Short-Sellers Betting Against Boeing Stock Now Will Kick Themselves Later
A new lightweight material invented by The Boeing Company (NYSE:BA) could dramatically alter the aerospace industry and it has the potential to send Boeing stock soaring.
Researchers at Boeing have developed what they claim to be the world’s lightest metallic alloy. It is called “microlattice” and weighs one hundred times less than polystyrene foam, thanks to its 99% air composition. This material can be placed on a dandelion without crushing it, according to a video from the manufacturer. (Source: “Watch: Boeing On How They Developed The World’s Lightest Material,” Fast Company Connection web site, October 12, 2015.)
“We were able to make the world’s lightest material. The entire structure was basically 99.99% air,” said Sophia Yang, a scientist at HRL Laboratories, which helped create the metal that has thinner walls than a strand of human hair.
The new alloy’s composition involves a blend of empty nickel tubes with a solid exterior and hollow interior, resembling a bone’s structure. This makes the material strong and lightweight, with a capacity to absorb shock and vibration.
Boeing researchers have compared the principle to the experience of dropping an egg from the height of several stories without causing it to break. For such an experiment to succeed, the testers surround the egg with several layers of bubble wrap. In the case of the microlattice, it too will absorb the force of the impact from the fall and leave it intact.
This Could Be a Huge Catalyst for Boeing Stock
The advantage of such a material for a company like Boeing is that it allows for significant weight reduction of its airplanes over competitors’ planes. The alloy can replace the materials currently used in the structural sections, reducing overall weight and allowing for higher performance and lower fuel consumption. The areas in question range from the fuselage walls to the luggage storage areas and the floor in the cabin.
As the main developer of the new alloy, Boeing can also benefit by supplying the material to other industries where weight matters. The automotive industry, for example, can use the microlattice in structural components such as pillars and suspension, lowering fuel consumption and improving overall efficiency and performance relative to power output, regardless of whether the power comes from electricity or fossil fuels.
Meanwhile, Boeing’s business is soaring and Boeing stock should follow suit. The aircraft manufacturer recently secured a historic order for 300 planes from Chinese airlines for a total of $38.0 billion, a new record in the civilian aviation sector. The company said it would also open its first plant in the country, posing a strong challenge to Airbus Group SE (EPA/AIR) in the lucrative Chinese market.
The Chinese order was made in occasion of President Xi Jinping’s official trip to the United States, where he also visited Boeing’s main facility in Everett, near Seattle. By comparison, Jinping visited Airbus headquarters in Toulouse last July, ordering 75 A330 aircrafts (45 firm) for $18.0 billion, less than half the amount of the Boeing contract. (Source: “Why Is A China Plant Important For Boeing?” Forbes, September 25, 2015.)
Boeing concluded this contract with the central buying China Aviation Supplies Holding Company (CCAC) on behalf of Chinese airlines (Air China, China Southern Airlines, and China Eastern Airline), and aircraft lessors ICBC Financial and CDB Leasing.
Boeing Stock Could Double If It Can Win the Chinese Market
China is an important international market for airliners and it is Boeing’s largest international market, accounting for one out of every four of the company’s aircrafts delivered since the beginning of the year. Nevertheless, over the past few years, Boeing was losing market altitude to its rival Airbus in the key Chinese market, especially as the European aerospace company has maintained a plant in Tianjin (northeast) since 2015 for the assembly of the A320, a 737 competitor.
The European group is preparing to add a finishing center for the larger A330 aircraft. This is because China will account for almost 17% of airliners sold worldwide by 2034, according to Boeing. Despite the net economic slowdown in the country, the rise of the Chinese middle class should help boost the number of passengers while the regional routes are increasing, according to experts, making the China the most important market for airliners over the next few years at least.
Now Boeing has confirmed that it would open its first factory in China, through a joint venture with local rival Comac to address the growing demand and announced production increases. The factory will be responsible for finishing work (interior design, painting, and delivery) of the Boeing 737 family of aircrafts ordered by Chinese customers.
Boeing has not revealed the location of its new industrial site or the date of delivery of the first aircraft, but the Xinhua news agency says it might be in Zhoushan in Zhejiang Province. (Source: “Boeing factory plans submitted to Beijing: report,” Taipei Times, September 23, 2015.) The group also said there would be no outsourcing of American jobs, hoping to allay fears of trade unions.
The bottom line? Boeing stockholders should be excited by the company’s new lightweight material. It could be just what it needs to win the Chinese market, which, needless to say, would be a huge catalyst for Boeing stock. If you’re betting against BA stock now, you might be kicking yourself later.