Berkshire Hathaway (BRK.A : NYSE : US$123,897.57)
General Motors (GM : NYSE : US$20.31
Bombardier* (BBD.B : TSX : $4.04)
“She may not look like much, but she’s got it where it counts, kid.” – Star Wars –Han Solo to Luke Skywalker (on first seeing the
Many aircraft manufacturers have used the Farnborough International Air Show (FIA), which will take place July 9-15, as a key venue to announce major orders. In the past, based on a decade or more of trading data both before and after the air show, some investors have purchased BBD shares in late June or early July before the run-up to the show and then sold the shares during the show.
BBD shares have tended to peak on approximately the second or third day of the show, as major aircraft orders typically have been announced by then, or investors have become increasingly concerned that large orders will fail to materialize. BBD shares have typically traded higher on average 9.1% in 10 of the last 15 years during the week before the air show and sold off every year following the show on average 8.1%. However, the average net change from five days before to five days after the show since 1997 is less than 0.5%, making no apparent long-term impact on the share price.
BBD held its Pre-Farnborough airshow briefing in late June, the company expects total business jet deliveries in 2012 to be roughly flat YoY with return to sustained growth in 2013. On commercial aircraft, there was a slight change versus prior year forecast and no change to CSeries total aircraft market of 6,900 (BBD expects a 50% market share). Europe is challenging, but emerging markets are still promising, and North America prospects have improved. Could Farnborough be a letdown?
How do you top the biggest business jet order in your history? Recently, NetJets, a private jet-sharing company owned by Warren Buffett‘s Berkshire Hathaway (BRK.A) , said it would buy up to 425 new business jets from Bombardier and from U.S. planemaker Cessna Aircraft in a $9.6 billion deal to renew its North American and European fleets. BBD’s portion of the order is worth up to $7.3 billion and includes up to 275 of the company’s Challenger business aircraft (the transaction comprises 100 firm orders on two different types of Challenger jets, and options for 175 more).
BBD also signed a long-term service agreement with NetJets that could be worth an extra $2.3 billion if all of NetJets’ options on Bombardier aircraft are fully exercised. Farnborough holds its air show on even-numbered years in July, while Paris holds its airshow on odd-numbered years in June. Both Farnborough and Paris are important events for the aerospace industry, known particularly for the announcement of new developments and orders.
General Motors Stake
Warren Buffett’s Berkshire Hathaway acquired its largest stake in General Motors before the automaker plummeted Friday, as the billionaire chairman hands more responsibility to deputy stock pickers.
Berkshire accumulated about 8.47 million shares of GM through February 3 at an average price of $24.35, according to data compiled by Bloomberg. Omaha, Nebraska-based Berkshire’s full stake was reported in a separate regulatory filing in May that didn’t disclose the purchase price or date. Berkshire bought another 1.53 million GM shares through February 14 for an average of $25.46 each, the insurance filings showed.
Taken together, the holdings had lost an estimated $40 million in value from the drop in the stock, assuming no shares were sold. An analyst believes GM’s slump may provide Berkshire with another opportunity to buy shares in a company that could benefit as U.S. consumers replace aging cars. As Buffett tends to focus on the long-term development of the companies he invests in, analysts speculate that one quarter’s results would not be a cause of worry for him.
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