The world’s largest aircraft manufacturer, The Boeing Co. (BA), in its seventh annual aircraft finance market forecast, predicts $112 billion worth of passenger jet deliveries in 2014 (up 7.7% year over year) across the aviation industry. This implies a staggering level of funding due to come from investors and financiers.
The plane maker projects that capital markets will provide 22% of financing for new aircraft deliveries next year, up from 14% in 2013 and just 3% in 2009. The company is extremely bullish on its Super Hornet and Growler production. Of the $112 billion in jet sales projected for next year, Boeing believes as much as 95% will be shared between Boeing and Airbus.
The sector's diminishing reliance on export credit agencies (“ECA”), which will finance only 18% of 2014 sales (down from 23% in 2013) and the speedy development of commercial aircraft-backed bond issuances are the contributory factors to financing realignment.
Boeing also expects banks to offer 25% of 2014 financing, compared with 28% in 2013. Again, Chinese banks will likely rule, overtaking Japanese banks, as they are the second-largest providers of bank debt at 23%, following the European banks at 25%. Hence, commercial banks are expected to play a pivotal role and act as the largest source of funding in 2014.
Boeing, with a robust backlog and growing deliveries, remains well on-track despite the many technical glitches plaguing the much-hyped Dreamliner. The gradual recovery in the global economy is bringing in a steady improvement in passenger and freight traffic. As per the International Air Transport Association (IATA), global airline passengers will touch the 3.6 billion mark in 2016, expanding 5.3% per annum in the period 2012 to 2016.
After dominating the Dubai Air Show with orders worth $101.5 billion, Boeing looks to be in an advantageous position when compared to archrival Airbus. It has $95 billion worth of orders and commitments for its new 400-seat 777x. With the assurance of first 777x deliveries by 2020, the company is now intent on quickly selecting the production site.
Boeing had requested bids from a number of states in November with a deadline set for mid December. Officials in Alabama, California, Missouri, South Carolina, Texas and Utah are among those who are wooing Boeing with economic incentive packages worth millions of dollars. A win for the Boeing plant would mean the creation of thousands of jobs for that sate.
In the recent past, Washington lost 777x production after union machinists rejected a proposed contract with Boeing. However, the state has recently approved tax breaks valued at $9 billion over the coming years and passed legislation to enhance aerospace training programs and permitting.
In Missouri, Gov. Jay Nixon signed into law a $1.7 billion tax incentive package. The company currently employs about 15,000 people. The tax credits are worth up to $150 million annually over 23 years upon successful accomplishment of Boeing’s target of 8,000 new jobs.
With its strong presence in the commercial airplanes industry, Boeing currently holds a Zacks Rank #2 (Buy). One can also look at Raytheon Co. (RTN), Huntington Ingalls Industries, Inc. (HII) and Arotech Corp. (ARTX) as good buying opportunities. While Raytheon sports a Zacks Rank #1 (Strong Buy), Huntington Ingalls and Arotech hold a Zacks Rank #2 (Buy).
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