Aerospace Shares Take a Hit
Stocks of aerospace companies, including Boeing Co., fell sharply Tuesday as investors fretted over the possibility that the latest airline woes could prolong the slump for new aircraft.
Just two days after US Airways filed for Chapter 11 bankruptcy protection, AMR Corp.’s American Airlines said it was overhauling operations, including grounding 74 regional jets and delaying delivery of 35 new aircraft.
The announcement, along with concerns that UAL Corp.’s United Airlines may seek similar restructuring, prompted investors to unload stocks of Boeing and other commercial aircraft parts makers. Boeing fell $3.27, or 8.1%, to $37.23, while United Technologies Corp., a leading maker of jet engines, fell $5.98, or 8.7%, to $62.47. Both trade on the New York Stock Exchange. Stocks of other aerospace firms fell an average of about 6%.
But aerospace analysts and company officials downplayed the effect of the latest airline announcements and insisted that the forecast for the commercial aircraft industry remained unchanged since the Sept. 11 terrorist attacks.
The industry, and Boeing in particular, dramatically cut back production and slashed jobs anticipating one of the industry’s worst slumps as travelers cut back on air travel. The level of cuts in new orders and deferrals so far has been as expected, they said.
Most analysts and company officials were sticking to a general notion that orders for new aircraft would hit bottom next year and that some upturn may start in 2004.
“What we’re seeing here is nothing new,” said Tom Ryan, a Boeing spokesman. The company has said that jet deliveries will fall by nearly half--to about 275 in 2003 from 527 last year--with a slight upturn in 2004. Ryan said the company is not changing that forecast.
Moreover, American Airlines’ announcement of cutbacks in jets appeared far more dramatic than it really was, analysts said. The airline is retiring 74 Fokker 100 jets as they come up for overhaul over the next three years. They have become costly to maintain after its Dutch manufacturer declared bankruptcy earlier this year.
Paul H. Nisbet, an aerospace analyst with JSA Research Inc., said aircraft stocks already were priced high for the kind of slump the industry is experiencing.
“It’s jerking stockholders back to reality,” Nisbet said. “When something like this happens, they suddenly realize all is not rosy. It’s confirmation that the original gloomy assessments are indeed right.”
Other analysts said the latest airline restructuring could bode well for the aerospace industry.
“I actually look at it as positive news,” said Jon B. Kutler, president of Quarterdeck Investment Partners Inc., a Century City-based aerospace investment bank. “It’s a positive move to get their houses in order. The only way they can afford to buy aircraft is to reduce their cost structure.”
