Aviation Is Making a Comeback
Gerelyn is a member of The Motley Fool Blog Network -- entries represent the personal opinion of the blogger and are not formally edited.
Australia-based financial institution Macquarie Group just launched a helicopter-leasing business in response to rising demand in the energy and transportation sectors, as well as for global corporate executive transportation. An increase in executive travel is a positive note for the state of the economy and corporate profits, and this seems to be underscored by a U.S. stock market that’s been continually setting new highs of late.
Also gaining traction is a mobile app designed for the luxury market that allows users to book private jets from their mobile devices. In fact, PrivateFly, a jet charter company, projects that in the next year, its revenue from mobile bookings will more than double as a percentage of overall sales to about 15%, according to CNBC. Some 100,000 users have downloaded the app and recently a half a million dollar flight was booked for a Boeing (NYSE: BA)(NYSE: BA)(NYSE: BA) jet on PrivateFly via mobile.
Let's take a look at some of the related companies.
Boeing has had a tough go of it in 2013 amid being plagued by malfunctions in the battery for its marquee 787 Dreamliner jet. After getting clearance from the FAA to use the battery, a recent incident at London's Heathrow Airport reignited fears of the recall when a fire erupted on a stationary Boeing jet. The explosion was related to a battery component, but it wasn't Boeing-related; nonetheless, shares tumbled almost 7%. While the stock has since recovered, I believe these fear-based reactions could be used as buying opportunities.
Boeing has an attractive return on equity of about 67% (trailing-12 months), but it also carries a heavy debt load of about $9.2 billion. The company forecasts 2013 revenue between $82 billion and $85 billion and operating cash flow of about $6.5 billion (after pension contributions and given aircraft financing assumptions).
With a payout ratio of about 28%, the dividend appears safe for now; and with a forward price-to-earnings ratio of about 18, the stock seems to be fairly valued. I would use any pullback as an opportunity to buy. Boeing recently reported second-quarter commercial airplane deliveries of 169 compared with 150 in the year-ago period. With the battery problems seemingly behind the company and strong delivery momentum, the prospects look solid.
Aviation a bright spot
In its second quarter, General Electric (NYSE: GE)(NYSE: GE)(NYSE: GE) experienced a decline in operating earnings and operating earnings per share of 8% and 5%, respectively, amid a capital restructuring and the loss of NBC universal earnings on the heels of a sale to Comcast.
Aviation was a drag on the company's performance last year, but has turned into a bright spot.
It reported a 24% jump in oil and gas orders; aviation and commercial spare orders advanced by nearly 20%. The combined backlog for these segments grew by $7 billion in the period. It's looking to new products to fuel its growth and experienced $26 billion worth of contract wins at the recent Paris air show.
Days ago, it got the green light from the U.S. FTC for its $4.3 billion acquisition of Avio's aeronautics unit. The FTC had concerns about potential anti-competitive practices on the part of General Electric, but the manufacturer eased those worries by agreeing to stay out of Avio's work with United Technologies, a GE competitor. The acquisition should close in the second half of the year and will be accretive to earnings.
The company closed the second quarter with some $89 billion in cash, and has returned some $9.9 billion to shareholders in the way of share buybacks and dividends through the first half of the year, which is on the way to a target of returning some $18 billion to shareholders. It has some weakness with its exposure to Europe, but is looking to regions including Africa, China, and Russia for growth. With a forward P/E of about 15, it's a good buy at these levels.
Colorado-based air medical transportation company Air Methods (NASDAQ: AIRM)(NASDAQ: AIRM)(NASDAQ: AIRM) operates in the emergency-services arena. It recently received a nod from the U.S. Department of Defense to continue its involvement in the department's Air Transport Program. In this role, Air Methods participates in monitoring commercial air carriers that do work for the DOD.
On the heels of a corporate restructuring and the recent acquisitions of Omniflight Helicopters and Sundance Helicopters, Air Methods is focused on organic growth.
It competes with both national carriers and smaller, regional plays. And that puts the company under persistent pressure from healthcare providers to keep patient costs low. As of December 2012, the company had long-term debt worth about $404 million compared to $262 million in 2011. It's not profitable, and reported a first-quarter net loss of $5.7 million compared to a profit of $12.5 million in the year-ago period. Revenue in the quarter fell 6% to $179.2 million. The company blamed poor weather in part for the results. Nonetheless, Air Methods is in the process of diversifying its revenue streams.
While Air Methods is known for its role in rescue services during emergencies such as Hurricane Katrina, it plans to launch a tourism operating segment this year. This is a result of the Sundance acquisition that occurred last year. A focus on tourism and charter flights could help to offset some of the weak volumes that the company has been experiencing in patient transportation. The fact that the company is expanding into tourism makes the stock, which has a P/E of about 17, interesting and worth watching, especially given the strides in mobile apps for flight bookings.
Aviation is a space to watch for the foreseeable future. General Electric is a solid large-cap addition while Boeing is a reasonable long-term income play, if you can stomach the volatility. As for Air Methods, it's one to watch, especially given its newly diversified revenue streams.
Warren Buffett has claimed that investing in airlines is a surefire way to lose your hard-earned cash. But two airlines are breaking all the rules by keeping costs low and avoiding direct competition -- leading to enviable profits. Click here to learn how these two airlines are leading a revolution in the industry, and discover whether they can keep delivering big gains for shareholders!
Gerelyn Terzo has no position in any stocks mentioned. The Motley Fool recommends Air Methods. The Motley Fool owns shares of General Electric Company. 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. Is this post wrong? Click here. Think you can do better? Join us and write your own!