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GE Aviation, a unit of General Electric Co. (NYSE: GE), warned that it expects orders to be cut in half this year amid the ongoing recession. Jack Lutze, the unit's vice president of sales for Europe and Africa, told Reuters that deferrals are rising as airlines postpone spending on new jets. "Everybody is looking to push back 2010," explained the VP.
On the plus side, Lutze reports that GE Aviation has an order backlog that should translate to years' worth of production -- leftovers from a period of expansion earlier this decade in the airline industry. "This industry lurches from boom to bust," he observed. "We lag the industry on the way down and on the way up."
In the current environment, Lutze told Reuters that GE Aviation's focus is "to maintain existing orders, get customers needing engine servicing or parts to pay up, and win new orders."
In related news, brokerage firm Barclays today slashed its price targets on eight separate U.S. airlines, with analyst Gary Chase citing the ill effects of swine flu and rebounding fuel costs. However, with negative sentiment peaking toward the group, Chase believes that airline stocks "represent a compelling risk-reward opportunity over the next 12-18 months."
GE shares have ticked fractionally lower this morning, extending their 52-week slide of nearly 55%. The stock is currently consolidating near the $13.50 area, a former site of support that now appears to be acting as resistance.
During the short term, massive accumulations of overhead call open interest could exacerbate GE's range-bound price action. The June 14 call carries open interest of 165,907 contracts, while the June 15 strike is home to 100,671 open call positions. With June-dated options set to expire next Friday, these out-of-the-money contracts could begin to exert options-related resistance in the coming sessions.
Elizabeth Harrow is an analyst and financial writer in the research department at Schaeffer's Investment Research. She is featured in the video series Schaeffer's Daily Q&A on SchaeffersResearch.com.
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