The Farnborough air show, one of the global aircraft industry’s premier marketing events, has been very, very good to Boeing (BA). Yesterday the company received a $9 billion order for 777 jets from Dubai’s Emirates airline and 40 orders from aircraft leasing company GE Capital Aviation. Today it announced an order for up to 60 737-800s from another aircraft leasing company, Air Lease.
Between them Boeing and competitor Airbus the orders topped 200 planes.
What’s good news for Boeing, though, isn’t necessarily good news for airlines themselves. Aircraft purchases make Wall Street analysts nervous since they’re a sign that airlines are likely to add capacity. More capacity means more unfilled seats and lower ticket prices as airlines cut fares to fill those seats. In yesterday’s (July 19) conference call Wall Street analysts repeatedly pressed Delta Air Lines (DAL) executives about the company’s plans to buy new planes and to honor the orders placed by Northwest before Delta acquired that company. Delta management went out of its way to say that it had no plans to buy new plans and was, in fact, planning to continue to reduce capacity. (The company said “No comment at this time” on the Northwest orders.)
Either investors didn’t believe the company or they fear that other airlines won’t be as disciplined: Despite beating Wall Street earnings forecasts Delta shares fell by 3% on the day.
I think the most important development out of Farnborough isn’t number of orders that Boeing and Airbus received but the return of aircraft leasing companies to the market.
These companies, which buy aircraft and then lease them to airlines, depend on the availability of cheap money in the financial markets. As you might imagine, that financing pretty much dried up during the global financial crisis. The fact that older players such as GE Capital Aviation and new leasing companies such as Air Lease, run by the former head of American International Group’s huge aircraft leasing unit, are back says good things about the gradual return to normal operation of the financial markets.
Of course, all those air craft available for lease because the financial markets are lending to leasing companies again aren’t exactly good news for an airline industry trying to maintain the current tight—and profitable—capacity.
marr.bo, and others,
When the stock goes ex-dividend, it generally drops in price by about the amount of the dividend payout (plus or minus any change due to daily economic events that affect the market or industry as a whole). This is because once that cash is paid out in dividend form, the balance sheet will have less cash on it, the company will have less equity, and thus buyers are willing to pay less for the stock. So all the big buyers / institutional investors already know that there is a dividend being paid out and they will not pay the same for the stock once the cash is paid out. Your strategy will not work, and has been thought of many times before. Perhaps at one point it did work decades ago when information wasn’t as accessible, but that’s not the case now.
Hey, Have you checked the AGE of the domestic fleet currently flying? US carriers have the oldest (and poorest maintained) fleet of aircraft. Northwest aka Delta is currently flying 30+ year old DC 9’s.
It is essential that US carriers update the fleet for safety and greater fuel economy which will also lead to lower annual maintenance expenses hence greater profit potential.
yx… and who says you can’t run government like a private company!
Here is a little insider information for you folks. A lot of the big buyers for airplanes are coming from China. In fact, the market over there is so strong that there are people who are in the business of buying planes from manufacturers, then turning them around and selling them within a month for a profit in China.
How can they do that? Simply put, when you order an airplane, depending on the manufacturer, it can take up to a year or longer to get delivery of your plane, depending on the manufacturer’s backlog of orders.
With the massive growth in China, there is greater demand for airplanes than the manufacturers can keep up with. This is why airplane manufacturing (as well as the companies which supply airplane parts) has been so profitable lately.
Before anyone asks, this trend doesn’t necessarily mean it’s time to buy Boeing. The 800 pound gorilla on their financials is the greater than 4 times debt/equity they are carrying. While their cash flow has been able to keep up with it, it has hurt their ROI (4.5%) and profit margin (1.8%).
Now if you could buy stock in Boeing’s bank, that might be worthwhile…
marr.bo
Dividend ex dates are announced weeks in advance when the dividend is declared. And you do not even need to keep the shares for weeks, 1 day is enough. If you sell the day after the ex.div date you will still get the money. But in order for the dividend to be “qualified” for the 15% tax rate you need to keep the shares for 60 days. And yes please share with us these 3%/quarter dividend payouts. Reits and MLP’s don’t qualify.
Run26.2:
“Public servants” at work.
marr.bo,
3% a quarter in dividends would translate to to 12% a year! Would love to know what those stocks are – please share.
Ex-div date is published in Yahoo Finance, e.g.
DUK shows an ex-div date of 08.11.10 and under key stats info, it shows div pay date is 09.15.10
More on ex-date: http://www.investopedia.com/articles/02/110802.asp
marr.bo, others have thought of that. As a consequence, the price is bid up, and the dividend is effectively negated.
Off topic… $800,000 salary for a City Manager? $400,000 for a Police Chief?
http://www.businessweek.com/news/2010-07-20/californians-protest-city-manager-s-800-000-salary.html
Looks like some cities are operating like some large corporations and paying their CEOs outrageious salaries. Not bad for working in a modest city of 38,000.
I suppose the trick is they don’t announce ex-dividend date until its past and they aren’t consistent about when the ex-dividend date is? So you have to hold the stock for more like a month to insure you get the dividend?
This may be a dumb question, but what stops me from buying a bunch of shares of something that pays a big dividend, like some of these stocks that pay 3% per quarter, on the ex-dividend date, holding a week or two until the pay date, collect the dividend and scram? Seems like an easy way to make a surefire 3% in a week.
Does anyone have any reliable statistics on such industry fundamentals as world-wide fleet capacity trends, occupancy trends, fare trends, margins. Or is this another “high-flying” case (like residential housing) of you blow smoke up my ass, and I’ll blow smoke up yours?
I thought a large part of communications technology (CSCO, etc.) appeal was internet-based conference calls, reducing travel expenses.
Good call (as usual) Jim. Methinks these robust additions to the order books of BA and Airbus bode well for component suppliers enjoying a wide moat such as Precision CastParts (PCP) and Rockwell Collins (COL), among others.
I expect those who placed orders at the show and those who would lease from GE and AL later are mostly foreign carriers, especially emerging countries.