Are These Companies Poised to Meet Expected Aerospace Demand?

With Boeing expecting air traffic to double in the next two decades, the airline industry potentially represents a heap of profits. But knowing which company is set to benefit the most is difficult. After all, there is a lot of time between now and when the majority of those aircraft are paid for and in the sky.

Fortunately, several key indicators are already available that will help investors make an informed decision about which company will realize the most profits. It is important to note that it isn't just major airplane manufacturers that investors should consider, as several auxiliary firms could also be in for the ride. 

Inventory could be a sign of things to come
Boeing has increased inventory by 123% over the last three years. That's a good sign the company is gearing up for what could be busy years ahead. In the airline business, it is important to anticipate expected surges in demand, due to the length it takes to manufacture aircraft. Now that airlines are beginning to experience increased travel demand, by an expected 6% this year and 6.4% next year, Boeing is likely going to continue building inventory.

The expected surge will also provide airlines with the capital to purchase more aircraft in the years ahead, which utilizes Boeing's built-up inventory. In fact, WestJet announced on Aug. 29 the purchase of 65 MAX aircraft from Boeing.  

Parker Hannifin doesn't look ready to meet demand
As a manufacturer of the control and motion technologies, and systems involved in building aircraft, Parker Hannifin , might appear poised for profits. The firm has managed to regain double-digit operating margins from high demand in the firm's aerospace segment.

However, Parker could be ill-prepared to take on a surge in future demand. Inventories have fallen in each of the last three quarters, from $1.51 billion to $1.47 billion to $1.37 billion. While that is a great sign for short-term investors (the demand for products is on the rise), it shouldn't give long-term investors much confidence. After all, during the same period, revenue increased by 12%. Increased sales compared to lower inventory indicates the company might not be able to keep up with demand in future years. In addition to the quarterly inventory fall, annual inventory has also fallen off in each of the last three years ($1.41 billion to $1.40 billion to $1.37 billion). 

This could make shareholders cautious enough to rule the company out. However, investors might be able to forgive the rapidly decreasing inventory, due to the firm being "caught off-guard" by increased sales of its aerospace segment, according to Morningstar. This means the company could be able to increase its inventory now that it knows about the demand in its aerospace segment.

Honeywell looks ready for a boom
As a diversified aerospace technology and manufacturing firm valued at $62.4 billion, Honeywell could be ready to take on a surge in the demand for its security, controls, and sensing products. Honeywell has raised inventory slightly in the last couple quarters, going from $4.2 billion in the fourth quarter of 2012 to $4.3 billion in the second quarter of 2013. This represents a 1.4% increase, while sales went up by 1.1% during the same period. This shows that the firm is able to handle the current volume of sales while also managing to increase its inventory in anticipation of a climb in demand. 

Expect the company to continue to pour money into building inventory, and spend less on acquisitions. The firm has traditionally focused its cash flow on expanding its business, (and this is a sign the company is in good health). Honeywell can now use the cash that it typically has on hand at the end of each quarter, to focus on inventory. Cash flow at the firm has traditionally been in the billions. At the end of last year, it was $3.5 billion, and $2.8 billion the year before.

Inventory is the common denominator
The inventory of companies in growing industries should play an important role in deciding which stocks to buy. Both Boeing and Honeywell look prepared for what's to come in aerospace, but Parker Hannifin appears caught off guard with the attention its aerospace segment has received. While I consider the other two companies buys, Parker Hannifin will need to prove it is able to increase inventories to meet aerospace demand before I consider picking up shares of this stock.

With the American markets reaching new highs, investors and pundits alike are skeptical about future growth. They shouldn't be. Many global regions are still stuck in neutral, and their resurgence could result in windfall profits for select companies. A recent Motley Fool report, "3 Strong Buys for a Global Economic Recovery," outlines three companies that could take off when the global economy gains steam. Click here to read the full report!

The article Are These Companies Poised to Meet Expected Aerospace Demand? originally appeared on

Phillip Woolgar has no position in any stocks mentioned. The Motley Fool has no position in any of the stocks mentioned. Try any of our Foolish newsletter services free for 30 days. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy.

