Investors’ bull case on aircraft OEMs has gaps

Subscription Required By Judson Rollins
Introduction 
April 15, 2021, © Leeham News: Late last month, the aerospace and defense analysis team at Credit Suisse (CS) published its view on the future of the Airbus-Boeing duopoly, as well as an introduction to COMAC’s market position and future. CS's main thesis struck a decidedly upbeat note: "As a result of excess retirements due to [COVID-19], significant [sustainability investor] pressure on decarbonization, and the appeal of new warrantied aircraft, we might actually expect a period of solid new aircraft demand in a year or two." In terms of specific manufacturers, the team was unsurprisingly more bullish on Airbus than Boeing. They cited Airbus’s “strong market positions in narrowbodies” and their expectation that Boeing’s “recovery will be encumbered by the realities of its product portfolio.” CS did see room for longer-term optimism on Boeing, arguing that while spend on new product development “would pressure numbers this decade, it could also shift the competitive pendulum back … helping anchor a higher terminal [share] value.” However, CS’s view seems to be more optimistic than that reflected in the two manufacturers’ equity prices. Airbus and Boeing shares are down 23% and 26% from their respective early-2020 highs. A deeper look into their analysis raises several questions about the future trajectory for commercial aircraft sales. Summary
  • Aircraft retirements aren’t the overreaction they appear to be.
  • Sustainability is already a priority for airlines and manufacturers; new regulations will only dampen commercial aircraft demand.
  • The appeal of new aircraft, while boosted by low interest rates, must be balanced against the wide availability of used ones.
  • A slow recovery in business travel will dampen yields, crimping investment in new aircraft.

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