Demand for New Commercial Airliners Is High, and Here's How You Can Profit

In is not secret that Boeing and Airbus are great play's on the worlds growing love of air travel but there is another company that is really set to benefit.

Jan 21, 2014 at 9:41AM

The market for commercial jetliners is dominated by two companies: Boeing (NYSE:BA) and Airbus (NASDAQOTH:EADSF). According to Boeing, the world will need $4.8 trillion worth of new aircraft between now and 2032. That's roughly 35,280 new aircraft of varying sizes, from large wide-bodied jets to single-aisle regional planes. If these numbers prove true, both Boeing and Airbus will be extremely busy during the next two decades.

Fighting for orders
Airbus is in a much better position to benefit from the rising demand for aircraft orders than Boeing. Around 70% of the jets predicted to be ordered during the next two years are expected to be single-aisle narrow-body jets, a market in which Airbus is outselling Boeing. As of 2012, Airbus held 60% of the narrow-body jet market, edging out Boeing in the largest segment of the global aviation market. Boeing's new 777x aircraft, the largest and most efficient twin-engine jet, is coming to market soon however. This means that things could be about to change.

Supply, not demand issue
What's more it would also appear as if Airbus has shot itself in the foot, as demand for the company's aircraft is rising faster than supply. In particular, Airbus has recently announced that it delivery a record number of planes during 2013 but the company does not plan on increasing capacity during 2014 and expects to deliver a similar number of plans for full-year 2014.

Management's decision not to increase manufacturing capacity is surprising as Airbus ended 2013 with a backlog of 5,559 planes, an industry record according to one source. At current rates of production, this backlog will take nine years to clear. Meanwhile, Boeing is churning out more aircraft than Airbus, delivering 648 plans during 2013 compared to Airbus' 626 deliveries.

Planes need engines 
If you can't decide between Airbus and Boeing, Rolls-Royce (NASDAQOTH:RYCEY) may be the perfect middle-of-the-road company. As one of the world's leading aerospace companies, Rolls is set to ride the rising demand for commercial aircraft around the world during the next two decades.

Rolls-Royce predicts that the strong growth in the market for aircraft of 100 seats and over will require 71,000 engines with a market value of $415 billion between now and the year 2020.

Demand for the world renowned Rolls-Royce engines is already starting to hit the company. Rolls' order backlog expanded 15% year on year when the company reported its interim results during July this year. This took the backlog to £69.2 billion, or just under $111 billion, and locked in five-and-a-half years of revenue based on 2012's figures.

Furthermore, Rolls is not just limited to one customer. Specifically, within the company's interim management statement delivered back in November the company revealed that it was working with both Airbus and Boeing, as well as multiple carries around the world to develop and manufacture engines.

While Airbus and Boeing have a duopoly over the commercial aircraft market, Airbus trades at a significant discount to Boeing.

If we use enterprise value, or EV, multiples, Airbus' true value becomes apparent. On a EV/revenue and EV/earnings-before-interest-tax-depreciation-and-amortization (EV/EBITDA) basis, Airbus trades at a discount of greater than 20% to Boeings trailing-twelve-month multiples. For example:










Source: Yahoo! Finance. Trailing-12-month values.

Foolish summary 
Overall, demand for commercial aircraft is set to explode during the next two decades. It would appear that Airbus is in the best position to ride this trend. Airbus' valuation is significantly lower than that of peer Boeing, despite both companies' similar market share. What's more, Airbus' narrow-body aircraft are in demand, and the company's order backlog is testament to its reputation.

I feel that if investors want to profit from the rising demand for commercial aircraft, Airbus' low valuation presents an opportunity that is too tempting to turn down. Of course, if you can't make up your mind, Rolls-Royce is also a great pick.

Another booming industry
U.S. News & World Report says this "Will drive the U.S. economy." And Business Insider calls it "The growth force of our time." In a special report entitled "America's $2.89 Trillion Super Weapon Revealed" you'll learn specific steps you can take to capitalize on this massive growth opportunity. But act now, because this is your shot to cash in before the fat cats on Wall Street beat you to the potentially life-changing profits. Click here now for instant access to this free report.

Fool contributor Rupert Hargreaves has no position in any stocks mentioned. The Motley Fool has no position in any of the stocks mentioned. Try any of our Foolish newsletter services free for 30 days. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy.

4 in 5 Americans Are Ignoring Buffett's Warning

Don't be one of them.

Jun 12, 2015 at 5:01PM

Admitting fear is difficult.

So you can imagine how shocked I was to find out Warren Buffett recently told a select number of investors about the cutting-edge technology that's keeping him awake at night.

This past May, The Motley Fool sent 8 of its best stock analysts to Omaha, Nebraska to attend the Berkshire Hathaway annual shareholder meeting. CEO Warren Buffett and Vice Chairman Charlie Munger fielded questions for nearly 6 hours.
The catch was: Attendees weren't allowed to record any of it. No audio. No video. 

Our team of analysts wrote down every single word Buffett and Munger uttered. Over 16,000 words. But only two words stood out to me as I read the detailed transcript of the event: "Real threat."

That's how Buffett responded when asked about this emerging market that is already expected to be worth more than $2 trillion in the U.S. alone. Google has already put some of its best engineers behind the technology powering this trend. 

The amazing thing is, while Buffett may be nervous, the rest of us can invest in this new industry BEFORE the old money realizes what hit them.

KPMG advises we're "on the cusp of revolutionary change" coming much "sooner than you think."

Even one legendary MIT professor had to recant his position that the technology was "beyond the capability of computer science." (He recently confessed to The Wall Street Journal that he's now a believer and amazed "how quickly this technology caught on.")

Yet according to one J.D. Power and Associates survey, only 1 in 5 Americans are even interested in this technology, much less ready to invest in it. Needless to say, you haven't missed your window of opportunity. 

Think about how many amazing technologies you've watched soar to new heights while you kick yourself thinking, "I knew about that technology before everyone was talking about it, but I just sat on my hands." 

Don't let that happen again. This time, it should be your family telling you, "I can't believe you knew about and invested in that technology so early on."

That's why I hope you take just a few minutes to access the exclusive research our team of analysts has put together on this industry and the one stock positioned to capitalize on this major shift.

Click here to learn about this incredible technology before Buffett stops being scared and starts buying!

David Hanson owns shares of Berkshire Hathaway and American Express. The Motley Fool recommends and owns shares of Berkshire Hathaway, Google, and Coca-Cola.We Fools don't all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy.

©1995-2014 The Motley Fool. All rights reserved. | Privacy/Legal Information