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The 737 was design in 1966 that base on the 707 in 1958, that has been updated with turbo fan engines, glass cockpit and winglets
The 737Max still has 17.2 wide seat, manual cargo loading systems no composite parts to save weight, the 737 max will need a redesign tail under body fairing, reinforce wing, new engine ploy and engines nacelle , longer landing gears, and reinforce aircraft undercarriage, all these improvement will add weight and the Renton airport only has 1000 feet long runway

Airbus is two years ahead of Boeing with the A350 and A320NEO

The 787 was start on 3-28-2003 and only 83 aircraft has been delivery the program is is over 3.5 years late

The 747-8 only has 111 orders 52 delivery, 2.04 Billions over budgets and two years late

Many airlines are not replacing there exist Boeing aircraft, since Boeing CEO James McNerney, and GE CEO Jeff" Immelt are member of the board on the Import-Export Bank that made better loan to foreign airlines at a lower interest bank

Delta, and other Airline Group have file law suits against The U.S. Export-Import Bank over Air India Loan Guarantees

This may be the reason that airlines are ordering from Airbus
Delta has already has orders with Boeing for 18 787s and Delta confirms plan to buy 100 Boeing 737s
Delta Air Lines said on Wednesday that it will buy 40 more Airbus planes

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its is time to give Boeing CEO his golden parachute retirement and the stock holder should loan the CEO a C-17 over one of the World's Active Volcanoes

September 10 2013 at 6:50 PM Report abuse rate up rate down Reply

What Boeing does next will determine Boeing Future.
Boeing may miss the boat if Boeing waits to offer the 737 MAX in 2017 (777-X in 2019 and the 787-10 TBD)
Boeing is laying off its workforce and has sold off its Manufacturing Capabilities to other aircraft companies

40% of Boeing workforce will be retiring over the next five years

Boeing has yet to modernize its factories with automation to meet the world need of 35,000 new aircraft over the next twenty years

Boeing The Current Market Outlook see

Airbus Global Market Forecast 2012-2031 see

Average Fleet Age for Selected Airlines see
Asia and Japan economy has been Recession and in 1997 Boeing not build the double-decker 747-500 and -600

Bombardier C-Series and Airbus is two years ahead of Boeing

The Boeing product line is out dated the 747 was design in 1961, 737 in 1966, 757 & 767 in 1972, 777 in 1989, 737NG in 1997, 787 in 2003

Boeing has yet to build the Yellowstone aircrafts

Boeing has the 747-8, 777, 787, and 767 all in the market and the airlines rarely used these aircrafts on domestic route

Boeing is not the only aircraft assembler in the world , Airbus A320, Bombardier CSeries, Comac C919, Irkut MS-21 and Embraer

The irony about the A320, A330, A340, A350, A380 and the Kc-30 they are in production with parts being built in factories once own by Boeing

The 777-X, 787-10 and 737Max are not

Where is the market for the 777-X which as offer twice before alone with the 777-100 & combi in 1995 at the Pair air shown

Boeing slows the pace on 777X see

How many airlines will need a 777-X that can fly non-stop for 9,000 mile and carries 400 passengers?

Air India and Jet Air is leasing out there 777
Air India has decided to sell five out of its eight Boeing 777-200LR aircraft owing to changes in market dynamics due to the Global recession, steep increase in fuel prices and poor yields on non-stop routes,

Boeing has 1,537 firm orders for the max vs 2,455 for the A320neo

Boeing still must design and test all the 737 max parts and build flight test parts and flight test wing and build flight test 737max -7, 737max -8 and 737max -9 and there a FAA 18 month to 24 months flight test programs

The 737 was design in 1966 that base on the 707 in 1958, that has been updated with turbo fan engines, glass cockpit and winglets
The 737Max still has 17.2 wide seat, manual cargo loading systems no composite parts to save weight, the 737 max will need a redesign tail under body fairing, reinforce wing, new engine ploy and engines nacelle , longer landing gears, and reinfo

September 10 2013 at 6:48 PM Report abuse rate up rate down Reply