Following a series of sobering near-miss incidents in U.S. airports, most recently when a Southwest Airlines (NYSE:LUV) plane came close to departing from a taxiway in Orlando, air carriers are focusing now on what could be the most priceless upgrade since in-flight Wi-Fi: cockpit alerts that scream at pilots before they undertake something disastrous.
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At the forefront of this air safety upgrade is Honeywell (NASDAQ:HON), which has created a Runway Awareness and Advisory System (RAAS) that’s now in use across almost all of Southwest’s 800-strong Boeing 737 fleet, according to WSJ. And although this upgrade is, first and foremost, about ensuring passengers and crew are safe, it also represents a possible investment opportunity few are discussing: a boost in demand for avionics and safety technology, and the ETFs that contain them.
Wake-Up Call In The Cockpit
Honeywell’s system provides real-time voice and text alerts when pilots make hazardous maneuvers, such as turning onto an incorrect runway, landing too rapidly, or trying to take off from a taxiway.
It’s not only Southwest becoming serious about safety. Other airlines such as Alaska Airlines (NYSE:ALK) are bringing the system on board as well, with Airbus and Boeing (NYSE:BA) allegedly working on their own in-house alert systems. With the FAA considering new proposals to mandate safety alerts on new planes, and potentially retrofits in the future, this might be only the start.
The ETF Angle: Follow The Beep
A number of large ETFs already provide exposure to aviation safety vendors such as Honeywell, and if the industry experiences an upgrade supercycle, these funds could be winners:
iShares U.S. Aerospace & Defense ETF (BATS:ITA): Top holding is Honeywell, followed by Boeing and Raytheon (NYSE:RTX). Traces defense and aerospace production companies, including safety systems and avionics.
Up 29% YTD, ITA may experience additional tailwinds if cockpit safety standards become an international standard.
SPDR S&P Aerospace & Defense ETF (NYSE:XAR): Equal-weighted, providing more widespread exposure to mid-cap stocks that might include specialty avionics providers.
Comprises participants on next-gen safety software, hardware, and even autonomous flight system development.
Global X Future Analytics Tech ETF (NASDAQ:AIQ): Not aerospace-focused, but exposed to companies embedding AI in safety and risk-reduction systems.
As cockpit notifications become more sophisticated with AI-based pattern recognition, funds such as AIQ might soon be cleared for takeoff.
Why Now?
Let’s link the dots:
- Increasing pilot shortages translate into more dependence on safety technology.
- Busy airports and tighter flight schedules raise the margin for error.
- High-profile accidents (such as the Air Canada near-miss at San Francisco or the 2006 Comair crash) are spurring regulators and carriers into action.
- Public perception: Airlines are keen to demonstrate that they’re spending money on safety amid growing concern.
In short, the cockpit alert boom is not merely a safety tale, it’s a story about tech adoption, and in the markets, that’s where the actual jet fuel resides.
For the moment, cockpit warnings might be barking alarms within aircraft, but shareholders might find themselves tuning in as well. Aviation safety technology is taking to the skies quietly, and the ETFs that have exposure to it could be up next for a smooth ride.
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