Who's the Next Boeing?
03/04/2013 7:45 am EST
Forget about the mega airplane builders, says Charley Blaine of MSN Money. But in today's merged and consolidated world, does that leave anyone else to invest in?
Boeing (BA) dominates the market for big commercial jets, but problems with its 787 Dreamliner mean it's time investors look for alternatives.
The company remains one of America's great industrial giants. Thanks to the success of the Boeing 707 and 747, it was the key player in the transformation of commercial aviation from propeller-powered to jet-propelled.
But is Boeing a good investment now? Or are there better bets in aviation stocks, perhaps even a "next Boeing" that will topple the giant down the line?
The answer to the first question depends on how successfully—and how quickly—Boeing deals with the battery problems that grounded its Dreamliners last month. There's also the potential for a strike in the next six weeks. And the federal government, a key customer, has fiscal problems. For investors, that's a lot of worry that could limit gains for some time.
The answer to the second question is more complicated, because there aren't a lot of alternatives. The market for big commercial airliners is basically Boeing and Airbus, owned by European Aeronautic Defence and Space (Euronext: EAD).
Sales of Airbus’ widebody A330 have strengthened in the past year or two, and the Dreamliner delays have given Airbus the opportunity to play catch-up with a new plane, the A350. Airbus has already has announced it won't use lithium ion batteries in its A350.
But Airbus has had problems of its own. Airbus has bet on the jumbo A380, the world's largest passenger plane. It has had mechanical issues as well, and has struggled to find buyers as oil prices have soared.
The rest of the Airbus line of planes has proved to be durable and efficient. But there aren't a lot of buyers for commercial airplanes, and they've preferred the Dreamliner. It's hard to bet against that as an investor, despite its woes.
So the better investment right now is likely neither of these giants, but one of the companies making different sorts of airplanes.
Embraer (ERJ) cut its 2013 production plans by 15% after several years of weak demand, but the bottom in demand has probably been reached, Embraer officials believe, and airlines will replace less-efficient planes with more-efficient aircraft.
After losing a $1.9 billion order from Delta Air Lines (DAL) to Bombardier, Embraer scored a big win: an order for 47 planes from Republic Airways (RJET) and an option for 47 more. Republic owns Frontier Airlines and several other regional carriers.
Created by the Brazilian government in 1969, Embraer built small planes and military jets, and was privatized in 1994. In the 1990s, it began to develop a line of commercial jets aimed at the low end of the market; they're used by such carriers as Air Canada, Jetblue (JBLU), and Lufthansa, the German airline.
The ADRs are up 17% this year after rising 28.6% in 2012. They're up 242% since the 2009 market bottom, much better than Boeing.
Mind you, Embraer isn't going to replace Boeing as the world's commercial airplane builder of choice—or beat Airbus on size, for that matter. But if you're looking for a Boeing alternative in your portfolio, it may generate sizable gains while Boeing, like its Dreamliner, sits waiting for takeoff.