As demand for air travel lifts jet makers around the world, the European market leader is set to fare better than its U.S. counterpart, according to one team of analysts on the Street. (See also: Airline Stocks Are a Cheap Buy: Bernstein.)
Morgan Stanley's Andrew Humphrey wrote a note this week in which he forecast “not only possible but necessary” increases in prices for the firms' high demanded narrow-body planes, which should benefit shares of both Airbus SE and Boeing Co. (BA). He expects air traffic growth of 6% at the midpoint, and that of replacement aircraft needs at around 2.5%. These two factors, alongside five-to-10-year backlogs for Boeing 737s and Airbus A320s, should lead both firms to announce rate increases up to 2021. Humphrey expects these decisions to be made public as soon as the second or third quarter of this year.
Boeing Less Attractive Than Rival
The Morgan Stanley analyst rates Airbus at outperform and Boeing at equal weight, citing trade risk for Airbus amid heightened global trade tensions facing the U.S. set on by more protectionist policies coming from the White House. Plus, “both companies have a similar product offering and industry position, yet Boeing’s market capitalization is about two times that of Airbus," wrote Humphrey. While BA stock has already doubled over the past 12 to 18 months, driven by strong execution and free cash flow (FCF), the analyst highlighted Airbus' "greater long-term leverage to profitability" as its A350 program comes to fruition.
Last month, news broke that Boeing's European competitor was considering a new cargo model to compete against Boeing's popular 767 freighter, driven by requests from e-commerce giant Amazon.com Inc. (AMZN) and delivery company United Parcel Service Inc. (UPS). The Seattle-based retail and cloud market leader is planning an initial fleet of 40 used 767 freighters for its Prime Air fleet, yet its plans seem to be much more expansive that that, including a $1.5 billion air hub to be built near Cincinnati. Airbus is reportedly weighing the option of adding new engines to older A330ceo freighters to beat out Boeing, whose 767-300 freight model already has about five times the orders of Airbus' A300-200F. (See also: Can Boeing Fall Further on China Trade Threats?)