a tenth more than in the previous year, but still a good 30 percent fewer than in 2019. Boeing’s 535 planes are significantly stronger compared to the pandemic year 2020, but are also more than 30 percent below its peak year 2018. On October 29th, 2018, a brand new 737 Max of the Indonesian Lion Air crashed during its flight from Jakarta to Sumatra. The consequences put Boeing in a serious crisis.

After changing the boardroom and other management levels, the group now wants to gain travel speed again. Investors are also pleased that Airbus and Boeing are now surprisingly ready to resolve their decades-long dispute over multi-billion dollar subsidies.

Boeing is bothered by its European rival that the EU is supporting the launch of new models with cheap loans and that repayments are only due when the models have reached a certain export volume. This means that the financial failure of a new jet is almost impossible, it is said. From the perspective of the World Trade Organization, however, the procedure is compliant because the loans are granted at market rates. At Boeing, on the other hand, Airbus criticizes the fact that the competitor is subsidized with considerable tax reductions and also has access to billion-dollar funding programs of the US government in the armaments segment.

New competitor in China

The rise of Chinese rival Comac is an important factor in the search for a solution to the subsidy dispute. The debt of its model C919, which competes against the Boeing 737 and Airbus A320, is expected for the current year. The C919 is said to be clearly inferior to the Airbus and Boeing machines in terms of range and consumption. However, Beijing has committed China’s airlines to secure the jet’s take-off success with orders. Outside of China, experts do not trust Comac to be successful. With Beijing’s generous financial support for the next, technically improved variant of the aircraft, that could change.

However, unlike Airbus and Boeing, Comac is on its own when developing its aircraft. Western engine developers and important suppliers show little interest in cooperation.

Meanwhile, Airbus continues to do well in China. Boeing is being thwarted by China’s ongoing conflict with the United States. After the corona pandemic, a quarter of the growth in aircraft sales will take place in China, said Boeing boss Dave Calhoun recently at a conference of the US bank Bernstein. Calhoun threatened that if Boeing had little or no play as a result of the political tensions in China, it would relinquish the lead. After the crash of the 737 Max in 2018, China was the first country to issue a flight ban on the jet, which has not yet been lifted. Unlike in the United States and Europe, for example.

Even after the crisis, Airbus and Boeing are well protected by full order books. Of the orders for 7,660 aircraft before Corona, Airbus only lost seven percent. At Boeing it is 24 percent (5,625 orders) less because of the 737 Max disaster, but that is also a good buffer.

Engine developers such as General Electric (GE), Raytheons Pratt & Whitney and, in Europe, MTU Aero Engines and Safran also benefit from the aircraft manufacturers’ full order books. At the same time, your market is shaped by a few providers because of the high entry barriers. GE and Safran in France recently extended their joint venture CFM International until 2050. They are jointly developing a turbine for the A320 and 737 Max that is said to use a fifth less fuel. The engine will run on synthetic fuel and hydrogen and will come onto the market in 2030.

The Pratt & Witney / MTU Aero Engines consortium hopes to develop an engine for the successor to Boeing’s bestseller 737. “We expect Boeing to open this market – anything else would surprise me,” MTU driver Reiner Winkler told uro on the Sunday before the pandemic. He confirmed this assessment at the beginning of the year. And Boeing boss Calhoun recently indicated that it would be “not long” before a new jet was presented.


INVESTOR INFO

Higher production figures in the A320 family, for which a second production facility was set up in addition to the Hamburg plant in Toulouse, are the main driver of higher margins. In the Corona year 2020, Airbus achieved a net profit of just under 50 billion euros with a net profit of just under 50 billion euros. For 2022 and 2023, analysts expect double-digit percentage growth in sales and high profit growth.

The flight bans for 737 Max jets gave Boeing a large minus even before the pandemic. The coronavirus year ended with a loss of $ 5.8 billion. Analysts do not expect a return to the black until 2022, with net profits of $ 3.7 billion and revenues of $ 89 billion. Then 737 Max jets will be delivered again. The share is highly valued, an investment only for risk-takers.

Engine developer

For engine service provider MTU, the high proportion of service business paid off during the crisis. In terms of sales, MTU will reach the pre-crisis level as early as 2022, earlier than most. At GE, jet engines have played a major role in the restructuring success. Raytheon also benefits from its armaments divisions.

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More news about General Electric Co.

Image sources: Markus Gann / Shutterstock.com, Airbus Group


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