COMMENT
ightglobal.com 18-31 August 2015 | Flight International | 9
a $2 billion government bailout to avoid insolvency.
The next great hope for commercial relevancy, the
Irkut MC-21, looks behind schedule, and its heavily
Western supply chain could be disrupted by sanctions.
How Russia’s aerospace leadership responds to the
situation will be critical for the industry’s health. New
United Aircraft chief executive Yuri Slyusar seems set
on pivoting his supply chain to the East by developing
internal system suppliers and relying more on China.
If so much can happen within two years, how could
Russia’s situation evolve before 2017? Bar a sudden
change in political and economic strategy, it is difficult
to see how further change could be an improvement. ■T
wo years ago, Russia’s storied aerospace industry –
much like the country itself – entered the 2013
MAKS air show near the crest of a wave of prosperity.
Then everything changed. Beginning with riots in
Kiev, the annexation of Crimea, aggression in eastern
Ukraine, economic sanctions, the shooting down of
Malaysia Airlines flight MH17 and plummeting oil
prices, Russia enters this year’s MAKS event mired in
an economic slump and marked as a global pariah.
Its aerospace industry is hardly faring better, despite
increasing defence spending. Key modernisation pro-
grammes, including the stealthy PAK FA fighter and
PAK DA bomber, have slowed dramatically. The star of
Russia’s commercial industry, the Sukhoi Superjet, got See Russian Special PMoscow mewls
Buffett’s precise play
The Oracle of Omaha’s mega-deal reminded everybody that aerospace is one of few industries
today with a serious upside – but while investors are hungry, don’t expect a feeding frenzyindication that Buffett, or any other financial investor,
was ever seriously interested in Sikorsky?
When United Technologies sold the helicopter
maker to Lockheed Martin for a measly $8 billion last
month, surely many investors thought they had missed
a bargain? After all, low oil prices have hammered
demand for offshore helicopters, and its military
business is suffering in the US spending squeeze. This
ought to have been a good time to invest in Sikorsky.
Or, not. One simple explanation is that suppliers are
more profitable and less risky than airframers. Another
is that many airframers are vulnerable now. China’s
recent currency manipulation is a sign that the world is
heading not for recovery, but for uncertainty or worse.
Aviation may have emerged from the 2008 financial
crisis as the investor’s darling, but another downturn
could kick off a wave of consolidation, which is a fancy
way of saying that some companies will disappear. No
investment firm wants to hold companies it can only
sell at distressed prices. ■I
n a world where the word “investor” all too often
brings to mind derivatives, short-selling, deals-a-
second computer algorithms and lunch hour spread
trading, it is comforting to be reminded of the (hugely
successful) existence of Warren Buffett.
The “Oracle of Omaha” and head of conglomerate
Berkshire Hathaway has built a fortune by identifying
companies with growth potential, buying them when
prices are low, and holding them for the long term.
Precision Castparts, a maker of forged, cast and ma-
chined components, is one such company.
With its energy sector customers hit by falling oil
prices, Precision’s shares were trading in the mid-
$190s before Buffett swooped in to pay $235, or $32.
billion for the whole company. Clearly, he reckons a
premium of about a fifth is still good value, given the
huge upside in the two-thirds of the company that
serves aerospace. Expect Berkshire Hathaway to still beowning Precision in 10, 20, maybe 30 years’ time,
when the airframers and engine makers it supplies will
still be running full-tilt to equip new airliners.
But where Buffett may have scored a coup, the deal
also highlights a not undisturbing aspect of the world
today. Investors like Buffett are sitting on mountains of
cash – some $67 billion in Berkshire Hathaway’s case,
and are struggling to find profitable places to park it. In
a fragile global economy, aerospace is one of the few
industries with clear growth potential.
So, it is worth asking, why is there absolutely no See This Week PSuppliers are more profitable
than airframers, and airframers
are vulnerable at the moment
He keeps his eye on the ballZUMA/Rex ShutterstockKeep up to speed with more of
aerospace’s top stories on our
premium industry news site:
flightglobal.com/dashboard