September 4, 2015
By VANCE CARIAGA
INVESTOR’S BUSINESS DAILY
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Exposure to emerging markets that don’t include China and the Middle East could pose big risks to aircraft manufacturers Boeing (NYSE: BA) and Airbus (OTCPK: EADSY), as both companies face the prospect of fewer orders somewhere down the road.
RBC Capital Markets analysts Steven Cahall and Robert Stallard estimate that 17% of Boeing’s backlog is exposed to non-Chinese or Middle East emerging markets, including airlines based in Indonesia, Africa and Turkey. This figure excludes additional exposure via leasing firms or in the form of orders from undisclosed customers.
RBC calculates that 36% of Airbus’ backlog is exposed to non-Chinese or Middle East emerging markets, including airlines based in Indonesia, Columbia, Malaysia and Turkey. This figure also excludes additional exposure via leasing companies or orders from undisclosed customers.
The analysts note that fallout from China’s economic slowdown “continues to ripple around the globe,” with a “particularly negative impact” in emerging markets that benefited from the China boom.
The “double whammy” of negative economic developments and foreign exchange pressures increases the chance that both Boeing and Airbus “will see an increase in deferrals and cancellations from emerging market airlines,” Cahall and Stallard wrote in a report.
This in turn “calls into question” the two plane manufacturers’ plans for further rate increases, they added.
The impact might be awhile coming, however. RBC notes that “even if we start to see deferrals picking up into the year end, we see limited if any impact” on the 2016 delivery outlook for both Boeing and Airbus.
Meanwhile, Bloomberg reported Thursday that Boeing’s net orders for the 747 jumbo jet “have fallen to zero” after Nippon Cargo Airlines dumped its $1.5 billion order for four freighters.
Boeing’s stock price closed down 1% on the stock market today after finishing the previous two sessions in positive territory. The company has an IBD Composite Rating of 80. Airbus shares lost 2.7%.
Other big stocks in IBD’s Aerospace/Defense group include Lockheed Martin (NYSE: LMT), General Dynamics (NYSE: GD) and Raytheon (NYSE: RTN).
Lockheed Martin’s stock price ended down 1.3% Friday. General Dynamics and Raytheon both lost 1.6%.
Follow Vance Cariaga on Twitter: @IBD_VCariaga.