Investing in Aircraft Manufacturers

Investing in Aircraft Manufacturers: That'll Fly Like a Lead Balloon
A Special Report for Dynamic Market Alert
by Andrew Mickey
Editor, BreakAway Investor and Fear and Greed

Speed vs. size. These are the bets placed by the top two aircraft manufacturers in the world. Boeing (BA:NYSE) is betting long-term on speed while Airbus is placing its bet on size. 

It's going to take years to find out which one will be the eventual winner, but for now, Boeing has taken a considerable lead. Boeing is benefiting not because of its own performance, but because of Airbus' missteps. 

Airbus, a division of EADS (EAD:PA), hasn't been hitting the mark with the production of its newest and most anticipated aircraft, the A380. A few weeks ago, Airbus announced the aircraft's expected release would be delayed by six months due to engineering difficulties.  

This could turn out to be the straw that breaks the camel's back for Dubai-based Emirates airlines. Emirates stated today that it might cancel its order for 43 of Airbus' A380s. That's $13.5 billion worth of expected revenue for Airbus.

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At first this may sound absurd. But back in June, Singapore Airlines, which will be putting the first A380 into commercial use later this year, made a very similar move that Emirates may be considering. Singapore Airlines became frustrated with Airbus' lengthening delays and excuses and decided to do something about it. It didn't cancel its Airbus order, but it did place a $4.5 billion order for Boeing's new 787 Dreamliners.  

Clearly, the airline industry is starting to lose faith in Airbus. But this isn't the first time an aircraft manufacturer has run into major problems. 

Investing in Aircraft Manufacturers: Boeing, the Dominator

I remember four years ago when analysts were hailing the downfall of Boeing when Airbus' A380 program began to really take shape. This is when FedEx placed an order for 50 of the first 100 A380s to roll off the line. 

You see, Boeing has dominated the jumbo airliner market since the first version of its 747 was released in the '70s. Since then, only McDonnell-Douglass has tried to take a crack at developing a competing jumbo jet.

McDonnell didn't fair too well. In April of 1992, there were many headlines following the company's announcement that it would be developing a competing jumbo airliner to compete head to head with Boeing's 747. However, over the next few years we didn't hear much else about the plane. Any hopes that did remain were completely dashed five years later when Boeing bought McDonnell in 1997.

The Best for Investing in Airline Stocks

Obviously, designing massive new airplanes from scratch isn't easy. That's probably why, to date, the world only has one jumbo jet that's suitable as a passenger carrier right now. Developing another one takes a lot of time and there are a lot of technical hurdles to jump through.  

Airbus' A380 are just the next example. I'm not saying these plains are going the way of McDonnell's foray into the jumbo jet market, but they are facing continuing delays. The delays are going to really hurt EADS and its shareholders for the time being.

As for airline stocks, I wouldn't recommend investing in Boeing or EADS. They are huge lumbering companies that can rarely string together a few years without a major production delay or having to deal with significant labor issues.  

Smaller, more versatile aircraft parts manufacturers are the way to play the aircraft market over the long-term. Aircraft manufacturers have become assembly plants instead of manufacturers. Today, thousands of outside suppliers make almost all of the parts for new aircraft.  

Companies like United Technologies (UTX:NYSE) and Ducommon Incorporated (DCO:NYSE) are making many of the parts for new aircraft. That's where the best investment opportunity lies.

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