Professional Documents
Culture Documents
$30.98 $83.98 $136.50 $19.27 $43.67 $9.07 $51.98 $33.91 $85.56 $251.58 $148.48 $32.25 $1,793 $34.36 $52.05 $66.59 $70.56 $61.22 $14.64
4,482 8,798 102,574 1,815 4,348 9,701 40,456 3,662 3,034 36,544 7,801 225 1,050 2,763 1,249 3,673 3,243 342
13,098
116% 92% 82% 51% 74% 10% 113% 28% 29% 43% 11% 5% 29% 44% 77% 13% 14% 34% 13%
46%
AERO SUPPLY
Aero Fasteners (Downstream & Frame Demand) Equity Trading (Health Index)
The Cleveland Research Company Aerospace Materials Coverage Team Chris Olin, Sr. Research Analyst Kevin Money, Research Associate Curt Siegmeyer, Research Associate (216) 649-7212 (216) 649-7254 (216) 649-7208 colin@cleveland-research.com kmoney@cleveland-research.com ciegmeyer@cleveland-research.com
o o o o
Our current cyclical demand outlook implies a very mild correction could occur when looking our 3-4 years (in between 2016-2017) before another period of acceleration, which is consistent in the data presented by the Airline Monitor. A majority of the new jet demand is expected to come from the shift toward more fuel-efficient aircraft, assuming 3,000 jets are retired over the next four years (roughly 12% of the existing fleet of 23,000). The outlook is very bullish for the part makers, forgers, and specialty material producers. In addition to the increased volumes, most of the companies in our watch group should also benefit from greater content of premium materials and service (secular growth evident through 2018-2020).
Jan-06
Jan-07
Jan-08
Jan-09
Jan-10
Jan-11
Jan-12
Jan-13
Apr-06
Apr-07
Apr-08
Apr-09
Apr-10
Apr-11
Apr-12
Apr-13
Jan-14
Apr-14
Oct-06
Oct-07
Oct-08
Oct-09
Oct-10
Oct-11
Oct-12
Oct-13
Source: IATA
Oct-14
Jul-06
Jul-07
Jul-08
Jul-09
Jul-10
Jul-11
Jul-12
Jul-13
Jul-14
9.0% 8.0% 7.0% 6.0% 5.0% 4.0% 3.0% 2.0% 1.0% 0.0% -1.0% -2.0% -3.0% -4.0% -5.0%
Jan- Feb- Mar- Apr- May- JunAug- Sep- Oct- Nov- Dec- Jan- Feb- Mar- Apr- May- JunAug- Sep- Oct- Nov- Dec- Jan- Feb- Mar- Apr- May- JunAug- Sep- Oct- Nov- DecJul-11 Jul-12 Jul-13 11 11 11 11 11 11 11 11 11 11 11 12 12 12 12 12 12 12 12 12 12 12 13 13 13 13 13 13 13 13 13 13 13 Southwest 13.2%13.0% 9.8% 8.7% 9.9% 7.5% 5.9% 3.9% 6.4% 3.5% 2.5% -0.3% -2.7% 3.8% -0.9% -2.2% -2.6% -0.1% 0.0% 0.1% -2.1% -2.4% -1.5% -0.2% -1.7% -2.3% 4.0% 1.5% 4.2% 2.3% -1.5% -2.7% 1.3% 1.3% Delta United Alaska Jet Blue AA/LCC Average 2.3% 1.4% 0.5% 2.6% 2.2% -1.5% 0.1% -0.3% -0.9% -3.8% -1.9% -2.3% -1.5% 2.5% 2.0% 1.2% -0.6% 0.4% -2.8% 0.2% -1.1% 0.3% 1.2% 0.5% 0.0% -2.2% 0.1% -0.7% 1.4% 0.7% 1.7% 2.7% 1.8% 1.4% 0.9% -3.4% -2.2% 1.1% -0.3% -0.9% -0.1% -0.9% -1.7% -5.1% -3.6% -0.7% -3.2% 3.4% 1.0% 0.9% 0.3% 0.1% -3.3% -0.1% -2.1% -0.3% -2.3% -4.0% 0.9% -3.4% -1.2% -3.8% -0.8% -0.6% -0.6% 0.0% 1.0% 0.2% 15.8%19.0%19.3%18.1%11.7% 7.9% 6.8% 7.6% 10.4% 6.0% 7.8% 6.2% 17.5%21.5%15.7%17.1%11.2%10.6% 8.8% 8.1% 5.1% 8.5% 9.4% 8.4% 11.5% 6.0% 9.4% 8.5% 6.8% 8.1% 9.2% 8.1% 4.3% 