Two old adages about investing are that the stock market will fluctuate, and what goes up must come down. These sayings are certainly true of companies in the aviation industry where stocks can fly high one day and come crashing down the next. There are multiple ways you can invest in aviation, but all of them involve a level of risk.
The most obvious way to invest in aviation is to purchase the stock of individual airlines. Although buying airline stock is easy -- just enter a buy order with your investments broker -- finding a solid company to invest in is a bit more challenging. Once American Airlines filed for bankruptcy in November 2011, the only major U.S. airlines that had not filed for Chapter 11 protection were JetBlue and Southwest, note Chris Isidore and Blake Ellis of CNN Money. Approximately 25 percent of the country's regional air carriers were also in bankruptcy as of April 2012, reports CBSNews.com. You can make money on individual airline stocks, but you need to do your homework and you'll need to expect a bumpy ride.
Aviation Support Stock
There are plenty of companies that thrive in the aviation industry without taking to the air. You can buy stock in companies that operate airports or companies that operate concessions in airports. You can buy stock in companies that manufacture airplanes, companies that maintain aircraft, or companies like BE Aerospace that supply specialty parts for the aviation industry. You might have to dig a little deeper into the corporate structure of some aviation support companies. For instance, the Boeing Company owns flight information and navigation provider, Jeppesen, while pre-flight and in-flight data provider, Global Data Center, is part of Honeywell International, according to the National Business Aviation Association.
Aviation Mutual Funds
You can gain instant portfolio diversification and get professional management of your investment dollars by purchasing shares of an aviation-oriented mutual fund. Different aviation mutual funds have different investment objectives and may invest in different parts of the aviation industry. For instance, Fidelity's Select Air Transportation Portfolio mutual fund invests primarily in the common stock of air transportation companies that move passengers, mail and freight nationally, internationally and regionally, while the Rydex Series Trust Transportation Fund invests in a variety of domestic transportation-related industries including aviation. That's why it is important to read the fund's prospectus carefully to ensure the fund's goals are in sync with yours before investing.
Aviation Exchange-traded Funds
While mutual funds attempt to outperform market averages, exchange-traded funds are happy to match the results of specific market indexes. EFTs try to emulate the results of specific market sectors by assembling and maintaining a portfolio that mirrors the makeup of corresponding stock indexes. There are a wide range of indexes within the aviation sector, including the PowerShares Aerospace & Defense ETF, which emulates the SPADE Defense Index, and the Claymore/NYSE Arca Airline ETF, which tracks the New York Stock Exchange Arca Global Airline Index. Investing in aviation EFTs gives you broad exposure to this industry sector, and often results in lower management and operating expenses.
- National Business Aviation Association: Flight Planning and Flight Support Companies
- CNN Money: American Airlines Files for Bankruptcy
- New York Stock Exchange: Claymore/NYSE Arca Airline ETF Lists on NYSE Arca
- CBSNews.com: Pinnacle Airlines Files for Bankruptcy Protection
- Fidelity: Select Air Transportation Portfolio
- BE Aerospace
Mike Parker is a full-time writer, publisher and independent businessman. His background includes a career as an investments broker with such NYSE member firms as Edward Jones & Company, AG Edwards & Sons and Dean Witter. He helped launch DiscoverCard as one of the company's first merchant sales reps.