Very severely affected by the stoppage of air transport, the air construction industries expect a fall in orders and very long standardization. Despite very attractive valuations, a return to the sector seems premature. Explanations.
The worst is over but the effects of the pandemic will last. After no less than two months of “grounding”, the aircraft manufacturing plants are starting to recover depending on the resumption of commercial flights, which fell by 82% over the period. IATA, which represents 290 companies, estimates lost revenue of $ 160-253 billion.
The airline sector in difficulty
For Archery Strategy, the return to traffic growth of 6% will not occur before 2024. By then, the overcapacity industry would face a drop in orders valued at best at -20% by Alphavalue. The nightmare sector of bankruptcies among the 160 lessors or renters, who weigh more than one “liner” to build on two. However, 80% of their customers would have asked for six-month rent freezes or postponements. After Avolon, which has given up 75 Boeing B 737 Max and four Airbus A 330s, order cancellations could soar if large fleets stall, such as the Indian Indigo and its 259 aircraft. And then can these rental companies domiciled in tax havens claim public aid?
As for the historic plunge in oil, it involves less air traffic, particularly to the producing regions, and it weakens the rebound in the helicopter market, which is essential for offshore platforms. Ditto for the scenario of relay by military budgets, variables of adjustment of public finances. Even if their prices, which have fallen into a spin, encourage buying, caution is advised.
What about Airbus?
Better large caps with more diversified activities than mid-caps. Although commercial aviation and helicopters account for more than two-thirds of the business of Airbus, which fears that it will have to cut more than 130,000 jobs, its situation seems better than that of Boeing. The European has been alone in the single-aisle segment since the B 737 Max’s flight ban. In addition to having its A 320 Neo more suited to the needs of Lessors and companies for less demanding devices, it can also count on its A 350 better configured than the B 777 and B 787 of the American. With a price around 55 euros, the aircraft manufacturer has a PE just under 19, above the Parisian average (16), and a decline of almost 57% since the start of the year. We will take advantage of any decline with a target price of 78 euros.
And for engine manufacturers?
Safran, the world’s second largest engine manufacturer, is in a better situation than Rolls-Royce, more present on the B737 Max. Like Dassault Aviation, it can count on the start of the SCAF, replacing the Rafale, whose engine it drives. Better to lighten the position, however.
The second value can also hope for foreign military orders, but this prospect will take a long time to materialize. Hence a PE (price-to-profit ratio) sold off at 13, for a price around 708.50 euros. But the very low liquidity of the security makes it vulnerable in these times of high volatility.
As for Thales, despite exposure to aeronautics limited to 30% of its billings, the pandemic cut its quarterly turnover by nearly 200 million out of a total of 3.1 billion. The group can count on digital security and identification-tracking, two extremely promising markets. This explains the limited decline in the title since 1er January: – 28% to 66 euros.
Michelin may hope for the transition to ‘Radiall’ tires, but aviation remains drowned in the sales of the tire manufacturer, a longtime depressed automotive industry partner: profiting from any decline below 80 euros. There are still a few suppliers like Latecoere and Figeac Aerospace who work only for aviation in fuselages and their wiring for the first, and as a supplier of mechanical elements for the next. The hour of return on their titles has not yet struck.