Long-Term Growth Opportunities In The Global Airline Sector
George Leong | May 23, 2014 01:04PM ET
The global airline sector is probably at its brightest point in history, having seen a significant improvement following the effects of 9/11 that nearly killed the industry.
The factor that’s pushing up the airline sector has been the renewal in the global economy, particularly the massive buildup of newfound wealth in the emerging markets in Asia, Latin America, and Eastern Europe. The growth is especially strong in Asia, as China continues to develop a significant middle class and consumer generation who want to spend and travel both domestically and internationally.
Future prospects look bright for the airline sector and are on target for higher profits for the second straight year, based on research by the International Air Transport Association (IATA). North America is estimated to retain its top spot in the airline sector, but the Asia-Pacific region is a fast-growing second. (Source: “Industry on Track for Second Year of Improving Profits – Rising Fuel Costs Largely Offset by Increased Demand,” International Air Transport Association web site, March 12, 2014.)
China is estimated to require 5,000 new planes over the next two decades. The key plane makers fulfilling the need will be Boeing Company (NYSE:BA) and Embraer SA (NYSE:ERJ)). Yet China is aggressively developing its own domestic plane for the airline sector called the “COMAC,” which is expected to launch its first regional airliner soon and has plans to deliver longer-range planes by 2018.
The S&P Aerospace & Defense ETF (NYSE:XAR) is near its highest levels in a year and is trading in an upwards channel, based on my technical analysis of the chart below.
While Boeing is the “Best of Breed” at this time, I also favor the manufacturers of new and retrofit parts to the airline sector.
At the top of my list is B/E Aerospace Inc (NASDAQ:BEAV), which has been an excellent growth story over the past decade and a good mid-cap airline sector play in the equities market. The company makes the interior cabin products for both the new and retrofit markets.
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On the smaller end, aggressive investors in the airline sector can take a look at Spirit Aerosystems Holdings Inc (NYSE:SPR) and LMI Aerospace Inc (NASDAQ:LMIA).
Spirit AeroSystems has developed into a key mid-size player in the airline sector, including commercial, business, and regional jets, and military/helicopter aircrafts.
For those looking for more risk, take a look at CPI Aerostructures Inc (AMEX:CVU), a maker of structural aircraft parts, mainly for the U.S. Air Force along with other areas of the U.S. defense sector. CPI acts as a prime contractor or subcontractor for other companies.
The bottom line is that whether you buy the plane makers or the suppliers of parts, the airline sector has excellent potential for long-term growth opportunities.
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