Invest in Fuel Efficient Jet Engines

Posted July 23, 2008

“The price of oil has challenged and changed all realities for the aviation industry. This is the greatest crisis in aviation’s history — bigger than the Gulf wars, Sept. 11, SARS and past oil shocks.” — Tim Clark, president of Emirates, a Dubai-based airline.

by Chris Mayer

Baltimore — (TFN): In investing, the prospect of crisis has always been a sort of summons for me. It’s like when I was a little boy and the ice cream truck’s jingle sent me running for loose change on a hot summer day. These days, I’m just trying to get at goodies of a different sort — profitable investment ideas, instead of ice cream bars.

And today’s airlines have a big crisis on their hands. As a percentage of airline costs, fuel is now about 35 percent of the total — up from only 13 percent at the start of the decade. It is the airline industry’s No. 1 expense. The cost of fuel puts enormous pressure on the industry. At the same time, regulators are pushing for cleaner planes with fewer emissions.

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“The price of oil has challenged and changed all realities for the aviation industry,” says Tim Clark president of Emirates, a Dubai-based carrier. “This is the greatest crisis in aviation’s history — bigger than the Gulf wars, Sept. 11, SARS and past oil shocks.”

If oil prices stay where they are and nothing else changes, the airline industry will lose about $6 billion this year, compared with a profit of $5.6 billion last year. Many airlines will be taking that familiar stroll into the bankruptcy courts. Globally, 24 airlines have already filed in just last the seven months.

The industry is trying — and will try — lots of different tactics to fend off elimination. One of these is to push for more fuel-efficient aircraft. And that is the opportunity for investors to cash in on this crisis. Read on to learn more.

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