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Attendees at the Paris Air Show line up along barriers to watch demonstration flights.
Julien De Rosa/AFP via Getty Images
For
Boeing
and
Airbus
,
the 2023 Paris Air Show was a record-setting event, but the stocks dropped. What gives?
Boeing (ticker: BA) and
Airbus
(AIR. France) shares, along with stock in suppliers
General Electric
(GE) and
Raytheon Technologies
(RTX), all dropped this week. The average loss was almost 4%.
It doesn’t make sense to blame the companies: Orders hit a record. Customers agreed to buy more than 1,100 planes, which eclipses the 2018 total at the U.K.’s Farnborough show of just over 1,000 jets.
“The tone from the Airshow was (unsurprisingly) very positive….with demand continuing to outstrip supply,” wrote Vertical Research Partners Rob Stallard in a Thursday report. “Everyone loves aero…with the continuing strong recovery in the aviation sector, it is hardly surprising that aerospace remains a consensus long with investors.”
Some of the stocks’ losses come down to timing. Investors, it said, buy the rumor and sell the news, and in this case, the air show was the news.
All four stocks are up over the past month, rising by an average of about 1%, partly in anticipation of positive news from Paris. Over the past 12 months, all four are up by an average of more than 50%, which indicates that despite the weekly drop, investors see things getting better for the commercial aerospace players.
Another factor at play is labor trouble at
Spirit AeroSystems
(SPR). Earlier this week, Spirit workers surprised the company, and investors, when they voted down a new four-year labor agreement. Spirit shut down production in response. A prolonged strike could affect the entire industry because Spirit supplies both Boeing and Airbus, but a short pause shouldn’t be a significant issue.
Other, continuing problems in the supply chain are more significant. Companies are still struggling to ramp production back up after the pandemic.
“There was consensus the supply chain has improved. However, it remains challenged and it could be until 2025, or even longer,” wrote BofA Securities analyst Ron Epstein on Wednesday. “Qualified labor….is the most important challenge companies continue to tackle.”
Skilled workers left the industry during the pandemic. It has been a challenge to win them back and retrain them.
That makes production up and down the value chain the most important issue for investors to follow in the coming months. Demand doesn’t seem to be a problem at all.
That state of affairs, with strong demand and difficulties in production, is one reason Stallard likes companies exposed to the aerospace aftermarket. That includes larger-capitalization engine makers such as GE, as well as small-cap repair-service providers such as
AAR
(AIR) and
FTAI Aviation
(FTAI).
Those two stocks are up about 38% and 85% over the past 12 months, respectively. Optimism about commercial aerospace is easy to find in the stock market even if shares of the biggest players sagged during the air show.
Write to Al Root at allen.root@dowjones.com