3.8% 5.1% 9.0% 7.1% 6.1% 10.6% 7.2% 11.1% 5.8% 7.6% 7.6% 10.9%14.3%13.3%17.4%12.5%14.5% 7.4% 9.7% 7.1% 13.1% 6.1% 1.0% 5.7% 6.1% 11.2% 2.6% 8.6% 4.7% 9.4% 7.8% 7.3% 6.2% 1.6% 7.1% 0.6% 1.8% 1.5% 0.1% 3.5% 1.3% 2.4% -0.7% 0.1% -2.5% 0.6% 0.6% 1.5% 6.2% 1.6% -0.6% 0.6% -1.3% -1.8% 1.6% -3.7% -2.0% 1.7% 2.3% 4.0% 0.1% 1.5% 1.7% 0.8% 3.1% 2.6% 2.7% 1.5% 4.3% 6.3% 6.8% 6.0% 6.1% 6.3% 3.6% 4.4% 2.6% 3.6% 1.0% 2.7% 3.0% 4.2% 9.1% 5.3% 5.2% 2.7% 3.2% 1.3% 3.9% 0.4% 0.8% 2.4% 2.2% 4.3% 0.1% 3.7% 2.0% 3.6% 3.6% 3.1% 2.8% 1.9% 3.0%
The domestic operators are seeing continued strength in cross-Atlantic travel. The average growth rate for October is estimated @ +7.6% which is up considerably from the +2-3% growth rate the previous two months. United Airlines (UAL) is seeing the most strength in international travel with growth hitting +11%. (chart on page 6) The cross-Pacific RPM data has turned negative once again following five months of positive demand growth. We calculate an average cop for October @ -0.7% versus the +3.0% average during the previous five months. The September comp was +1.0%. (chart on page 6) The Latin America travel has been holding in positive territory. The October comp was calculated +7.7% which is up from +4.4% in September. This market has been a source of strength for the three domestic airline operators levered to these routes (Delta, United, and AA/LLC). The average growth rate for 2013 is +5.9% versus +3.8% for the comparable 2012. (chart on page 7). The small-aircraft regional traffic has been a headwind for the domestic airlines. The average growth rate has been negative for 11 out of the last 12 months, including down 3.6% in October (versus +1.0% in September). United seems to be losing market share. Ultimately, we believe this data series reads fairly cautious for the smaller aircraft market. (chart on page 7)
6.0% 5.0% 4.0% 3.0% 2.0% 1.0% 0.0% -1.0% -2.0% -3.0% -4.0% -5.0% -6.0% -7.0% -8.0% -9.0% -10.0% -11.0% -12.0%
Delta United
Jan- Feb- Mar- Apr- May- JunAug- Sep- Oct- Nov- Dec- Jan- Feb- Mar- Apr- May- JunAug- Sep- Oct- Nov- Dec- Jan- Feb- Mar- Apr- May- JunAug- Sep- Oct- Nov- DecJul-11 Jul-12 Jul-13 11 11 11 11 11 11 11 11 11 11 11 12 12 12 12 12 12 12 12 12 12 12 13 13 13 13 13 13 13 13 13 13 13 8.8% 6.1% 4.0% 19.6% 0.8% -1.1% -1.1% -2.4% -7.6% -10.3 -11.0 -7.3% -4.2% 3.0% -0.4% -6.1% -4.4% -5.5% -6.7% -5.1% -0.3% -3.0% -3.1% -4.3% -6.4% -8.8% -5.7% -3.2% 2.0% 4.8% 5.1% 6.0% 2.1% 2.4% -4.7% -9.2% -1.3% 18.3% 1.4% -2.0% -2.4% -2.0% -2.1% -7.9% -4.1% -1.1% -1.9% 0.8% 1.4% -6.0% -1.7% -1.4% -5.8% -2.4% -5.3% -9.6% -7.2% -4.6% -4.7% -9.2% -6.8% -4.1% -1.3% 1.0% 2.5% 7.2% 5.9% 11.4%
AA/LCC 8.1% 9.9% 2.7% 20.2% 5.8% 1.9% 4.2% 3.3% 1.8% 2.4% 1.4% 2.3% 4.4% 7.8% 2.0% 0.2% -7.1% -1.3% 0.1% 2.5% -0.9% -6.1% -9.0% -6.0% -7.3% -10.6 -0.5% -1.5% 3.3% 0.6% -0.4% 1.1% 2.3% 5.5%
Source: Company Reports
