On the surface, Boeing (NYSE:BA) It seems like it has all the ingredients for a potential millionaire investment. The aircraft market is growing, competition is minimal and government contracts are plentiful. But despite its many advantages, this aerospace leader has lost 60% of its value in half a decade. Has this decline created a buying opportunity for this once great company, or should it be seen as a warning to investors to stay far away?
The phrase “economic moat” — popularized by investing legend Warren Buffett — refers to certain types of sustainable competitive advantages that a company may possess that makes it is difficult for potential rivals to intervene against this. Boeing’s ditch is as deep as it gets. In the market for large passenger aircraft, it competes in a duopoly with its European competitor Airbuswith a market share of around 40% for large passenger aircraft (compared to Airbus’s 60%). It also plays a notable role in US defense contracts, supplying weapons systems such as the iconic Apache helicopter.
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Investors should not expect the duopoly to end anytime soon. The industry for the production of large passenger aircraft is at an incredibly high level entry barrier due to the capital investments requiredd, intense regulatory scrutiny and the business relationships between manufacturers and major airlines that may be unwilling to experiment with new suppliers.
About the terribly In the long run, a Chinese rival like COMAC could benefit from lower labor costs and support from Beijing government to force its way into the industry. But the International Bureau of Aviation (IBA) expects the newcomer to capture only about 1% of the opportunities by 2030. Now that the industry will be disrupted, Boeing’s company largest threat could be itself.
In the third quarter, Boeing’s revenue fell about 1% year-over-year to $17.8 billion, with results dragged down by the commercial aircraft segment, where sales fell 5% to $7.44 billion. This core activity was a problem a large number problems, including a seven-week strike by the International Association of Machinists and Aerospace Workers (IAM) that ended this month.
The new contract provides for a 38% wage increase for employees over the next four yearstogether with more generous pension benefits, further increasing the pressure on this loss-making company. For context, Boeing’s commercial aircraft segment generated a third quarter operational loss of $4 billion, so higher labor costs are probably the last thing shareholders want to see right now.
