The UK government has announced more than £3 billion partnership deals with the US aircraft manufacturer Boeing (BA) as the week-long Farnborough International Airshow began today.
The long-term partnership with Boeing will create 2,000 new jobs in the UK and increase global supply chain opportunities for UK aerospace companies, according to a statement published today on the Ministry of Defence website.
It is reported that Boeing plans to make the UK its European base for training, maintenance, repair and overhaul across its defence fixed-wing and rotary platforms, and its UK base for defence exports to Europe and the Middle East.
“Whatever uncertainties our country faces, I want the message to go out loud and clear: the UK will continue to lead the world in both civil and defence aerospace,” David Cameron, the UK Prime Minister said.
Part of the deal involves purchases of nine new marine patrol planes from Boeing. Boeing will also build a new £100 million facility for the planes at Royal Air Force Lossiemouth in Scotland and will deliver 50 attack helicopters to the British Army.
Cameron said the partnership showed that "the UK is open for business, and attractive for investment.”
Boeing’s Shares Price Rise
Shares of Boeing were up 1.2% to 131.66p at 4pm in London time on Monday. The stock is down 11.2% year to date. It is currently rated as a three-star stock by Morningstar analysts, meaning the stock is traded at fair value.
It is reported that Boeing said today at the Farnborough Airshow that the world's airlines will need to build 39,620 new aircraft worth a staggering $5.9 trillion over the next 20 years.
“Boeing recently revealed more details about its midmarket plane, which we think may be launched at Farnborough. The new jet would respond to threats from the Airbus A321neo and sit between the 737-9 MAX and the 787-8. We’re sceptical of the market for this jet, though. An all-new midmarket program would weigh on Boeing’s shares and prompt us to revisit our fair value estimate,” warned Morningstar analyst Chris Higgins.
Higgins also said that a backlog of more than 5,700 commercial aircraft provides growth visibility in Boeing, as these aircraft should be successfully delivered to customers, thanks to strong air travel demand at or above the historical level of 5% annual growth.
Deals for Rolls-Royce, Virgin Atlantic and Airbus
More aerospace deals are expected to come this week at the Farnborough Air Show, one of the world’s most important commercial air shows.
Morningstar equity analysts are attending the Farnborough International Airshow this week. They anticipate lots of discussion of the production ramp-up challenge for aircraft and engine manufacturers, as well as their suppliers. Automation and efficiency improvements remain a hot topic. Moreover, all these new aircraft may lead to opportunities around the “connected aircraft,” and analysts expect companies to highlight the growth potential in this market.
Besides Boeing’s partnership with the UK government, Rolls-Royce (RR.), Airbus (AIR) and Virgin Atlantic today also announced major orders at Farnborough Airshow.
Rolls-Royce, the UK aerospace engines suppliers, said today it would acquire the outstanding 53.1% shareholdings in Spanish aerospace components company, Industria de Turbo Propulsores (ITP), owned by SENER Grupo de Ingeniería for €720 million.
Rolls-Royce said the deal will strengthen its position on large engine programmes in its civil aerospace operations by growing aftermarket revenue and will boost the group’s defence aerospace business.
“Rolls-Royce has secured a market-leading position in wide-body aircraft, as its market share has increased from 8% to 30% the past 20 years, and it is the sole engine provider for the A350-XWB platform,” Morningstar analyst Jeffrey Vonk said.
Aerospace and defence company Airbus announced it had secured a $4.4billion deal with airline Virgin Atlantic. The airline is buying 12 of Airbus’s A350-1000 aircrafts, of which those aircraft’s wings are made in the UK and the plane will be powered by Rolls-Royce engines.
“Airbus commercial aircraft represents nearly 70% of sales and has increased market share over the years,” Morningstar analyst Keith Schoonmaker said.
“During the next five years we expect annual revenue growth to average roughly 6.5%. Driving this forecast is continued strong commercial deliveries at Airbus, as strength in single-aisle aircraft orders leads Airbus to raise production rates.”
Rolls-Royce share was down 1.6% to 723p while Airbus Group’s share price rose 2.8% to 50.38p at 4pm London time on Monday. Rolls-Royce is rated as a three-star fair-valued stock by Morningstar analysts. Airbus Group is rated by Morningstar analysts with a four-star rating, indicating it is currently an undervalued stock.