Average -0.8% -1.3% -2.2% 19.2% 3.2% 0.5% 1.3% 1.3% 0.1% -2.0% -1.8% 2.0% 1.9% 5.6% 1.8% -2.8% -6.2% -2.7% -3.0% -0.2% -2.3% -8.0% -8.0% -5.2% -6.3% -10.3 -0.8% -3.5% 0.6% -0.1% -0.3% 2.4% 2.7% 7.6%
13.0% 12.0% 11.0% 10.0% 9.0% 8.0% 7.0% 6.0% 5.0% 4.0% 3.0% 2.0% 1.0% 0.0% -1.0% -2.0% -3.0% -4.0% -5.0% -6.0%
Delta United
Jan- Feb- Mar- Apr- May- JunAug- Sep- Oct- Nov- Dec- Jan- Feb- Mar- Apr- May- JunAug- Sep- Oct- Nov- Dec- Jan- Feb- Mar- Apr- May- JunAug- Sep- Oct- Nov- DecJul-11 Jul-12 Jul-13 11 11 11 11 11 11 11 11 11 11 11 12 12 12 12 12 12 12 12 12 12 12 13 13 13 13 13 13 13 13 13 13 13 19.6% 13.6% 0.6% -3.0% 5.5% 3.9% 9.5% 14.8% 0.8% -6.0% -7.0% -3.6% -2.5% 2.1% 12.6% 16.3% 12.2% 7.3% -2.0% 0.7% 5.3% 7.5% 11.5% 6.5% 0.9% 6.0% 3.8% 5.1% 0.5% -2.7% -1.4% -1.0% -0.9% -0.1% 4.8% 2.5% -6.6% -8.4% -1.6% -2.0% -1.1% -2.0% -3.6% -1.9% 1.8% -4.3% -5.6% 3.5% 7.9% 13.0% 6.2% 3.4% 0.0% 3.8% 5.2% 2.0% -0.4% -0.6% 4.8% 2.5% 2.6% -3.2% -1.0% 1.2% 0.3% -2.7% -4.5% -5.0%
AA/LCC 12.3% 13.9% 13.9% 8.9% 16.8% 14.8% 22.7% 23.5% 5.7% 2.4% -4.9% 8.7% 17.2% 15.8% 13.4% 18.9% 13.0% 9.1% -4.4% -3.9% 7.2% 8.8% 17.3% 8.3% -2.1% 1.5% -0.9% -4.7% 6.7% 12.2% 12.5% 15.4% 8.4% 3.0%
Source: Company Reports
Average 12.2% 10.0% 2.6% -0.8% 6.9% 5.6% 10.4% 12.1% 1.0% -1.8% -3.4% 0.3% 3.1% 7.2% 11.3% 16.0% 10.5% 6.6% -2.1% 0.2% 5.9% 6.1% 9.5% 4.7% 1.2% 3.3% 1.8% -0.9% 2.1% 3.6% 3.8% 3.9% 1.0% -0.7%
6.0% 5.0% 4.0% 3.0% 2.0% 1.0% 0.0% -1.0% -2.0% -3.0% -4.0% -5.0% -6.0% -7.0% -8.0% -9.0% -10.0% -11.0% -12.0% -13.0%
Jan- Feb- Mar- Apr- May- JunAug- Sep- Oct- Nov- Dec- Jan- Feb- Mar- Apr- May- JunAug- Sep- Oct- Nov- Dec- Jan- Feb- Mar- Apr- May- JunAug- Sep- Oct- Nov- DecJul-11 Jul-12 Jul-13 11 11 11 11 11 12 12 12 12 13 13 13 13 13 13 13 13 11 11 11 11 11 11 12 12 12 12 12 12 12 13 13 13 19.5% 12.1% 15.7% 15.2% 2.1% -1.3% 0.1% 7.3% 1.2% -2.7% -0.6% -2.1% -4.7% -0.7% -4.1% -2.2% 4.6% 4.8% 3.7% 5.7% 3.2% -2.6% 0.6% -2.2% 0.5% -3.5% -0.8% -3.1% -5.9% -4.9% -4.6% -1.6% -0.1% 6.9% 2.8% -2.9% 3.0% 11.3% 5.5% 2.7% 6.2% 2.7% 8.5% 1.2% 1.4% 4.5% -0.6% 8.3% 6.5% 1.5% 2.9% 8.1% 0.0% 5.6% 2.2% -0.7% 4.0% 0.3% 2.8% -2.9% 6.1% -1.4% 3.4% 3.4% 0.9% -0.2% -1.7% -0.8% 0.5% -4.6% -1.5% 4.3% 3.8% 0.7% 1.9% -2.4% 6.6% 2.4% 2.9% 3.6% -0.4% 5.7% 4.7% 0.6% 3.3% 6.0% 0.1% 5.7% 7.6% 4.7% 9.6% 5.8% 5.4% 2.9% 6.7% 1.3% 7.4% 6.7% 7.4% 9.2% 4.4% 7.7%
AA/LCC 6.3% 0.7% 0.3% 2.3% 1.6% 0.0% 1.4% -5.0% -2.5% -0.8% 1.7% -0.7% 1.4% 6.4% 2.4% 1.5% 2.7% 3.7% 1.3% 4.3% 5.8% 3.1% 8.6% 4.8% 4.4% 3.8% 6.1% 2.7% 8.1% 10.7% 10.8% 11.0% 1.3% 5.5%
Source: Compay Reports
5.0% 4.0% 3.0% 2.0% 1.0% 0.0% -1.0% -2.0% -3.0% -4.0% -5.0% -6.0% -7.0% -8.0% -9.0% -10.0% -11.0% -12.0% -13.0% -14.0% -15.0%
