Please ensure Javascript is enabled for purposes of website accessibility

Why Shares of Aerospace Suppliers Are Falling Today

By Lou Whiteman - Mar 9, 2020 at 2:49PM

You’re reading a free article with opinions that may differ from The Motley Fool’s Premium Investing Services. Become a Motley Fool member today to get instant access to our top analyst recommendations, in-depth research, investing resources, and more. Learn More

A cut in travel could mean weaker demand for new planes and spare parts.

What happened

Shares of TransDigm Group (TDG -2.66%) fell nearly 10%, and shares of Heico (HEI -1.73%) and United Technologies (RTX -4.23%) each fell more than 7%, as the economic impact of the COVID-19 coronavirus outbreak continues to grow.

The ramifications for the airline sector are going to last into the second half of 2020, at least, and lower travel demand will mean less flying and some loss of business for these commercial aerospace suppliers.

So what

Airlines have been the hardest-hit stocks due to the outbreak, and evidence continues to mount that travel demand is cratering as the outbreak spreads. Last week, United Airlines Holdings cut capacity by at least 10% across its network, and JetBlue Airways is also revising capacity downward. Other airlines could follow instead of bearing the expense of flying near-empty planes.

It remains to be seen how long the downturn for the sector lasts. There is some hope that leisure traffic, which is easily stimulated by lower fares, will return as the coronavirus subsides, but if the current economic slowdown leads to a recession, business travel demand could remain low for the foreseeable future.

An aircraft assembly line.

An aircraft under construction. Image source: Getty Images.

United has already grounded a number of planes due to the slowdown, and airlines looking to conserve cash and weather the storm could defer new plane deliveries from Boeing or Airbus. That in turn would ripple through the supply chain, including TransDigm and Heico, and stunt demand for United Technologies' Pratt & Whitney engines and Rockwell interior systems.

All three companies also get significant revenue from the aftermarket, or spare parts sales, and could see weakness there if airlines cut back on planes used or flying hours and can defer maintenance.

Now what

No one knows how badly the aviation system will be affected by the coronavirus outbreak, or for how long. But there is reason to believe the impact will not be permanent. And these are three great companies with the balance sheets to survive a downturn and capitalize when travel demand eventually does return.

That's not to say the stocks can't or won't fall further. The market hates uncertainty, so until we have a clearer idea of how much the outbreak will spread or how long it will last, it might be hard for the markets to find a bottom. But for those with the ability to ignore the near-term noise and focus on the quality of these businesses, there's no reason to run for the exits even if the sell-off continues.

Invest Smarter with The Motley Fool

Join Over 1 Million Premium Members Receiving…

  • New Stock Picks Each Month
  • Detailed Analysis of Companies
  • Model Portfolios
  • Live Streaming During Market Hours
  • And Much More
Get Started Now

Stocks Mentioned

Raytheon Technologies Corporation Stock Quote
Raytheon Technologies Corporation
$92.92 (-4.23%) $-4.10
TransDigm Group Incorporated Stock Quote
TransDigm Group Incorporated
$527.27 (-2.66%) $-14.42
HEICO Corporation Stock Quote
HEICO Corporation
$130.94 (-1.73%) $-2.31
JetBlue Airways Corporation Stock Quote
JetBlue Airways Corporation
$8.57 (0.47%) $0.04
United Airlines Holdings, Inc. Stock Quote
United Airlines Holdings, Inc.
$36.97 (1.45%) $0.53

*Average returns of all recommendations since inception. Cost basis and return based on previous market day close.

Related Articles

Motley Fool Returns

Motley Fool Stock Advisor

Market-beating stocks from our award-winning analyst team.

Stock Advisor Returns
S&P 500 Returns

Calculated by average return of all stock recommendations since inception of the Stock Advisor service in February of 2002. Returns as of 07/06/2022.

Discounted offers are only available to new members. Stock Advisor list price is $199 per year.

Premium Investing Services

Invest better with The Motley Fool. Get stock recommendations, portfolio guidance, and more from The Motley Fool's premium services.