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Strategies & Market Trends : Asia Forum -- Ignore unavailable to you. Want to Upgrade?

To: Liatris Spicata who wrote (8022)	2/17/1999 9:48:00 AM
From: Paul Berliner	Read Replies (1) \| Respond to of 9980

Larry, OT - the problem is see with BA is not that orders aren't coming in at a brisk pace - they are, and backlog is good. But there is a trend in the airline industry increasingly favoring 'short haul' flights. These flights are high-margin and very much in demand - notice how big boys like AMR, Delta and UAL have acquired regional upstarts in order to gain a foothold in this rapidly developing niche. On the other hand, international travel has somewhat stagnated, and margins cannot be improved. Decreased travel to Asia Pacific has also plagued airlines like Northwest and Cathay Pacific, not to mention the hapless Philippine Air (PAL)! What this all means for BA is decreased orders for 747s, the giant of the skies, and increased orders for 737s, which is a mid-sized craft. In fact, BA has a big backlog for 737s, and they will churn out more planes this year than every before. However, the 737 is a lower-margin product than the 747. BA has guided the analysts to believe that an increase in sales of 737s will offset a decrease in sales of 747s, but the bottom line will not benefit. In addition, BA's management has trumpeted the fact that they have finally tackled the production bottlenecks that plagued the company for the last 2 years - but because they have cried wolf before, I'll only believe them when I see 2 straight quarters of improving results. When BA blew up in November, I speculated that BE Aerospace, a manufacturer of airplane furnishings and seats, would be downgraded amid the decreased orders for the higher-margin 747, which would obviously translate into a decrease in the amount of furnishings that BEAV would sell BA. The trade looked beautiful, as 10 analysts had buys or strong buys out on BEAV when BA blew up, leaving plenty of room for downgrades and estimate cuts. I chickened out too early in the trade though, and missed the major part of the downside move. BEAV went from 23 to 16 in about 1 week but I barely made a profit - the NASDAQ was rising so angrily that I bailed in panic as soon as the first downgrade came.