Aircraft Manufacturers May Be Cruising at Altitude
But does an order backlog mean tailwinds for commercial aerospace, or is it just overbooking?
The commercial aerospace cycle is driven by a multitude of factors, including gross domestic product, airline profitability, new route growth, and aircraft age. With recent improvements in composite materials and upgraded engine designs, the commercial manufacturers have pushed fuel efficiency enhancements to entice customers to replace or add to their fleets. With order books that provide nearly five years of production visibility at maximum announced build rates, Boeing and Airbus appear to hold enviable market positions. However, their main customers are airlines, which are inherently unstable as they operate in a no-moat industry. Here we assess the sustainability of the current book of business in the context of a slowing global economy.
The four major players in the commercial marketplace are Boeing (BA), Airbus (owned by EADS (EAD)), Bombardier (BBD.B), and Embraer (ERJ), but the duopoly of Boeing and Airbus dominates the bulk of the market.
Neal Dihora does not own shares in any of the securities mentioned above. Find out about Morningstar’s editorial policies.
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