Boeing Co., the Chicago-based aerospace and defense corporation, announced on Friday that it plans to increase production of its 777 and 747 aircraft amidst strengthening demand from the airline industry. “We see 2010 as the year of overall economic recovery within the industry and 2011 a year where airlines return to profitability,” said Randy Tinseth, Boeing’s vice president of marketing. “As a result, we anticipate an increase in demand for airplanes in 2012 and beyond.”
Boeing had been planning to ramp up production of its 777 jet from five per month to seven per month in early 2012. That move will now happen about six months earlier, in mid 2011. The planned production hike of the 747–from 1.5 jets per month to two per month–will now occur in mid-2012 instead of mid-2013. “Market improvement and our conservatively managed approach to production have put us in a position where we see it necessary to raise aircraft output,” the company said. “Increasing our rate is the right thing to do to support our customers.”
Boeing’s announcement comes less than two weeks after rival Airbus announced that it is planning to increase production of its A320 plane from 34 aircraft per month to 36 starting in December, giving investors confidence in a sector that a recovery in the airline industry is underway.
Aerospace & Defense ETFs On The Move
Boeing’s assessment of the aircraft industry sent aerospace and defense ETFs higher on Friday, one of the few bright spots on an otherwise grim day on Wall Street. The iShares Dow Jones U.S. Aerospace & Defense Index Fund (ITA) added about 1% in morning trading, while the PowerShares Aerospace & Defense Portfolio (PPA) added about 0.30%.
ITA is linked to the Dow Jones U.S. Select Aerospace & Defense Index, a benchmark that measures the performance of manufacturers, assemblers, and distributors or aircraft and parts, as well as defense providers. Boeing is ITA’s largest individual holding, accounting for about 8.2% of holdings. Among the other 31 components are United Technologies (8.1%), Lockheed Martin (6.1%), and Northrop Grumman (5.6%).
PPA is linked to the SPADE Defense Index, a benchmark tracking the performance of companies involved in development, manufacturing, operations, and support of defense, homeland security, and aerospace operations. Boeing is also the largest component of PPA, accounting for about 8% of total assets. While there is significant overlap between the holdings of PPA and ITA, these funds have a number of differences. PPA currently has about 57 holdings, compared to 32 for ITA (see Aerospace & Defense ETFs Head-to-Head: ITA vs. PPA).
Aerospace and defense ETFs have surged over the last year, boosted by a combination of continued strong demand for defense products and more recently an improved outlook for the airline industry–a sector that appeared to be on the ropes several times over the last two years. The Claymore/NYSE Arca Airline ETF (FAA) is up more than 100% over the last 52 weeks. FAA tracks the NYSE Arca Global Airline Index, a benchmark consisting of global passenger airline companies that make up the customer bases of Boeing and Airbus.
Disclosure: No positions at time of writing.