Jan- Feb- Mar- Apr- May- JunAug- Sep- Oct- Nov- Dec- Jan- Feb- Mar- Apr- May- JunAug- Sep- Oct- Nov- Dec- Jan- Feb- Mar- Apr- May- JunAug- Sep- Oct- Nov- DecJul-11 Jul-12 Jul-13 11 11 11 11 11 11 11 11 11 12 12 12 12 12 12 12 12 12 13 13 13 13 13 13 13 13 13 11 11 12 12 13 13 -4.6% -6.4% -2.4% -3.9% 1.3% -1.9% -2.0% -2.0% 2.3% 0.7% 0.6% -3.4% -2.1% 5.7% 1.1% 1.4% -3.7% -3.3% -7.7% -4.7% -12.1 -7.5% -9.0% -7.9% -7.1% -13.3 -10.4 -8.7% -6.0% -7.3% -6.9% -3.2% -2.2% -1.6% 2.8% -1.3% -1.2% -3.1% 0.9% -0.1% -1.0% -0.1% 0.2% -2.1% -0.6% 3.8% 1.3% 9.8% 1.3% 1.0% -2.3% 1.8% 0.0% 0.0% -1.2% 24.9% 1.4% -3.6% 2.8% -1.3% 2.4% 1.4% 4.1% -1.3% 0.3% 1.9% 4.0% -13.8 4.2% 2.9% 3.3% 0.3% 5.1% 0.1% -0.6% -1.4% -0.4% -2.2% -0.8% -0.5% -2.8% 1.7% 0.9% 1.1% -1.2% 0.4% -2.2% 0.4% -4.4% 5.7% -2.0% -3.0% -0.3% -4.8% -1.5% -2.5% -0.2% -2.9% -2.0% -0.4% 1.0% -3.6%
AA/LCC 14.3% 16.3% 13.5% 7.9% 13.1% 2.4% 1.2% -2.2% -3.8% -5.1% -2.3% -2.0% -7.6% -10.2 0.3% 0.8% 2.5% 2.8% 1.1% 6.0% -0.1% -0.4% 1.7% 2.4% 3.4% 0.4% 3.5% -0.1% 1.2% -0.1% 0.7% 0.0% 1.1% 4.7%
Source: Company Reports
8.0% 7.0% 6.0% 5.0% 4.0% 3.0% 2.0% 1.0% 0.0% -1.0% -2.0% -3.0% -4.0% -5.0%
Jan- Feb- Mar- Apr- May- JunAug- Sep- Oct- Nov- Dec- Jan- Feb- Mar- Apr- May- JunAug- Sep- Oct- Nov- Dec- Jan- Feb- Mar- Apr- May- JunAug- Sep- Oct- Nov- DecJul-11 Jul-12 Jul-13 11 11 11 11 11 11 11 11 11 11 11 12 12 12 12 12 12 12 12 12 12 12 13 13 13 13 13 13 13 13 13 13 13 China Southern 16.7% 4.5% 4.2% 10.2%13.1% 8.6% 10.7% 6.0% 7.9% 9.0% 18.0%11.6%17.2%11.2%11.0%10.1% 7.3% 9.9% 10.3%12.3%12.5% 7.8% 8.5% 11.5% -1.1% 18.0%15.1% 7.1% 10.9%12.4% 8.5% 13.7% 9.3% 8.7% IAG Lufthansa Air France Qantas Singapoe Air Average 4.5% 1.4% 8.8% 24.9%14.1% 9.2% 3.5% 2.2% 4.3% 1.9% 2.1% 12.2% 1.2% 1.6% 6.2% 4.0% 6.6% 8.9% 5.1% 9.1% 5.1% 3.2% 3.6% 0.2% 0.7% -0.3% 0.1% -0.8% 7.4% 8.2% 6.6% 10.6% 8.8% 8.9% 9.1% 13.1% 0.3% 24.4% 6.9% 4.9% 8.1% 5.7% 4.6% 2.8% 3.4% 6.8% 1.3% 2.5% 4.0% 0.5% -2.8% 1.2% -2.1% -0.2% -2.4% -2.8% -3.9% -5.0% -1.1% 0.7% 4.6% -25.5 5.2% 5.4% 3.6% 7.0% 6.9% 6.0% 4.8% 4.9% 1.0% 23.1% 4.9% 2.9% 6.9% 7.6% 9.3% 5.7% 2.5% 7.5% 3.6% 6.2% 6.8% 2.8% -0.1% 4.2% 1.2% 0.6% 0.9% -2.0% 2.8% 0.0% 0.2% -0.1% 2.3% 2.3% 4.7% 2.5% 1.8% 4.9% 0.7% 2.8% 8.5% 5.1% 3.3% 10.0% 8.6% 4.8% 5.0% 4.0% -1.1% 5.3% 8.5% 9.4% 8.7% 0.8% -1.7% 1.0% 0.4% 0.1% 6.0% 1.3% -2.4% -4.9% -2.0% -0.2% -1.0% -0.6% -1.4% -2.3% 2.9% -1.0% -3.6% 7.0% 4.3% 0.1% 4.6% 3.1% 5.1% 1.1% -2.0% 2.1% 2.9% 7.2% 12.1%10.6% 7.8% 12.6% 4.1% 9.6% 8.0% 7.8% 9.3% 6.4% 3.4% 5.7% 2.9% 0.9% 1.6% 2.9% 4.4% 8.7% 1.8% 1.1% 7.8% 4.7% 2.3% 16.6% 8.7% 5.1% 6.4% 4.9% 5.9% 3.2% 4.9% 8.0% 5.8% 6.3% 8.1% 4.8% 2.8% 7.3% 3.3% 5.3% 4.0% 3.3% 3.6% 2.6% -0.1% 3.2% 3.8% -2.7% 4.8% 6.3% 4.1% 7.2% 4.2% 5.5%
5.0% 4.0% 3.0% 2.0% 1.0% 0.0% -1.0% -2.0% -3.0% -4.0% -5.0% -6.0% -7.0% -8.0% -9.0% -10.0% -11.0% -12.0% -13.0% -14.0% -15.0%
