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In their earnings call yesterday, Alcoa told us that large commercial aircraft deliveries were down in the first half of 2016. While that sounds like a negative, it really isn't. There's an oversupply in the market right now, with Airbus reporting that they have 36 wide-bodies sitting idle just waiting for engines. This is also a transitional period within several of the major providers as airlines are adjusting their fleets between narrow and wide-body aircraft. Read some of the trade press exchanges between Airbus and Boeing for more insight into that tug-of-war.
Alcoa also referenced a "careful ramp up of new models" and lower orders for legacy technology. This is due to a shift within the industry to new jet engine technologies that experienced some significant technical problems in the first half of the year. Those problems at this point have been overcome, however, and the forecast through 2017 is for double digit growth.
Most telling of all is a single line in the Alcoa slide presentation that accompanied their earnings call. They said, "Airline profitability is at an all-time high." Now, as a major supplier of product within that industry, Alcoa would be in a great position to know the inside scoop. The charts for the airlines are all in correction mode, oil and fuel prices remain depressed, and the International Air Transportation Association (IATA) continues to report strong passenger demand into 2016.
This divergence between the stock trends and the underlying industry data suggest that the airline industry as a whole may be undervalued. Delta Airlines (NYSE:DAL) reports earnings before the open this Thursday (July 14) and we will be closely monitoring their earnings call for confirmation of Alcoa's assessment.
The other major players that we'll want to watch are General Electric (NYSE:GE) reporting July 22nd, and Boeing (NYSE:BA) reporting July 27th. GE is a major jet engine supplier and Boeing, obviously, is one of the major aircraft manufacturers. Remember, it's not their earnings that we're interested in, per se, but rather their assessments of the overall industry.
By the end of July, we should have a very good idea as to where the airline industry is headed in 2016 and the first half of 2017. If Alcoa's assessment is accurate, however, it would appear the industry is number one on the runway and ready for takeoff.