The current heat wave is not stopping in the south of England. At the beginning of the week, the mercury in Farnborough reached 35 degrees Celsius. Hardly anyone outside the county of Hempshire would actually take notice of this news, but at the airfield of the town of 60,000 inhabitants, the Farnborough International Airshow 2022 began on Monday. More than 1,200 exhibitors from the aerospace and defense industries are taking part in this high-profile showcase. After the Corona pandemic plunged the sector into a deep crisis, a signal of optimism is now to emanate from the event. The two leading aircraft manufacturers, Boeing and Airbus, are receiving a particularly high level of attention at Farnborough. They are presenting their latest models and innovations at the show and at the same time concluding prestigious orders. Right at the beginning, the US airline Delta ordered 100 aircraft of the 737 MAX 10 series from Boeing, worth USD 13.5 billion.
As a result, the Group's order book continues to swell. As of the end of March 2022, Boeing's commercial aviation order book totaled close to 4,200 aircraft with a combined value of nearly USD 291 billion, meaning the division represented more than three-quarters of the group's order backlog (see chart). "Right now, I'm enjoying the robust demand we're seeing," commented CEO Dave Calhoun ahead of the Farnborough International Airshow. Looking ahead, the top executive doesn't seem to be worried either: "I think we'll regain the glory of the old days - and then some." However, the CEO, who has been in office since the beginning of 2020, still has a few problems to solve. Three models at once are causing Boeing difficulties. After the 737 MAX was practically not allowed to take off worldwide for more than one and a half years after two crashes, the certification of the long-haul 777X has meanwhile also been delayed. In addition, U.S. regulators halted delivery of the 787 "Dreamliner" last year. Previously, hairline cracks had been discovered on parts of the twin-engine jet.
The various problems entail enormous costs. In the first quarter of 2022 alone, Boeing's bottom line was a loss of more than USD 1.2 billion. Meanwhile, Airbus posted a surplus of around EUR 1.2 billion in the same period. Unsurprisingly, there is also a clear discrepancy between the two arch-rivals on the stock market. The Europeans are clearly ahead of their US competitors (see chart). At least Boeing participated in the recent recovery of the sector. The latest delivery figures from the company's headquarters in Chicago also helped. In June, Boeing delivered more than 50 aircraft for the first time since March 2019. With the 51 jets handed over to customers during the reporting month, the delivery figure for the first half of 2022 increased to 216 aircraft. Compared to the January-June 2021 period, this represented 38% growth. Investors will find out what the income statement looks like on July 27, when the U.S. company presents its second-quarter figures.
What is certain is that Boeing is one of the members of the Dow Jones Industrial Average Index with the highest volatility. This makes the stock an interesting underlying for barrier reverse convertibles, as the implied price fluctuation range is one of the key price parameters of this structure. Basically, the stronger the expected volatility, the higher coupons and/or lower barriers are possible. This interplay comes to the fore in the case of three new issues from Leonteq. As a single underlying, Boeing offers a guaranteed coupon of 15% p.a. in the product currency CHF. In the USD variant, the payout is even three percentage points p.a. higher. For another BRC, Leonteq has brought together Boeing and Airbus. This CHF issue has a coupon of 17% p.a. All versions have a barrier of 55% of the initial level. As long as no underlying falls at or below this level, Leonteq will repay the nominal in full. Otherwise, the partial protection expires and the investment is exposed to the full price risk of the underlyings - the "worst of" principle applies to the Multi-BRC. The maximum term is 15 months. Due to the integrated softcallable function, early termination and redemption may occur.
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