Jan- Feb- Mar- Apr- May- JunAug- Sep- Oct- Nov- Dec- Jan- Feb- Mar- Apr- May- JunAug- Sep- Oct- Nov- Dec- Jan- Feb- Mar- Apr- May- JunAug- Sep- Oct- Nov- DecJul-11 Jul-12 Jul-13 11 11 11 11 11 11 11 11 11 11 11 12 12 12 12 12 12 12 12 12 12 12 13 13 13 13 13 13 13 13 13 13 13 19.5% 12.1% 15.7% 15.2% 2.1% -1.3% 0.1% 7.3% 1.2% -2.7% -0.6% -2.1% -4.7% -0.7% -4.1% -2.2% 4.6% 4.8% 3.7% 5.7% 3.2% -2.6% 0.6% -2.2% 0.5% -3.5% -0.8% -3.1% -5.9% -4.9% -4.6% -1.6% -0.1% 6.9% -11.8 -15.7 -8.7% -5.8% -18.4 -16.9 -14.1 -16.9 -15.7 -14.9 -14.3 -8.5% -11.9 -6.6% -5.7% -12.8 -7.4% -2.3% -6.2% -2.6% -0.3% -10.3 -5.3% -10.9 -11.8 -15.7 -13.2 -9.0% -8.3% -10.2 -18.0 -16.5 -16.2 -4.3% 2.4% -2.1% 1.6% 3.9% -7.6% -8.7% -6.5% -6.3% -6.6% -9.9% -8.1% -5.3% -6.0% -2.0% -2.1% -5.3% -1.6% 1.2% -2.5% 1.1% -1.8% -6.8% -1.3% -3.1% -6.9% -9.8% -6.2% -5.1% -3.3% -2.4% -5.6% -4.2% -2.9% 7.1%
AA/LCC -0.4% -2.7% -2.1% 2.2% -6.6% -7.8% -5.6% -9.2% -5.2% -12.0 -9.4% -5.2% -1.5% 1.4% 3.6% -1.0% -2.0% 1.1% -4.9% 0.3% -8.3% -7.6% 0.8% 3.7% -9.3% -10.2 -4.6% -3.2% 4.1% 8.0% 5.7% 5.7% 7.5% 18.6%
Source: Company Reports
UPDATED READS FOR UPS AND FDX Excerpts from the notes issued by Fellow CRC analysts, Mark Davis & Bryan Merolla United Parcel (UPS) Domestic small package volume growth looks sluggish but still up y/y due to B2C growth; B2B stagnant. The UPS B2C shipments continued to be the primary source of volume upside as consumer shop online and take advantage of ground services in order to minimize shipping expenses. Industry commentary indicates B2B shipment volumes and weight per package have not materially improved despite inventories remaining lean. As a result, deployed capacity within UPS domestic air network (~18% of total revenue) looks to be down approximately 1% year-over-year as the company reduces flight activity to match market demand. Demand for UPS Ground and Basic/SurePost remains solid due to online sales as consumers seek out the cheapest prices via the Internet, avoid traveling to stores to save on gas, and look to avoid paying tax on purchases. We continue to hear that UPS is moving more volume on the ground but is doing so with fewer routes and drivers in an effort to reduce overhead. UPS International volumes look slightly up y/y; we see limited upside from new product launches and peak shipping season. Through September (and for all of 3Q13), deployed capacity within UPS international air network was down year-over-year (approximately 2.5%) despite the launch of some high tech products (iPhone) and the beginning of the peak shipping season. Industry commentary indicates UPS continues to leverage its freight forwarding division to try and fill excess space on company aircraft with heavy freight in key trade lanes (especially out of Asia) and has been aggressively pricing heavy freight products to attract volume. We believe capacity reductions and better utilization on remaining aircraft will help international operating margins during 3Q13.
CRC UPS International Export Volume Estimates vs. UPS Reported Export Volumes
25% 20% 15% 10% 5% 0% -5% -10%
