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CONTRIBUTORS

Sorin Roibu, CFA

Portfolio Manager & Research Analyst

The airline industry is facing a significant challenge that could impact travelers' wallets in the coming years: a shortage of commercial aircraft. Due to manufacturing issues at Boeing, including the grounding of the 737 Max and production slowdowns from COVID-19, approximately 2,700 new planes that were expected to be built over the last five years never materialized (see Exhibit 1). This supply crunch is happening at the same time that demand for flights has largely recovered to pre-pandemic levels in most markets outside of China.1,2

Our investment process, which combines top-down analysis with bottom-up fundamental research, overlays macroeconomic data and trends to identify opportunities across geographies or sectors. As investors, we see opportunity in this imbalance between constrained supply and rebounding demand. Additionally, valuations across the airlines sector are attractive (see Exhibit 2).

There is no assurance any forecast, projection or estimate will be realized. 

In our view, until Boeing and Airbus can ramp up production to meet the growing demand for air travel, prices are likely to rise across the aviation ecosystem. We do not expect Boeing to return to 2018 production levels anytime soon. While bad news for travelers' budgets, it could be good news for investors in aircraft lessors and premier airline franchises that can capitalize on constrained industry supply.

Endnotes

  1. Source: Tangel, A., Terlep, S., Sider, A. “Airline CEOs Seek Meeting with Boeing Directors to Address Production Problems,” Wall Street Journal.  March 21, 2024.
  2. AerCap Fourth Quarter 2023 Conference Call. February 23, 2024

 

Definitions:

OEM stands for “Original Equipment Manufacturer.” So, OEM automotive components are the official, genuine parts produced directly by your vehicle's maker.

The price-to-earnings (P/E) ratio is a stock's (or index’s) price divided by its earnings per share (or index earnings). The forward P/E ratio is a stock’s (or index’s) current price divided by its estimated earnings per share (or estimated index earnings), usually one-year ahead.

 

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