With The Boeing Company (NYSE:BA) 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
The Boeing Company (NYSE:BA) 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, The Boeing Company (NYSE:BA) 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 The Boeing Company (NYSE:BA).
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 Corporation (NYSE:PH), 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-Hannifin Corporation (NYSE:PH) 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.