Every year the great and the good from the aerospace industry gather in a field in Hampshire, UK to discuss the prospects of their industry. Historically, short sellers have been quite active in this distressed sector so we will look at how they have been behaving ahead of the recent Farnborough airshow.
Planespotters will tell you about the battle between Boeing’s new Dreamliner aircraft and the A380 from Airbus. They are different types of aircraft but represent new technology and more fuel efficient, quieter flying. Short sellers have struggled to choose the right moment to short Boeing (BA) over the last 2 years. The short base is currently quite low (1.25% of the shares outstanding) and falling but it did more than double in June. Institutions who lend are in for the long haul showing confidence in the future on Boeing. They currently own more shares (140m or 19% of the total) than at any time over the last 12 months. That said, they owned more like 180m shares two years ago.
Airbus is made by French listed EADS (EAD) which has been a popular short over the years. However, unlike Boeing, short sellers have been rather more informed. In H2 2008, shorts were over 8% of the shares in issue as the price fell to 8 EUR. Shorts continually reduced until mid March this year when some negative sentiment re-emerged seeing shorting almost double to 5.5%. It has reduced somewhat but remains higher than the market average meaning some think EADS is overvalued. In contrast, funds who lend are pretty confident about EADS prospects with ownership at a 2 year high (9% of the shares in issue).
Rampant Irish airline Ryanair recently cancelled a big order of new aircraft from the above firms pledging to return cash to shareholders instead. Its results were in line with expectations despite the volcanic ash disruption. Institutional investors who loan stock now own 8% of the shares in issue which is up considerably over the year. Short sellers are not active at present. If I had a pound for every time someone complained about the need to print ones boarding pass to avoid a fine I would be a rich man. But investors obviously think tricks like this are good for the share price even if they are troublesome for passengers.
The fortunes of Rolls Royce (RR.) are tied to the success of Boeing and especially EADS. The UK’s jet engine manufacturer has been a good investment over the last year almost doubling. Short interest is low (0.37%) and falling while funds who lend own a steadily rising 24% of the shares in issue. Meanwhile in the US, Southwest airlines (LUV) announces results today and shows recently rising short interest to a modest 2% of the shares in issue. Of interest is the fact that institutional investors hold 31% of the total shares which is higher than titan AMR who own American Airlines (30%).
