Lower fuel prices encourage more flight departures, which is good for aerospace aftermarket and servicing companies.
FTAI Power benefits from affordable energy prices.
Shares in FTAI Aviation (NASDAQ: FTAI) soared by 14.4% on the open today, only to settle back to a 9% gain by 12 p.m. The move comes after a ceasefire agreement between the U.S and Iran led to a significant decline in the price of oil amid hopes that the conflict was on track for a definitive resolution that would reduce risk to the global economy.
The company's exposure comes from two main areas. First, the company is a leading player in servicing narrow-body aircraft engines. Higher oil prices feed through into higher jet fuel prices (particularly when some refineries in parts of the world can't even obtain crude oil), and that's bad news for the commercial aerospace industry. In addition, the Gulf region is a major transportation hub in its own right.
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All of which means that a higher oil price is likely to lead to fewer flight departures and, ultimately, less need for servicing aircraft engines,
Second, soaring energy prices are casting doubt on the viability of data center investment. That matters for FTAI because it recently created FTAI Power, a business dedicated to converting old aircraft engines (specifically the CFM56) into power turbines for data centers.
Image source: Getty Images.
While the conflict is far from definitively resolved, today's news is a step in the right direction, and FTAI investors are hoping it will calm commercial aerospace markets and data center investments alike.
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Lee Samaha has no position in any of the stocks mentioned. The Motley Fool has no position in any of the stocks mentioned. The Motley Fool has a disclosure policy.