Make no mistake: despite the effect of a slowing global economy, civil aircraft orders look set to keep on surging in line with bubbly passenger numbers. Industry giant Boeing (NYSE: BA) announced last month that commercial aircraft orders hit a record 1,432 in 2014. This takes the total backlog to some 5,800 planes worth a colossal $440bn.
Concerns that new aircraft demand may begin to slow have intensified in recent months, however, the effect of a collapsing oil price prompting many to speculate that airlines may delay replacing their fleet with more fuel-efficient planes.
Still, Boeing chief executive Jim McNerney tried to dispel these fears by commented thing lower fossil fuel prices have “not substantially changed” the firm’s order book, adding that an environment of cheap crude is actually “beneficial to the industry.”
Such sentiments make sense, of course, as a double-whammy of surging passenger numbers and falling costs boost airline profitability and therefore desire for new aircraft to replace creaky, less-efficient craft which require constant maintenance. And with governments around the world attempting to clamp down on carbon emissions from the aviation industry, it stands to reason that demand for less fuel-intensive craft like Boeing’s Dreamliner should keep on rising.
Rolls-Royce orders keep on soaring
And Rolls-Royce’s (LSE: RR) (NASDAQOTH: RYCEY.US) full-year results last week confirmed the robust uptrend in the civil aerospace industry. The company’s Civil Aerospace division saw total orders rise 5% in 2014 to £63.2bn, pushed by surging demand for its Trent engines and TotalCare aftermarket services.
The performance of this division was a rare bright spot in Rolls-Royce’s results, as the effect of “reduced spending by [its] defence customers, macroeconomic uncertainty, and falling commodity prices” saw revenues fall for the first time in a decade in 2014.
Still, I believe that Rolls-Royce remains a terrific long-term bet, and expect demand for its industry-leading technologies spanning a multitude of engineering sectors to trek higher once current cyclical woes abate.
And I expect the firm’s aerospace operations should continue to lead the charge as demand for its engines continues to surge. Indeed, strident hardware demand from emerging markets prompted the firm to build a gigantic, state-of-the-art hub in Hong Kong in the last couple of years. As well, Rolls-Royce’s aftermarket division — a sub-sector boasting formidable barriers of entry — is also expanding as airlines across the world plump for the firm’s industry-leading maintenance services.
Revenues heading for the skies
Surging business at Rolls-Royce is also benefiting the likes of diversified engineer GKN (LSE: GKN), who just last month inked a $200m deal to provide the aerospace giant with components for its Trent 1000 engines.
The company sources around 30% of turnover from the commercial and military aircraft arenas, but also has excellent exposure to other white-hot growth markets. More specifically, I believe that the company’s Driveline and Powder Metallurgy arms are poised to benefit on the back of rampant automobile demand. This division accounts for 46% of revenues.
Meanwhile, Wimborne-headquartered Cobham (LSE: COB) has ramped up its acquisition activity in recent times to boost its aerospace operations, a sector in which it already generates around 40% of sales.
Cobham completed the purchase of North American competitor Aeroflex for $1.46bn in September, a business which spans a multitude of engineering sectors including civil aerospace and avionics. Promisingly, 70% of the division is geared towards high-growth commercial segments, a scenario which should help to mitigate current lumpiness in defence markets.
