Friday brought a new record close for the Dow Jones Industrials (^DJI -0.11%), which closed the day up 32 points, about three points into record territory. Yet, even though the Dow set a new record today, many believe that the average has potential to make a much more dramatic and sustained push higher from current levels. In many investors' eyes, the aerospace industry has the best chance of helping to send the Dow soaring, with Boeing (BA -2.87%) taking full advantage of the huge demand for commercial aircraft right now and pulling up suppliers General Electric (GE -2.11%) and United Technologies (RTX -0.35%) -- and possibly the entire Dow Jones Industrials -- along with it.
Source: Boeing.
Taking flight
Boeing has jumped onto a multi-trillion-dollar opportunity to meet the needs of the airline industry as it celebrates its recent success and looks for ways to cut costs. For years, airlines struggled financially, leaving themselves saddled with debt, and largely unable to make the capital expenditures that they would have wanted to make in order to take advantage of greater fuel efficiency from newer aircraft models. That left Boeing in a tough situation, as it pondered how aggressively to make design improvements in developing new models, while not being sure that struggling airlines would be in any position to provide demand for new aircraft. It also left component and systems designers like General Electric and United Technologies without the certainty they needed to spearhead further efforts toward innovation of their own.
Lately, though, airlines have turned their fortunes around with a vengeance, with a combination of consolidation, cost controls, and smart management of ancillary fees for baggage and other items that have greatly boosted their profits. As a result, they've made more aircraft purchases from Boeing and, in turn, increased Boeing's own demand for parts and systems from General Electric, United Technologies, and other suppliers.
Source: Bin Im Garten.
Now, the biggest question facing Boeing and its peers is whether it will successfully meet its delivery commitments. Given the flood of new orders, Boeing has had to take steps to increase its production capacity in order to get enough aircraft out the door to keep customers happy. Although airlines have limited alternatives to Boeing aircraft, Boeing still runs the risk of having them bolt to rival Airbus, or simply make do with older-model aircraft -- or demanding concessions that could eventually hurt Boeing's bottom line.
Meanwhile, General Electric and United Technologies are far from dependent on Boeing, given their status as conglomerates with a wide variety of diversified businesses under their corporate umbrellas. But with the huge opportunity in aerospace right now, both United Technologies and General Electric should see it as in their best interests to make the most of Boeing's opportunity, and reap their fair share of the rewards in the process.
Aerospace might not make or break the Dow Jones Industrials, but it's a key part of the Dow's success story in recent years. Investors should see anything that jeopardizes that success as worth paying attention to; but if Boeing can keep boosting its performance, it could well be the key driver of future records for the Dow Jones Industrials in the future.
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