Thanks to some recent momentum, the FTSE 100 is now officially (0.4%) higher than it was at the start of the year.
But what about the performance of individual aerospace stocks within the index? Let’s take a look at how they’re doing.
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What are aerospace stocks?
Aerospace stocks typically refer to companies involved in the research, development and manufacture of aircraft.
As well as the commercial aviation sector, the industry is also aligned with the military sector. That’s because aerospace companies may support the delivery of defence aircraft, warships and missiles.
Which aerospace companies are in the FTSE 100?
Three current constituents of the FTSE 100, Meggitt plc, Rolls-Royce Holdings plc, and BAE Systems plc, are involved in the aerospace sector.
Meggitt is known for specialising in components, such as thermal systems, for the aerospace, defence and energy markets. Rolls-Royce Holdings is the second-largest maker of aircraft engines in the world. It’s also one of the world’s largest defence contractors. BAE Systems is Europe’s largest defence contractor with its biggest operations in the UK and the US. The company signed a 15-year, £3 billion contract with the Ministry of Defence back in 2008.
How have aerospace stocks performed in 2022 so far?
So far this year, it’s been a mixed bag for FTSE 100-listed aerospace stocks.
The best performer is BAE Systems, with its share price up an impressive 29.4% since the year began. BAE’s share price witnessed a strong and steady opening during the first few weeks of 2022, before surging in late February when the Russian tanks entered Ukraine.
Meggitt’s share price is also up since the year began, though only by 2.67%. Like BAE Systems, its share price had a stable start to the year before surging on 24 February when the war in Ukraine began. However, since then, Meggit’s price has been volatile.
Unlike other aerospace stocks in the FTSE 100, Rolls-Royce Holdings has had a torrid 2022 so far. Its share price is down a massive 21% since the turn of the year. The company’s share price actually fell in late February, in contrast to its rivals in the sector, and its share price hasn’t recovered since.
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What’s behind these contrasting fortunes?
Now we know that aerospace stocks have witnessed contrasting fortunes since the year began, let’s take a closer look at why this might be.
1. BAE Systems plc: up 29.4%
There’s no doubt the strong performance of BAE Systems over the past three months can be attributed to the war in Ukraine.
According to Russ Mould, investment director at AJ Bell, the Russian invasion gave investors the impression that “governments around the world would take another look at their defence budgets and increase spending.”
In addition to the war in Eastern Europe, BAE Systems’ share price has also been boosted by its impressive financial results for 2021. Last year, BAE reported profit growth of 32% with improvements in all of its divisions.
2. Meggitt plc: up 2.67%
The war in Ukraine has also supported the share price of Meggitt in recent weeks. Despite this, its value hasn’t soared by anywhere near as much as that of BAE Systems. One reason for this could be the ongoing uncertainty surrounding the company’s potential takeover by US rival Parker Hannifin.
That’s because the planned £6.3 billion acquisition hasn’t yet gone ahead. The UK Competition and Markets Authority is currently assessing potential ‘national security concerns’ associated with the deal. As a result, there is some risk of the deal falling through.
3. Rolls-Royce holdings plc: down 21%
Rolls-Royce has had a very poor 2022 so far. The reason for its weak performance might be partly due to recent media reports suggesting rumours of a possible takeover are fading.
Another reason for the company’s falling share price could be the announcement that CEO Warren East will soon depart. Also, Rolls-Royce’s profit warnings in the early 2010s are another factor that is likely to have scared investors.
Analysts suggest that the Rolls-Royce share price may not recover to previous highs until more planes are in the sky. The company suffered particularly badly as a result of the Covid-19 pandemic, and we know volumes of air traffic haven’t returned to pre-pandemic levels.
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