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Why Shares in General Electric Are Falling Today

By Lee Samaha - Jul 19, 2021 at 1:24PM

Key Points

  • The spread of the delta variant of the coronavirus is raising concerns over commercial aviation.
  • General Electric is the world's largest aircraft engine manufacturer.
  • The long-term outlook continues to be positive.

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Sentiment around the company's key end market is negative today.

What happened

Shares in General Electric (GE 2.28%) had fallen more than 5% as of 11:30 a.m. EDT today. The market's concern with the spread of the delta variant of the coronavirus spilled over into a general market sell-off and affected companies related to travel in particular.

With the major airlines down significantly, it's inevitable that the companies that supply them will also get hit in sympathy. GE's exposure comes mainly through its leading position in aircraft engines and parts.

Aircraft engine being serviced.

Image source: Getty Images.

Fewer flights mean less servicing, and that means less aftermarket revenue for GE. Also, if the pandemic doesn't go away, airline profitability and aircraft orders could be constrained over the long term. That's not good news considering aviation remains the key earnings generator at the company. 

So what

If a rise in cases leads to widespread travel restrictions, then the airline industry and GE will be negatively affected in the near term.

It's important to keep a clear head here. The delta variant is a concern. Still, the World Health Organization says that its Emergency Use Listed vaccines do protect against the variant. As such, the solution to the problem is already there.

Now what

Wait and see. Ever since the pandemic spread, the risk of an ongoing health crisis has been evident. Moreover, there's no accounting for how governments will react to developments by imposing travel restrictions.

However, the trend toward reopening continues, the vaccines work, and people still want to fly. GE Aviation and GE's best days are ahead of it.

Lee Samaha has no position in any of the stocks mentioned. The Motley Fool has no position in any of the stocks mentioned. The Motley Fool has a disclosure policy.

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