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Paris Air Show: Aftermath Jul/Aug 2007 Download PDF

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Now that the dust has settled on the Paris Air Show and Boeing’s 787 unveiling ceremony, it is worth considering the implications of both events on the aviation world. There is no doubt that the 868 gross orders (767 net) for Boeing and Airbus combined at Le Bourget far exceeded most people’s expectations. The sales tallies would certainly persuade one that Airbus is on the road to recovery following the difficulties it has faced over the past two years.

The question on everyone’s mind relates to the timing of the next downturn. Most forecasts provided for a slight fall in aircraft orders this year compared with 2006 in what could be seen as a slippery slope towards a further fall in '08 and '09. However, the explosion of orders over the past month makes it almost certain that the 2006 tally of 1,874 orders will be matched or beaten. It is worth noting that a third consecutive year of around 1,500 orders represents 13–15% of the world’s total installed fleet, someway below the 1989 peak when orders represented about 20% of the world’s installed fleet at that time. The backlog at Airbus and Boeing is now likely to extend into 2011, which should equate to deliveries peaking in 2011 (assuming that orders fall in the next two years). Regardless of whether a downturn takes place, both manufacturers face differing fortunes, and their product profiles, particularly in the widebody segment, look to be on diverging paths.

2007 was billed confidently by Airbus COO John Leahy as the 'Year of the 350'. However, despite a successful Airshow that saw key orders from Qatar Airways (which looks to have quietly hedged its bet by placing an order for 30 787s) and US Airways, many of the Airbus orders may have been induced through heavy discounting rather than a clear vote of confidence on behalf of its airline customers. 2007 has been another terrific year for the 787. During the week long media circus surrounding the roll–out of the first assembled and painted unit, 75 new orders were announced including Airbus defectors LAN and Air Berlin.

This takes 787 orders to 235 for 2007, and the backlog to 750. And the 787 has yet to make its inaugural flight (this is expected to occur end August/early September). To put the backlog into context, the A330 has recorded about 786 orders since its inception in 1988 and the 767 has recorded 1,011 orders since United launched the programme in 1978. The 787 could conceivably attract over 1,000 orders by the time it enters service with ANA in June '08. At an estimated production rate of 110 per year, it will take Boeing until 2014 to clear the current backlog in the absence of a second production line. So it is very likely that Boeing will open a second line in order to help clear the huge backlog and also to free capacity for the yet to be unveiled -10 stretch version of the 787. Improved delivery slots for the aircraft could therefore be available in the 2010- 2011 timeframe which would be well timed for the likes of British Airways and the US network carriers which have yet to place widebody orders (namely American, Delta and United). These four carriers alone could order close to 200 frames and tie up the second line for two years. This isn’t taking into account likely interest from Qantas for the 787–10 and a potential 100 aircraft order from Emirates.

Both Airbus and Boeing are anxious to exploit the current demand in the narrowbody segment as the A320 and B737NG are now cash cows, long ago having covered their amortised development costs. Airbus is set to increase production of the A320 family to 40 per month from its current level of 31. Both manufacturers are using narrowbody profits to fund their more capital intensive widebody programmes.

The A350 has gone through various iterations since its unveiling at Le Bourget in 2005. At the insistence of Steven Udvar–Hazy of ILFC (among others), the initial design (A350 v 1.0, essentially an A330 with new wings and engines) was replaced by a ground–up redesign that takes us to the current A350XWB (unveiled at Farnborough last year). ILFC still seems unhappy about Airbus' reluctance to embrace the concept of an all–composite fuselage, and its order for 52 787s at Le Bourget was arguably the most significant of all the orders placed. An ILFC A350 order would have been a massive boost for the programme from a customer who orders on merit.

Boeing retains the upper hand in terms of developing a strategy to counter whatever competitive threat the A350 may pose down the road. Entry into service for the larger A350- 1000 is not until 2015 at the earliest assuming the A350 programme doesn’t encounter any of the delays that hindered the A380. Once the specifications for that aircraft are known, Boeing has a six to seven year lead time to counter with a 777 replacement (known as the 'Y3'). The strides made in composite usage on the 787 and the new production and procurement methods will undoubtedly flow through to Y3 in addition to any as yet unknown efficiencies. Therefore, Y3 could marginalise the A350 almost as soon as it is unveiled.

Airbus also needs to keep focused on the A380, which looks set to enter service with Singapore Airlines in October. The next challenge facing the A380 will be when it goes into series production. Airbus CEO–to–be Thomas Enders told German business weekly, Focus Magazine "we can’t allow to make any howlers when production is stepped up." Indeed. The A380 programme has not secured orders from any new airline customers since Kingfisher placed an order for five frames back in June 2005.

Fortunately for Airbus, 92% of European airlines surveyed recently by UBS are currently in discussions to buy new aircraft within the next year compared with only 22% of U.S. respondents. Scott Carson, CEO of Boeing Commercial Airplanes (BCA), has described the current environment as an "unbelievable cycle" that defies "traditional indicators". Network carriers in Western Europe and the US had driven previous cycles but the current driver is now emerging markets carriers. In a signal that memories of the catastrophe that derailed Boeing in the late 1990s when they last increased production rates, Carson goes on to state "the worst thing we could do in this industry is dump excess capacity on the market… If we knee–jerk and move too fast (with production increases), we do real damage to the industry." Hopefully, Airbus won’t make the same mistake a decade after Boeing learned its lesson.

Customer Quantity Customer Quantity
LAN 26 CIT 5
Air Berlin 25 Uzbekistan Airways 2
Unidentified 6 Total 75
Customer Order
Qatar Airways 80 x A350, 3 x A380
US Airways 60 x A320, 10 x A330-200, 22 x
Emirates 8 x A380
Jazeera Airways 30 x A320
Nouvelair 2 x A320
GECAS 60 x A320
ALAFCO 12 x A350**, 7 X A320
S7 25 x A320
Air France 2 x A380, 18 x A320
Aeroflot 5 x A321
Intrepid 20 x A330F
Air Asia 15 X A330-300
Thai Airways 8 x A333
Private Customer 1 x A380
Etihad 5 x A330-200, 4 x A340-600, 3 x
AirCastle Leasing 15 x A330F
CIT 7 x A350***, 25 x A320
Ural Airlines 5 x A320
Aeroflot 22 x A350
Afriqiyah 5 x A320, 6 x A350
Kingfisher 20 x A320, 20 x A350****, 5 x
  A345, 10 x A330-200
Libyan Airlines 7 x A320, 4 x A330, 4 x A350
MNG Cargo 2 x A330F
Flyington Freighters 6 x A330F
Avianca 14 x A320, 5 x A330
Hong Kong Airlines 30 x A320, 20 x A330,1x ACJ
Mandala Airlines 25 x A320
BAA Jet Management 1 x ACJ
Singapore Airlines 20 x A350
NAS (Saudi Arabia) 20 x A320
Gross Total 729
Net total 687
Customer Order
GECAS 6 x 777F
Lion Air * 40 x 737-900ER
ILFC ** 52 x 787
ILFC ** 10 x 737 - ILFC
ILFC * 1 x 777-300ER
TAM 4 x 777-300ER
Air France * 9 x 777-300ER
KLM * 7 x 737-700
Virgin Blue 10 x 737
Gross Total 139
Net Total 80

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