Boeing: A Supplier’s Best Friend

And these companies give investors good indirect bets on BA

   

Commercial aviation may not be all Boeing (NYSE:BA) does, but it sure seems to be the strong side of its business.

In the most recent quarter, the aerospace company’s total revenue grew $3.5 billion to a total of $20 billion, and more than 85% of that increase was thanks to a jump in commercial aviation sales.

Defense contracting, on the other hand, saw its contributions to the top line drop from just under 50% to just over 40%.

Plus, the future of defense contracting is chock-full of uncertainty. Looming budget cuts in the U.S. are a cause for concern, and demand elsewhere — while it sure won’t dry out — remains dependent on threat environments.

Commercial aviation, though, is set to keep booming. In the next 20 years, Boeing is expecting total global demand of 34,000 new planes worth around $4.5 trillion. And passenger planes are expected to see the most growth, with long-term passenger traffic growth at 5% per year.

Most recently, Boeing bet on this trend with the production of its 787 Dreamliner — a passenger plane that holds anywhere from 200 to 300 travelers and boasts a super-efficient design. The plane has been a success thus far (despite some early malfunctions), and the airlines flying it are said to be the “envy of aviation.”

But while Boeing developed the plane and continues to provide support for it, the company sure didn’t get things off the ground alone. Instead, it relied even more than usual on a giant network of suppliers to pitch in various parts, from engines to safety guides.

For investors, some suppliers could prove a great way to bet indirectly on Boeing and the aviation industry, while hedging against the uncertainty tied up with defense.

The Dreamliner’s engine, for example, comes courtesy of good ol’ General Electric (NYSE:GE) — the $228 billion blue-chip that boasts 21% share price gains since January, a solid 3.15% dividend yield and a diversified portfolio of products.

Rolls-Royce (PINK:RYCEY) also provides engines. And while Rolls-Royce may conjure up images of luxury cars, that division is actually part of the BMW group, while the main company mostly focuses on providing power systems to civil aerospace, defense aerospace, marine, energy and nuclear markets.

So those two help power the plane, but someone’s still gotta steer it. For this, Boeing looks to Honeywell International (NYSE:HON), which provides flight control electronics for the new 787.

And leading the way — literally — is Spirit Aerosystems (NYSE:SPR), which provides the nose of the airplane, along with the forward fuselage. Spirit is also the world’s largest supplier of commercial airplane assemblies and components, and is expected to see growth of at least 30% both this year and the next.

Then there’s Fuji Heavy Industries (PINK:FUJHY) — a company that primarily manufactures Subaru automobiles — which supplies the center wing box. Fuji has seen gains of nearly 40% so far this year

Airgas (NYSE:ARG) also supplies safety products for Boeing and has been working with the company for more than 15 years. In fact, Boeing named Airgas “Supplier of the Year” this year for exceeding cost-performance goals and objectives.

Kawasaki (PINK:KWHIY), Saab (PINK:SAABF) and Goodrich (NYSE:GR) are a few other investable suppliers, and the list goes on and on — as this graphic by Reuters begins to show.

Five airlines have already snatched up Boeing’s latest toy, with All Nippon Airways (PINK:ALNPY) in Japan leading the way in its Dreamliner count and Japan Airlines (PINK:JALFQ) not far behind.

United Continental Holdings’ (NYSE:UAL) United Airlines doesn’t have a Dreamliner yet, but looks set to be the first American company to fly one. And other companies like Air New Zealand (PINK:ANZFF) and China Southern Airlines (NYSE:ZNH) are also lining up for 787s of their own.

It’s no wonder that Boeing continues to ramp up production on the popular plane. And its success so far is only the beginning.

The fact that commercial aviation in general looks set to take off should mean plenty of business for Boeing’s many partners for years to come. Because even as Boeing gets headlines for its big project, someone will still have to provide the parts.

As of this writing, Alyssa Oursler did not own a position in any of the aforementioned securities.


Article printed from InvestorPlace Media, http://investorplace.com/2012/09/boeing-a-suppliers-best-friend/.

©2014 InvestorPlace Media, LLC

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