Fickle friends

This first appeared as a Comment in the 4 February issue of Flight International

Shareholders are not known for their long-term perspective, but the one-day sell-off of Boeing shares on 29 January takes investor fickleness to a new level. It also offers a silent rebuttal to a key element of Boeing’s corporate strategy, which seems locked-in on keeping investors happy by making decisions that at times ­appear to come at the expense of long-term priorities.
The reason for wiping nearly 6% off the value of Boeing shares had nothing to do with the financial ­results that Boeing announced the same day.
Despite enormous challenges, including a costly 787 grounding early in 2013, Boeing still delivered a great financial year by any rational measure. Moreover, the full-year and fourth-quarter results were announced only one month after Boeing offered investors two Christmas gifts: a generous dividend and a $10 billion share repurchase programme.
None of that was enough. What spooked investors was Boeing’s newly-released financial outlook for 2014, which anticipates stagnant profits ­despite rising commercial aircraft deliveries.
The reaction by investors is revealing. Nobody ­expects Boeing’s stock price to soar after hearing such news, but neither is there any reason to overreact.
The commercial aircraft backlogs for Airbus and Boeing are the ultimate counter-point to short-term jitters. Never has the airline industry been more keen to acquire new aircraft to counter spiking fuel bills.
The “modest” expectations on order announcements by Airbus and Boeing in 2014 need perspective. The order binge of the last three years could not possibly be sustained at current production rates, even factoring in planned output growth. There are simply not enough available slots in the near-term to keep adding four-digit orders to the backlog over the next two or three years. Besides, combined orders of roughly 1,400 aircraft between the two would be celebrated in most years, rather than regarded as “modest”.
Neither is the industry detecting obvious signs of an order “bubble” about to burst.
It is true that China’s economic output is flagging, but the industry’s big players do not sense that the traditional relationship between GDP growth and aircraft orders still applies in that market. It is more likely that supply is still catching up to pent-up demand for aircraft in China, keeping backlogs and orders intact.
The macro-trends still favour the aerospace industry, regardless of Boeing investors’ jangling nerves.

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