Aerospace Industry: Key Takeaways From The Paris Air Show

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The bi-annual Paris Air Show was held this week, making it an important week for companies operating in the Aerospace industry. One of the prime highlights at the event is the rivalry between Airbus and Boeing, with both companies presenting impressive commercial aviation displays trying to gain an edge over each other. The Paris Air Show also included defense aviation displays.  However, due to the nature of these businesses the presentations in this category were more discreet in nature.

This year’s Paris Air Show saw impressive displays by both Boeing (NYSE:BA) and Airbus. However, at closing, Airbus walked away with a higher number of total orders than Boeing. Textron’s (NYSE:TXT) Scorpion jet drew a large number of eyeballs as a new one-of-a-kind military jet. United Technologies (NYSE: UTX) secured crucial supplier contracts to support increasing production, particularly in the commercial aviation sector. General Electric (NYSE:GE) announced what they claim is a historic development in jet engines, with their Adaptive Versatile Engine Technology (ADVENT) project engine achieving the highest combined compressor and turbine temperature operation. Lockheed Martin (NYSE:LMT) launched its hybrid airship at the event, which could help the company diversify from its current military-dominated portfolio in the future.

See Trefis analysis for Aerospace, Defense & Industrial companies:  Boeing | Textron | UTC | GE | Lockheed 

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Boeing: Loses Out To Airbus On Commercial Orders, Creates Buzz About Upcoming Jet  

The Boeing-Airbus rivalry is one of the biggest highlights at the annual air show held in Paris this week. The total orders and commitments placed for commercial jets between Boeing and Airbus at this years show stood at an impressive $107 billion. Airbus’ proportion of the total orders stood at approximately 53%, amounting to $57 billion for 421 aircraft. Boeing’s 47% proportion of total orders amounted to $50.2 billion for 331 aircraft. However, even as Airbus defeated Boeing in total orders, Boeing continued to maintain its strong-hold in the wide-body jets realm by securing more orders than Airbus. This is a notable achievement because the wide-body jets bring in higher margins than their narrow-body counterparts.

Boeing’s envisioned middle-of-the-market (MOM) jet was received with excitement at this years event, as the need for a jet that is economically efficient like the single-aisle jets but has capacity between the narrow-body and wide-body jets was recognized. Boeing is expected to design this jet from scratch. It is anticipated that this jet, which is a replacement for the discontinued 757s, will be launched only by the end of this decade.

Read our detailed analysis of Boeing’s performance at the Paris Air Show here.

We currently have a $137.68 price estimate for Boeing’s shares, which is approximately 5% below the current market price.

Textron: Scorpion Jet Gains Interest At The Air Show

Textron’s Scorpion Jet had its debut performance at the Paris Air Show this year. The fighter jet with its smaller silhouette and lower operating costs can be deployed for routine operational missions, in place of the more expensive and larger fighter jets.  The aircraft is designed to provide ground support function and is expected to get to locations more quickly but at the same time also maneuver at slow speeds to engage ground targets on the move. Operating at under $3,000 per hour, the deployment of a Scorpion will be a fraction of the cost incurred by the U.S. government by using F-16s in some ground support missions in Afghanistan and Iraq. By including the Scorpion in their fighter jet portfolio, militaries can reserve the larger fighter jets for the higher-scale operations that they were designed for. [1]

Military budgets around the world are facing constraint and hence a cheaper jet could be easier to justify as a purchase helping the overall sales of the Scorpion. Outside of the Pentagon, the jet has also garnered interest in countries in Latin America, the Pacific Rim and the Middle East. Textron is anticipating that the interest could convert into orders for the jet in the near future. Upon receiving the order, Textron expects to fulfill delivery within a short time frame of 18-24 months. At a time when U.S. defense spending has been a concern for defense technology manufacturers, international interest in the Scorpion jet is good news. The success of this program in the near future will also be an important step in offsetting the drag that Textron has been witnessing due to Bell Helicopters.

We currently have a $43.24 price estimate for Textron’s shares, which is approximately 6% below the current market price.

United Technologies: Crucial Supplier Contracts Secured To Expand Capacity

United Technologies’ aerospace program secured a few important supplier contracts at the Paris Air Show that will help support its long-term production. This is important news at a time when most jet component manufacturers are feeling stretched for capacity to support the boom in demand for jets globally. Among these, one of the more important deals was that signed between UTC and EDAC technologies. This deal, valued at over $1 billion, will help support production of Pratt & Whitney engines for a variety of jets including the Airbus 320NEO and the Bombardier C Series over the long-term. [2] The company also finalized a 10-year supply agreement with Titeflex Aerospace to support the increase in activity at UTC’s aerospace business while also committing to UTC’s cost-saving program and timely delivery. [3] These contracts help UTC to strengthen its position for long-term growth while focusing on supporting the forecasted production ramp.

