United Is Bullish on Flying

United Airlines made a splash at an investor day today, announcing a huge bet on a rebound in air travel in the coming years. The company said that it had ordered 270 new planes, with combined list prices of some $27 billion.

That's the biggest order the airline industry has seen in a decade, and represents about a third of United's current fleet. The Chicago-based airline has also recently made orders for futuristic battery-powered airplane/helicopter hybrids and supersonic passenger airliners that both remain in early development.

In the much nearer term, United also said today that it expected to be profitable next month for the first time since January 2020, before Covid-19 caused global air traffic to grind to a halt.

"United lost roughly $7 billion in 2020 after earning $3 billion in 2019," wrote Barron's Al Root today. "For 2021, Wall Street projects a $3.4 billion loss before full-year profits return in 2022."

United stock barely budged today, however, closing down 0.7%. Delta Air Lines and Southwest Airlines declined by similar amounts. United stock has about doubled from its 2020 lows, but it's still down 45% from its prepandemic highs.

The carrier's big order is also a big deal for a host of companies up and down the aerospace supply chain. It includes 200 Boeing 737 MAX jets and 70 Airbus A320 NEOs. But the announcement was a sell-the-news event for them, too: Boeing closed down 1.8% and Airbus' Paris-listed shares slipped 0.6%.

It follows another bad day for Boeing stock yesterday, after the Federal Aviation Administration said it wouldn't give Boeing's 777X jet the thumbs up for commercial service until mid-2023.

There was at least one winner among investors today, however. Here's Al again:

General Electric might not have been mentioned in United’s announcement, but it will undoubtedly benefit from the order: It makes the engines for both jets. In fact, GE’s commercial aerospace operations are the company’s largest and most profitable business. GE and Safran make all of the engines for the MAX in their 50/50 joint venture called CFM. Airlines can order A320 NEO jets with engines from that joint venture, or from Raytheon Technologies' Pratt & Whitney division.

GE stock remains the most beaten up of the group, and appears to be the most sensitive to some good news. That makes sense.