Why It Makes No Sense to Invest in the Airline Industry (and Why Boeing and General Electric Investors Will Do It Anyway)
(NYSE: BA) and General Electric (NYSE: GE) are major suppliers of aerospace equipment, and their ultimate end demand comes from airlines that purchase planes. It's a great industry to invest in, but there is one logical problem with it: Historically, airlines don't actually cover their cost of capital.
This would seem to make stocks of aerospace suppliers ones to avoid, but the truth is very different. Here's the lowdown on a fascinating industry.
The ultimate test of whether a company is allocating capital productively for shareholders is the comparison between its return on invested capital (ROIC) and its weighted average cost of capital (WACC). The former is simply the profits generated from the capital invested in the business, while the latter is the weighted cost of its equity and debt.
Source Fool.com