The airline industry is in tatters with the ongoing coronavirus pandemic. Is this a good opportunity to invest in Boeing or Airbus?
Airlines all across the world have been largely grounded in an attempt to restrict travel and contain the spread of the coronavirus. Share prices of airlines and airplane producers have taken a big hit as a result. Many investors are now wondering if it is a good time to invest at discounted prices.
Impact of the Coronavirus
As a result of this pandemic, many smaller airlines will go bust due to mounting debts and frozen revenues. There have also been concerns about the ability of major airlines to survive, such as American Airlines (NASDAQ: AAL) and JetBlue (NASDAQ: JBLU). Current estimates are that commercial airlines will lose out on $115 billion in revenue.
Naturally, Boeing (NYSE: BA) and Airbus (EPA: AIR), who make the vast majority of commercial planes, will be heavily affected by this shutdown.
Boeing: Bull vs Bear Arguments
Before the pandemic hit, Boeing wasn’t having a good time. Its vital 737 MAX range has been grounded for a year following a pair of fatal crashes. It’s dropping production of the 787 Dreamliner by almost 17% in 2021.
Boeing was confident that its 737 Max planes would be allowed to start flying again in the coming months, with the company having over 4,300 active orders. However, with the ongoing pandemic, a significant number of order cancellations and deferrals appear likely as the airlines creak under the pressure of their balance sheets.
Its upcoming 777X commercial plane has been delayed numerous times and will likely be ready for the market at a time when there is less of a demand for larger planes.
Despite these issues, Boeing can rely on its $25 billion defense business as a way to counteract its struggles on the commercial side of things. It has a number of major deals with the U.S. government that will see the airline company produce the likes of Air Force trainer jets, UH-1N Huey helicopters and Navy refueling drones.
Airbus: Bull vs Bear Arguments
Naturally, Airbus was similarly affected by the coronavirus outbreak as Boeing. It has taken appropriate steps to ensure that its liquidity is restored and has access to $32 billion worth of cash and credit lines if needed. While it doesn’t need a bailout, it will be open to receiving some help from the French government. Its dividend for the period has been withheld and it has withdrawn its earnings forecasts for the year.
Analysts estimate the company’s market share has risen from 45.3% in 2018 up to 62.5% in 2019 due to Boeing’s troubles. Airbus does rely more on commercial aircraft and helicopter sales (83% of total revenue) than Boeing (about 60% of total revenue).
The company has a well-diversified geographic order book and has a lot of skin in the narrow-body market which should be an advantage in these distressed times. Airbus also has a couple of innovative aircraft in development that Boeing has yet to respond to.
Which stock is a better buy right now?
While Boeing may not be about to go under, the short term is going to be a bumpy road. Uncertainty about commercial air travel will persist for a long time.
Its share price has dropped significantly in recent weeks, but with more uncertainty ahead and some airlines potentially going bust and bailing on orders, its price could drop even further. It has also suspended its dividend and with slow growth ahead, it does not look like being the best buy.
Airbus in contrast looks like a decent buy at the moment. Its share price dropped massively, with a discount of more than 50% being available. It is one of the lowest risk investments to make in the commercial aerospace company at the moment with its geographical diversification and advantages over Boeing. The heavy price discount of this high-quality stock is certainly very enticing.
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