On the delivery front, Pratt & Whitney secured contracts with lessors for delivery of engines for Airbus A320NEOs. These include a contract with SMBC Aviation Capital to power 30 A320NEOs and one with China Aircraft Leasing Group Holdings Limited for 18 A320NEOs. Deliveries for both these contracts are expected to start in 2017. ((A Good Show For Pratt & Whitney, Aviation Week))

We currently have a $123.32 price estimate for UTC’s shares, which is approximately 7% above the current market price.

General Electric: Will GE’s New AETD Engine Replace Pratt & Whitney’s Engine In The F-35?

The big announcement that came from General Electric during the Paris Air Show was the development of a new AETD engine that could potentially fit an “F-35-like aircraft.” This engine, developed under the Adaptive Versatile Engine Technology (ADVENT) project, achieved stellar results after testing. GE claims that the engine’s combined compressor and turbine temperature operation has achieved the highest results in the “history of jet engine propulsion.”At the same time, Pratt & Whitney is also developing a more fuel-efficient AETD engine to fit F-35s dimensions which will help address concerns of the relatively short unrefueled range of the F-35. The industry is speculating whether the new development at GE could make its AETD engine emerge as a “second engine” to the F-35 jets. This picture will become clearer as more details emerge about engine development at both GE and Pratt & Whitney. [4]

Overall, it has been a great week for GE at the Air Show. The company and its joint ventures also announced over $19 billion in orders for 1,000 GE and CFM engines along with support and maintenance contracts, over the course of the week. GE’s focus on its industrial business remains strong as it continues to divest its financial services business to become a more focused portfolio of businesses.

We currently have a $27.81 price estimate for GE’s shares, which is approximately 2% above the current market price.

Lockheed Martin: Launch Of Hybrid Airships And F-35 Ramp Up

Lockheed Martin’s big announcement over the Air Show was the launch of its Hybrid Airship. The 20-tonne-capacity aerial vehicle will serve the purpose of delivering heavy cargo and personnel to areas that are not well-connected by road. [5] It is hybrid in the sense it employs both aerostatic (i.e., buoyant) and aerodynamic technologies to achieve lift, thereby exceeding dirigibles in speed and planes in economy.  An interesting addition to the international heavy-haulage market, the hybrid airship is designed to land on all kinds of surfaces, including water. According to Lockheed Martin, the hybrid airship will operate at a tenth of the fuel used by a helicopter per ton. [6] Orders for the Hybrid Airship are now open, and a prototype will be developed once the company sees even a single customer sign up. [7] The Hybrid Airship is being marketed for commercial, private as well as military use and will help Lockheed diversify its current defense-dominated portfolio. Lockheed announced its partnership with Hybrid Enterprises to take orders for the Hybrid Airship. Deliveries are expected to start in 2018. [8]

Another key announcement by Lockheed Martin included its progress in ramping up F-35 production to achieve economies of scale and consequently bring the price tag of the jet down to $85 million per unit by 2019. The production facilities in U.S., Italy and Japan are on track to be prepared to undertake the production ramp up. The company expects to produce 17 F-35s per month by the early 2020s, which will further drive down the price of the jet to approximately $80 million per unit. [9] For Lockheed Martin the F-35 program has been a key growth driver, and the continued growth of this program is expected to support the company’s long-term growth plans.

We currently have a $196.95 price estimate for Lockheed Martin’s shares, which is approximately 2.5% above the current market price.

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Notes:
  1. Textron’s Scorpion jet draws attention at Paris Air Show, Defense News []
  2. A Good Show For Pratt & Whitney, Aviation Week []
  3. Titeflex Aerospace and United Technologies Announce Long-Term Supply Agreement, United Technologies []
  4. GE Jet Sets Record; Will F-35 Get New AETD Engine?, Breaking Defense []
  5. 3 Wins for Lockheed Martin From the Paris Air Show, Investopedia []
  6. Lockheed’s blast from the past, Washington Business Journal []
  7. Paris Air Show 2015: Lockheed Martin unveils new heavy-lift hybrid airship, IHS Jane’s 360 []
  8. Lockheed Martin Launches Worldwide Hybrid Airship Sales with Hybrid Enterprises, MarketWatch []
  9. Paris Air Show 2015: Lockheed Martin prepares for F-35 ramp-up to drive down costs, IHS Jane’s 360 []