Update Boeing (BA)

Boeing (BA) has moved the yardsticks—both long and short-term–in the last few days.

First, the company announced that it will increase the production rate for its newest 737 model to 35 per month in early 2012 and to 42 per month by early 2014. Current production is 31.5 planes a month.

Second, Boeing upped its estimates for total aircraft orders—from all manufacturers—over the next 20 years to $4 trillion. Read more

Buy GOL (GOL)

Doing some catch up on this stock. I added GOL (GOL) to the Jubak Picks 50 long-term portfolio http://jubakpicks.com/jubak-picks-50/ on January 18, but this is the first time I’ve had an opportunity to explain why in detail or to actually add it to the portfolio. I’m still working on explaining the other sells and buys announced on January 18 from that group.

Shares of GOL Linhas Aereas Inteligentes (GOL) continue to close in on the June 29, 2010 low at $11.7182. Even yesterday’s solid report on May traffic couldn’t keep the stock of Brazil’s low cost airline out of the red. Today, of course, they’re up on the global bounce but I’m not sure how long that will last.

May traffic, GOL reported yesterday June 13, climbed by 12.7%. The company recorded 2.44 billion revenue-passenger kilometers in May, up from 2.17 billion in May 2010. (A revenue-passenger kilometer is calculated by multiplying the number of paying passengers by the number of kilometers flown.)

GOL’s load factor—the percentage of available seats that are occupied—climbed to 62.9% in May from 57.9% in May 2010.

The problem for GOL—as for all the world’s airlines—is higher fuel prices. Read more

Boeing (BA) successfully conducted its first test of the new bigger passenger version of it 747-8 airplane today. The problem is there may not much of a market for the plane.

It’s not surprising that first flight of the 747-8 went without a hitch. The freight version has already logged 2,000 flights.

The 747-8 is bigger than the current 747-400—and that could be a big problem for Boeing. Read more

Update LAN Airlines (LFL)

The proposed acquisition of Brazil’s TAM (TAM) by Chile’s LAN Airlines (LFL) jumped another hurdle on March 3. Brazil’s Finance Ministry has said that the deal satisfied Brazil’s foreign ownership rules. In my opinion those rules were the only real obstacle to the deal and a restrictive application Brazil’s limits on foreign investment in Brazilian airlines could have killed the combination. The companies have come up with a complex structure that will let TAM’s controlling shareholders retain 80% of TAM’s voting stock while giving LAN shareholders about 70% of the combined airline to be called LATAM Airlines.

The deal, which still has to pass judgment at Brazil’s civil aviation and antitrust regulators and at Chile’s competition agency, would create the largest airline in Latin America and the third largest airline in the world. (From early indications LAN might have to reduce its market dominance on routes between Santiago, and Asuncion, Sao Paulo, and Rio de Janeiro in order to get anti-trust approval.)

LAN’s strategy over the last decade has been to expand outside of its home market in Chile—where it has an 82% share of the domestic market–to become the dominant airline in South America. Read more

Doing some catch up on this stock. I dropped Embraer (ERJ) from the Jubak Picks 50 long-term portfolio (see my post http://jubakpicks.com/2011/01/18/6215/ ) on January 18, but this is the first time I’ve had an opportunity to explain why in detail or to actually remove it from the portfolio. I’m working on explaining the other sells and buys announced on January 18 from that group over the next week or so.

Successful strategies don’t work forever. And at Brazil’s Embraer (ERJ), the fourth largest airplane maker in the world, the strategy of moving from small to larger regional jets looks like it’s going to force the company to go head to head with some increasingly tough competition.

Embraer’s strategy has worked like this. The company, which built its business around the ERJ 145 family 37- to 50-seat of regional jets has gradually moved up to the larger 70-122 seat regional jet market (ERJ 170/190 family.) Smart move. The larger jets let airlines looking to reduce capacity (unfilled seats) by flying something smaller than the standard offerings from Boeing (BA) and Airbus use Embraer’s planes and still offer customers a jet instead of a propeller-driven aircraft. Embraer’s offerings also matched the heyday of short-haul feeder operations designed to funnel traffic into long-haul hubs.

That strategy produced average annual revenue growth of 24.2% for the five years that ended in 2008. And it let Embraer take over the top ranking in the regional jet market from Bombardier with Embraer’s share climbing to 46% from 23% in 2002.

But Embraer is about to see competition really step up in that market. Read more