Federal Express (FDX) Our channel work for the Domestic Express Segment represents a negative leading indicator for the LT freighter market. Through September, demand for FDX Express services looked flat as shippers continued to trade down from air to ground services and FDX sales reps encouraged shippers to switch modes. We also continue to hear about FDX quietly taking steps to re-orient their domestic express network by replacing mainline aircraft with feeder aircraft serving hub airports and substituting part-time workers for full-time workers to reduce expenses. As an offset to declining Express volumes, demand for Ground and SmartPost remains robust due to B2C shipments while B2B demand remains lackluster from both a volume and package weight standpoint (coming from a separate report from fellow analyst Mark Davis).
CRC U.S. Express Overnight Package Volume Estimates vs. FDX Reported Express Overnight Package Volumes
8% 6% 4% 2% 0% -2% -4% -6% -8% -10%
****US Airways & American has finalized an agreement with the DOJ to complete the merger. The settlement is expected to have positive implications for discount airliners which are likely to fill the newly open slots at key airports like LaGuardia and Regan. The company will not become the largest domestic carrier, flying 15% of the existing fleet (10% for American and 5% for US Airways). Delta (DAL) is trying to win slots @ Dallas Love Airport. The IATA cut its 2013 airline profit forecast by 8%. The airline associated now projects total profit @ $11.7 billion (versus $7.4 billion in 2012). The drivers behind these NT cuts included slower growth for regions in China and a pullback in freight demand. The current 2014 earnings outlook is holding @ $16.4 billion. *The Dubai Air Show was a huge success for the airplane markers. There were $200 billion in new commercial aircraft orders taken over the past week, which underscores the changing demand environment for the Middle East. The momentum helped BA launch its new 777X aircraft model (with 200 orders on the tape). Airbus also reported 50 orders for its A380, which has been a laggard. Equity Trades & EPS Movement We are seeing mixed signals from the global airliner peer group. In general, current and out-year (2014) earnings forecasts have been cut by 7% and 5%, respectively (driven by weakness in non-US airline operators). However, there has been positive trading activity over the past 30 days, with the peer group trading in-line with the S&P 500. The group has been supported by the resolution of the AA/LCC merger (JBLU is seen as the big winner) and the recent positive take-aways from the United Airlines (UAL) investor day. o The global shares are up 2% over the past month and +59% over the past three months. The domestic operators have increased by 9% over the past three months lead by UAL (+22%) and JBLU (+22%). The group is also up 103% over the past three months. o Qantas Airways (QAN AU) continues to be the market laggard, with the shares down 21% over the past month lead by a 50-60% cut in current year earnings.
