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Coronavirus Jolts Commercial Jet Market: Stocks in Focus

Aparajita Dutta
·4 mins read

As the world struggles to fight the coronavirus (COVID-19) outbreak that has practically brought the majority of global businesses to a halt, the airlines industry is the worst affected. Commercial plane makers are also experiencing the wrath of this pandemic almost in equal terms, if not more.

Notably, the Aerospace sector that houses the major jet manufacturers has declined 44.5%, year to date, while the S&P 500 Index has slumped 30.2%.

COVID-19 Impact on Commercial Jet Market

Panic among travelers along with travel curbs imposed by different nations to contain the spread of the coronavirus has prompted increased flight cancellations in the recent times. Globally the number of scheduled flights last week was down more than 12% from a year ago, per a data published by flight data provider OAG.

Thanks to such cancellations, airlines are experiencing mounting costs and as a cost cutting measure, delaying deliveries of jets from plane makers. Now, planemakers make most of their money when they deliver jets but airlines are doing everything possible to preserve cash and thus deferring deliveries.

This is hurting plane makers as brand-new aircraft are stationed outside factories and in facilities, which is pushing up costs for these manufacturers.

There also remains another roadblock. It usually takes several airline officials to review the paperwork, conduct last-minute quality checks and make financial arrangements to transfer the ownership of jets and approve delivery. However, amid the outbreak, as social distancing remains the need of the hour, such reviews are difficult, even if the carriers are ready to take deliveries.

In this regard, it is imperative to mention that rating agency Moody’s has recently downgraded its outlook for the aerospace and defense industry to negative from stable, based on expectations that airlines will continue to delay deliveries of commercial aircraft to lessen the strain on their balance sheets, even after the market starts recovering.

Stocks in Focus

In light of the aforementioned facts, here we discuss some commercial aircraft manufacturers who will be keenly watched by investors. These are:

Boeing BA, the largest plane maker in the United States, faces the shutdown of key assembly lines for the second time in a year after being forced to halt production of its grounded 737 MAX aircraft in January. Per a report by Reuters, production of long-haul jets such as the 787 and 777 in Washington is set to be stalled for 14 days from Mar 25, which will cause the world's largest industrial building, Boeing's wide-body plant in Everett, north of Seattle, to stop functioning for the first time.

Adding to Boeing’s woes, the global health crisis threatens the smooth return to service of its 737 MAX that has been a drag on its commercial business unit for almost a year now. The company requested at least $60 billion in financial support for U.S. aerospace companies from the government last week.

European jet major and Boeing’s rival, Airbus’ EADSY deliveries have been hit by the impact of coronavirus on airline operations, especially in China. On Mar 24, the company announced new steps to bolster its financial position, including the signing of a credit facility for approximately $16 billion.

Airbus added that it is withdrawing its 2020 financial guidance, dropping a proposed 2019 dividend that had a cash value of $1.5 billion and suspending funding to boost staff pension schemes.

Other companies like Embraer and Textron have been impacted by the pandemic, but not to the extent that Boeing and Airbus have, so far.

Embraer ERJ has put on furlough all non-essential workers in Brazil, where it makes regional jets, until Mar 31. The planemaker also said that it will take a decision shortly on whether to implement similar measures in other countries it operates in, considering the rapid rate at which the virus is spreading. Moreover, completion of its pending joint venture with Boeing is now uncertain.

Textron’s TXT unit, Textron Aviation announced a four-week furlough for most of its U.S.-based workforce on concerns over depressed demand due to the coronavirus crisis.

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Click to get this free report The Boeing Company (BA) : Free Stock Analysis Report Embraer-Empresa Brasileira de Aeronautica (ERJ) : Free Stock Analysis Report Textron Inc. (TXT) : Free Stock Analysis Report Airbus Group (EADSY) : Free Stock Analysis Report To read this article on Zacks.com click here. Zacks Investment Research