The long-term appeal of the aerospace sector was given a further shot in the arm in Thursday business following news of a monster deal between planebuilding giant Boeing (NYSE: BA.US) and China.
The US manufacturer has inked an accord with a cluster of Chinese customers to supply 300 of its aircraft, with its 737 range making up 250 of that number. The deal is worth a colossal $38bn at current list prices. On top of this, Boeing has vowed to build a facility in China to complete and deliver 737s constructed at the company’s North American facilities.
The news was announced during a visit of Chinese premier Xi Jinping to Washington, underlining the importance Boeing is placing on emerging markets to drive growth. Indeed, president and chief executive of Boeing Commercial Airplanes Ray Conner commented that “China is a critical international market for commercial airplanes,” and the company has promised to strengthen its relationship with the country still further.
Building for the future
Such news should come as music to the ears of the likes of Rolls-Royce (LSE: RR), a major supplier to industry leviathans Boeing and Airbus. The company’s Trent engines have been a firm favourite across the airline industry for decades now, underlined by the $9.2bn deal signed in April with Emirates to supply Trent 900 engines and TotalCare aftermarket services to the carrier.
Indeed, Rolls-Royce’s colossal order book of £66.4bn as of the end of June — up 5% from a year earlier — and illustrates the robust outlook for the aviation industry. On top of this, the firm’s decision to set up the Selatar manufacturing and research base in Singapore in 2012 exemplifies the huge growth potential of Asia, and mirrors similar expansion measures taken by Airbus in recent times.
Of course Rolls-Royce is not the only London blue-chip benefitting from this rosy demand picture. Diversified component builder Meggitt (LSE: MGGT) is also a top-tier supplier in the aerospace industry, a position it has boosted still further by a spate of recent purchases — the business bought the advanced composites businesses from Cobham for $200m in August, and followed this up with the purchase of EDAC’s composites operations for $340m just this week.
Airlines set to soar
And Boeing’s bumper sales announcement should also underpin investor appetite for the world’s major airlines, the news giving further credence to brilliant passenger growth projections in the coming decades. London linchpin International Consolidated Airlines (LSE: IAG) is already benefitting from rising traveller numbers across all of its global routes, as improving economic conditions in the West and rising consumer spending in developing regions fuels ticket demand.
Indeed, the operator of British Airways and Iberia announced earlier this month that it carried 9.11 million passengers during August, up 12.4% from the corresponding month in 2014. With International Consolidated Airlines further boosting its market position with the planned purchase of budget operator Aer Lingus, I reckon the business is also in great shape to enjoy resplendent earnings growth.