Commercial Airlines Peer Group - Recent Stock Movement
1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 Company Jet Blue United Airlines Alaska Airlines Southwest Airlines Delta Airlines U.S. Airways Air China China Southern Spirit Airlines Easy Jet Lufthansa S&P 500 Allegiant Singapore Airlines Air France Japan Airlines Republic Airlines Ryan Air Qantas Airways Ticker JBLU UAL ALK LUV DAL LCC 753-HK 1055-HKG SAVE EZJ-GB LHA-ETR SP50 ALGT C6L-SES AF-PAR 9201-TKS RJET RY4B-DUB QAN-AU Price Mkt Cap ($000) 30 Day Chg. 3 Month Chg. Earnings Changes Description Discount Airline Operator U.S. Airline Operator U.S. Airline Operator U.S. Airline Operator U.S. Airline Operator U.S. Airline Operator Chinese-Based Airliner Chinese-Based Airliner U.S. Airline Operator U.K.- Based Airliner German-Based Airliner Index Discount Airline Operator Thailand-Based Airliner French-Based Airliner Japan-Based Airliner Discount Airline Operator U.K.- Based Airliner Australia-Based Airliner Current 5% -12% 0% 7% -1% 16% -13% -21% 8% 2% -15% 0% -1% -17% 1% -25% -15% -52% -8% -1% Out Year -1% -10% 2% 4% -4% -8% -6% -14% 8% 3% -9% 0% 5% -16% 1% 0% -16% -29% -5% -2%
$8.60 $36.72 $75.74 $18.12 $28.06 $23.68 $5.21 $2.81 $44.50 $12.65 $15.19 $1,793 $105.94 $10.33 $7.11 $5,510 $10.20 $5.53 $1.19
2,428 13,288 5,267 12,625 24,007 4,664 68,172 27,587 3,232 5,009 7,004 1,968 12,154 2,104 n/a 503 7,815 2,679
11,794
22% 22% 15% 15% 13% 13% 10% 7% 5% 4% 4% 3% 1% -2% -4% -11% -12% -13% -21%
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75% 87% 82% 100% 188% 92% 18% -3% 168% 110% 38% 29% 45% -3% 17% 20% 90% 30% -20%
61% 103%
7,553
The jet fuel price momentum has turned negative. Potential tailwind for the airline margins: The average price for jet fuel (we watch Gulf Coast Kerosene-Type) has traded down slightly from the average August price of $3.00 (and 2013 peak of $3.22). The
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We are not seeing much of a change in the key commodity markets. The positive has been the solid floor that has been established through 2H13. However, there is unlikely to be a major change to the upside until there is more global macro confidence or better demand pull. o The current nickel price is holding @ $6.20 per pound range, which reflects 7-8 months of stability. The market hit a bottom in July-2013 @ $5.90 per pound. o Aluminum is holding at $0.81 per pound, which is down 1.6% versus the October average. Prices have been holding in the low-$80 per pound range for the past 6-7 months (now down 8% versus last year). The MW premiums have started to correct from the mid-2013 highs, now @ $0.10 per pound. This is a better indication of real demand. o Ferro-Molybdenum prices (Europe) are trading near $11.09 per pound, which is up from the average October LME transaction of $10.87 (+2.0%).
Monthly Commodity Nickel Prices
$25.00 $24.00 $23.00 $22.00 $21.00 $20.00 $19.00 $18.00 $17.00 $16.00 $15.00
Ferro-Molybdenum Prices
Monthly, 1997-Present
$45.00
$40.00
$35.00
$30.00
per pound
$13.00 $12.00 $11.00 $10.00 $9.00 $8.00 $7.00 $6.00 $5.00 $4.00 $3.00 $2.00 $1.00 $0.00 Jan-02 Jan-03 Jan-04 Jan-05 Jan-06 Jan-07 Jan-08 Jan-09 Jan-10 Jan-11 Jan-12 Jan-13 Jan-14
per pound
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Source: metalprices.com
$3,250
$0.110 $0.100 $0.090 $0.080 $0.070 $0.060 $0.050 $0.040 $0.030 $0.020 $0.010 $0.000
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Source: Metalprices.com
Inventory
Price
Source: metalprices.com
TITANIUM MARKET UPDATE We are picking up a 5th consecutive quarter of muted order growth within the titanium markets, with 4Q showing a modest contraction versus 3Q. At this time, there does not seem to be any major drivers of mill or fabrication demand, which could limit the shipment levels for the producers over the next 1-3 quarters. We estimate the current demand comp to be +0-1%, which compares to the 3Q rate of +1-2% (and the 12-month moving average of +1.5%). The channel continues to see underperformance, with a net 20% of the contact base seeing orders miss versus plan. Ultimately, the relative demand weakness seems to be broad-based but the industrial markets have trended down quarter-to-quarter. We did not pick up any major changes to the end-market landscape. In general, the aerospace drivers seem to be holding @ muted levels (+1-2%), led by slightly better momentum for the downstream fasteners market (should represent a slightly better read for CRS). The market that represent the demand headwinds are desalination (down 1-2%), chemical processing (down 1-2%), nuclear (down 1-2%), and power generation (down 0-1%).
