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Where to Invest the Next Time Your Flight Gets Delayed

1 | By Michael A. Robinson

Long flight delays have commercial airline passengers dreaming of their own private jets – or at least a way to invest in business aviation.

It’s been a few weeks, but I’m sure you recall the tale of American Airlines Flight 382.

On Feb. 28, the routine commuter flight was scheduled to fly from Dallas to Oklahoma City – usually an hour-long trip.

However, bad weather and mechanical problems combined to leave passengers stranded on the plane for nine grueling hours.

I’m sure you’ve been in a similar situation – if not so long. I know I have.

With these seemingly innumerable flight delays and the overall aggravation of commercial air travel, it’s no surprise that many top corporate executives are taking to the skies in private jets.

According to a recent Federal Aviation Administration report, the business aviation market grew 3.54% in 2014. To put that in perspective, it grew 46% faster than the U.S. economy.

That’s why today I want to share with you a rare tech investing “double play.”

This one takes advantage of the private jet boom – it’s a growth spurt that I think will last at least a decade…

Ready for Takeoff

You likely know that sales of commercial jet airliners remain robust.

Just look at Airbus Group NV (OTC: EADSY). Last year, the French company booked 1,456 new orders, bringing Airbus’s backlog of orders to nearly $920 billion.

And the Chicago-based Boeing Co. (NYSE: BA) is in a similar excellent position. Last year, it set a company record with 1,432 new jet orders for the year, compared with the 1,355 it received in 2013.

Airbus and Boeing are riding the tailwinds that come from higher demand for air travel, itself brought on by the continued global urbanization.

Take a look at Shenzhen, China. In 1979, this was a sleepy town of 30,000 people. By 2010, that figure had climbed to 12 million.

Then there’s Karachi, Pakistan, where the population in the same period is up 80% to 20.9 million – bigger than the cities of New York, Los Angeles, Chicago, Houston and Philadelphia combined.

No wonder, so many U.S. companies are flying overseas – literally millions of new customers are waiting in the wings.

Of course, technology like Skype, email and video conferencing have made international business easier than ever. But sooner or later, executives must go see these overseas markets firsthand.

As I like to remind folks, you can’t build an overseas production plant with a phone.

That’s why top corporations and their executives find it often makes more sense to pay $25 million or more for a private jet and avoid flying commercial.

The best data I’ve seen on the financial impact of flight delays comes from a 2010 report from University of California, Berkeley. The UC Berkeley researchers found that delays cost the U.S. economy $32.9 billion a year.

And about half of that cost is borne by us – passengers.

When Spending Makes Sense

For a CEO making millions of dollars a year, a few hours of delays each month add up fast for the executive, his or her company and shareholders.

No wonder Honeywell Inc. (NYSE: HON) projects a business aviation boom over the next decade. According to Honeywell’s recent survey of corporate jet buyers, business jet sales will rise 4% a year through 2024, 22.5% higher than average U.S. gross domestic product (GDP) growth over the last six decades.

Honeywell is projecting up to 9,450 deliveries of business jets, valued at $280 billion, through 2024. Corporate buyers plan to replace 23% of their fleets with new jets just in the next five years.

Honeywell says that North America will account for about 59% of that growth. Europe and Latin America are roughly equal, accounting for 18% and 17% of the business aviation industry’s expansion.

Some 29% of respondents in the BRIC countries (Brazil, Russia, India and China) told Honeywell they’re planning to buy business jets. That means the demand for private jets is 25% higher in developing economies than in the world as a whole.

The diversified global tech company also found that buyers want larger planes because they have bigger cabins, longer ranges and more advanced technology.

Definitions of the various classes in this group are a bit fuzzy. But generally, we’re talking about aircraft that can fly from New York to Hong Kong, with eight or more passengers, and cost between $25 million and $65 million.

This is a market that Honeywell knows backward and forward… and it’s why it’s the first part of today’s private jet “double play.”

Two for One

This Morristown, N.J.-based firm is a major supplier to the business aviation market. And its customers include both Airbus and Boeing.

Honeywell makes jet engines, cockpit displays and systems for flight management, communications and navigation.

If you read my Feb. 13 column on the company, you already know that I’m big believer in Honeywell – which is also produces consumer and business products such as thermostats and offers engineering services. Its position as a play on business jets is yet another good reason to buy the stock.

The company doesn’t project sales for the segment but says business aviation remains integral to its strategic plan through 2018. That program calls for a series of acquisitions of up to $10 billion designed to add about $5 billion to $8 billion in sales over the next five years.

For the fourth quarter, Honeywell reported adjusted earnings of $1.43 a share, a 15% increase from the year-ago quarter on basically flat sales I believe the stock will continue to benefit from the firm’s improved efficiencies with higher earnings per share.

So, even if revenues remain flat this year because of the strong dollar’s effect on overseas sales, the stock still stands to gain.

Honeywell also is a supplier to one of the world’s top makers of business jets – Gulfstream Aerospace Corp.

Gulfstream, of course, is synonymous with business aviation. It set the standard back in 1958 when it launched the Gulfstream I, the world’s first true business aircraft.

In February, its new flagship jet, the 18-passenger Gulfstream G650ER, made a one-stop flight around the world, setting several speed records along the way.

Leaving White Plains, N.Y., it flew nearly 7,000 nautical miles to Beijing in 13 hours and 20 minutes. Flying east from Beijing to its Gulfstream’s home city of Savannah, Ga., took just 12 hours.

Today, Gulfstream is a wholly owned subsidiary of defense leader General Dynamics Corp. (NYSE: GD) – the second part of our private jet “double play.”

And Gulfstream is a big winner for GD.

In last year’s fourth quarter, Gulfstream said it had its best revenues in three years, though it didn’t release sales figures. The unit’s strong performance helped General Dynamics beat forecasts during the period.

General Dynamics reported earnings per share on continuing operations of $2.19, compared with the Thomson Reuters forecast of $2.13. On an adjusted basis, it had per-share earnings of $2.09, up more than 49% from $1.40 in the year-ago period.

Like Honeywell, General Dynamics is that it also gives us a play on defense and information technology.

The firm supplies the Pentagon with everything from surface ships and submarines to land vehicles and weapons systems to reconnaissance, surveillance and cyber security.

With a market cap of $44.51 billion, the stock is trading around $136 a share and is a great performer.

Over the past two years, it has returned 96% to investors. That’s 174.3% better than the S&P 500’s return over the period.

Thus, Honeywell and General Dynamics give us one of those rare investment “double plays” – two ways to build your wealth, this time by cashing in on the growth in business aviation.

So, the next time you find yourself stuck at the airport or on the tarmac, don’t get angry…

Instead, invest in these two companies that are riding the business jet boom to new heights.

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