But according to data from Bloomberg (see chart below), the prevailing opinion that airlines invest the money saved from cheaper fuel on fleet expansion isn’t necessarily true. Historically such periods have seen airlines defer fleet replacement plans, suggesting the rock bottom valuation of brent crude may actually be a negative for aerospace stocks.
That adds to a host of other risks for the sector in 2016. Haitong analyst Ed Stacey pointed out that the transition from legacy platforms to new ones continues to spark sector-wide earnings downgrades. He also reckons ongoing weakness in emerging market currencies is undermining the ability of some major airline customers to fulfil plans to expand fleets.
The brokerage firm is currently neutral on Rolls-Royce (RR.) and Safran (FR:SAF), bearish on Airbus and MTU Aero Engines (DE:MTX) and bullish about Meggitt’s (MGGT) prospects.
Source: Bloomberg / Haitong Research