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-0.4%
1Q10 2Q10 3Q10 4Q10 1Q11 2Q11 3Q11 4Q11 1Q12 2Q12 3Q12 4Q12 1Q13 2Q13 3Q13 4Q13 1Q14 2Q14 3Q14 4Q14
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The upside for overall aerospace demand will be capped until the Boeing (BA) channel is holding balanced inventories. For review, there was a fairly large over-purchase of titanium ingot (and other products) during a 3-4 year period. We previously estimated this had created an inventory glut of 20-30 million pounds in 2010/2011 that has since been cut by roughly 40-50%. This has been particularly difficult for the ATI/BA LT supply agreement to drive HPM revenue growth considering BA is still only accepting the minimal volume requirements, which is roughly 6-7 mm lbs below projected normal contract demand for ingots (based on current delivery schedules). !
Source: metalprices.com
6'4 BW Scrap
The average 4Q price point for nickel-alloys is down roughly $0.50 per pound, but a greater number of contacts believe the market has found a bottom (following 6 quarters of incremental declines). This could be attributed to the changing direction of the commodity markets (and surcharge sentiment) which seem to be holding in the low-$6.00 per pound range.
CRC Quarterly Nickel-Based Alloy Price Update
Est. Quarterly Pricing Band
$23 $22 $21 $20 $19 $18 $17 $16 $15 $14 $13 $12 $11 $10 $9 $8 $7 $6 2Q09 3Q09 4Q09 1Q10 2Q10 3Q10 4Q10 1Q11 2Q11 3Q11 4Q11 1Q12 2Q12 3Q12 4Q12 1Q13 2Q13 3Q13 4Q13
Military Aircraft Demand @ down 5-10% Carpenter Technologies (CRS) Precision Castparts (PCP) Alcoa (AA) LISI (FII) Wesco Aircraft (WAIR) B/E Aerospace (BEAV)
3) There is some optimism building for the regional market. The channel is starting to see better activity for the smaller aircraft market, which includes better order momentum for Bombardier and Gulf Stream over the past 3-4 months. While the comps are very easy, multi-year planning also seems to be moving higher based on the new positive outlook for the new jet designs, like the Bombardier C-Series (technically competes with BA737) or G650 business jet. 4) 2014 expectations are holding. The downstream growth outlook is holding in the +10-15% range, which is consistent with our 3Q update. The major drivers of demand will be the increased 787 & 737 delivery schedules, early pull from the A350 program, and the regional jet market. This is expected to offset the weakness in military aircraft, which is looking down another 5% for 2014. The inventory position could represent an incremental catalyst for the products, with some distributors expected to build holding next year. This implies volume growth for the PCP and AA segment could be up 15-25% next year. Our revised aircraft commercial jet delivery outlook for 2014 is +15%, which includes +20-22% for Boeing, +3-4% for Airbus, and +4-5% for regional aircraft. 5) Lead times have moved out by 2-3 weeks since August but pricing power has not increased. We calculate the average lead time @ 30-32 weeks, which compares to 25-30 weeks @ summer end. The backlogs have improved considerably from
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UNDERPERFORM, $15
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UNDERPERFORM 1%
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Disclosures Buy: The stocks return is expected to exceed the market due to superior fundamentals and positive catalysts. Underperform: The stocks total return is expected to underperform the market due to weak fundamentals and a lack of catalysts. Neutral: The stock is expected to be in line with the market due to full valuation and/or a lack of catalysts. Valuation and Risk: Price targets are established under various valuation methods including P/E, P/S, EV/EBITDA on financial estimates based on forward earnings. Price targets are not established for every stock. The price targets effectiveness may be affected by various outside factors. Risk assessments can be found in the most recent research on these stocks. Other Disclosures: We, Christopher D. Olin, Kevin L. Money and Curt Siegmeyer certify that the views expressed in the research report(s) accurately reflect our personal views about the subject security(s). Further we certify that no part of our compensation was, is, or will be directly or indirectly related to the specific recommendations or views contained in the research report(s). The analysts responsible for the preparation of this report have no ownership stake in this company. Cleveland Research Company provides no investment banking services of any type on this or any company. The information transmitted is intended only for the person or entity to which it is addressed. Any review, retransmission, dissemination or other use of, or taking of any action in reliance upon, this information by persons or entities other than the intended recipient is prohibited. If you received this in error, please contact the sender and delete the material from any computer.! Member FINRA/SIPC