Boeing stock falls
Delta Air Lines (DAL) reported its earnings on October 14, 2015. After the results, Delta stock rose 2% over the previous day’s close. It ended the day at $48.59. However, the earnings call caused greater movement in one of Delta’s key vendors—Boeing (BA). Boeing stock fell by almost 4% after Delta’s call. It closed the day at $134.22—its largest fall since October 22, 2014. Its closest competitor, Airbus, also fell by 3.8%. Embraer (ERJ) remained relatively flat. Lockheed Martin (LMT) has less stake in the commercial plane market. It also fell by 2%. Boeing stock recovered since then.
What did Delta’s CEO say?
When asked about Delta’s interest in the Boeing’s 777 planes coming off-lease from Singapore Airlines, Delta’s CEO replied, “We’re seeing a huge bubble in excess wide-body airplanes around the world and we’ve been approached by more than one party.” He went on to say that he expects a $10 million price for nine to ten-year-old Boeing 777 planes.
He expects the wide-body aircraft bubble to extend to the narrow-body aircraft. This will provide huge buying opportunities over the next 12–36 months for airlines like Delta. Other major airlines that stand to benefit if this is true include American Airlines (AAL), United Continental (UAL), and Alaska Air Group (ALK).
He added, “Singapore Airlines, I think, has 70 of these airplanes that are coming off lease or being retired that are 8 years to 10 years old.”
In this series, we’ll assess the truth behind the comments by Delta’s CEO. We’ll look at Boeing’s take on the comments and why the market reacted negatively. We’ll also see what could help Boeing deliver strong earnings in 3Q15.
Boeing is one of the world’s leading aerospace companies. Along with its subsidiaries, the company designs develops, manufactures, sells, services, and supports commercial jetliners, military aircraft, satellites, missile defense, human space flight and launch systems, and services worldwide. It’s the largest exporter and the only large commercial jet manufacturer in the US. It gets about two-thirds of its revenue from the U.S. Department of Defense. Boeing forms ~5% of the Industrial Select Sector SPDR ETF (XLI).