Air show marks end of order boom
A $40 billion (20 billion pound) spree by Gulf oil states prevented aircraft orders from going into freefall at this week's Farnborough Airshow but left little for Airbus and Boeing to scrap over for the rest of the year, Reuters reported.
Airbus, the planemaking unit of European aerospace group EADS, squeezed out a handful of final orders on day four of a show that exposed a yawning divide between the industry's rich and poor as oil prices approach $150 a barrel.
Between them, Airbus and Boeing posted 444 firm orders worth $62 billion. That exceeded the forecasts of many who had said they would struggle to reach half the 600 firm deals seen at a similar showcase in Paris in 2007.
EADS shares rose 6.1 percent, while Boeing opened flat.
The fierce industry rivals came to Farnborough neck and neck with net 2008 orders of 487 planes for Airbus and 475 for Boeing, and are now close to their targets for the whole year.
Airbus posted firm orders of 247 planes worth $38 billion, bringing net orders so far this year to 734 aircraft.
Sales chief John Leahy upped his forecast for 2008 orders to more than 850 aircraft from 700, but acknowledged this meant a slowdown in the rest of the year as airlines hoard cash.
"There's definitely more softness in the second half than in the first," he told a news conference.
The European company sold 1,341 planes in 2007, which proved to be the climax of an unprecedented three-year industry bubble.
Boeing announced firm orders for 197 planes worth $23.6 billion this week, but many of these were already in its backlog and only 65 were new. This brings the tally so far this year to 542 planes, including an additional two orders to undisclosed buyers announced separately.
Boeing Commercial Airplanes Chief Executive Scott Carson has predicted fewer than 1,000 orders in 2008 after 1,413 in 2007.
High oil prices have raised fears of a slew of order deferrals and cancellations as airlines trim capacity or wrestle with bankruptcy. Economic and oil fears appear to have sharpened the normal cyclical decline expected after a prolonged upswing.
Some analysts say that could prompt the planemakers to slow down production which has risen to meet a record backlog, or encourage them to let the timetable for the next generation of single aisle planes which dominate their volumes quietly slip.
But Airbus vowed to stick to planned production hikes even if, in the worst case, it loses a third of its 6-year backlog.
And while the mood at Farnborough this week was grim, the order slowdown has not yet turned into a rout.
"I don't understand all the doom and gloom, but I understand the fear of doom and gloom," said aerospace consultant Richard Aboulafia of Teal Group in Washington DC, adding the industry had been rattled by the credit crunch and spike in oil prices.
"There is a market share grab by Middle Eastern airlines and probably lessors," Aboulafia said.
"The legacy carriers have been quiet at this show. And it is pretty clear the low-cost carriers need to be cautious; they have the most price-sensitive traffic and prices have to rise."
This week, both Ryanair and British Airways announced cuts in flights next winter to stem exposure to the rising fuel cost.
Orders at the world's largest aerospace event, held in Farnborough or Paris on alternate years, are used as a yardstick for the health of one of the world's most cyclical industries.
Getting to the bottom of air show orders can be tricky.
Many deals "announced" in front of cameras already existed in order books as undisclosed buyers. It is a practice favoured by Boeing to allow it to report its own performance, without forcing customers to display their hand before they are ready.
In Airbus's case, many deals including a 100-plane order from DAE Capital had already seen the light as provisional ones. The European firm regularly announces orders more than once.
What worries many in the industry is not the outright number of planes sold but how struggling airlines, other than those in the Gulf buttressed by high oil prices, can find the funds to finance their purchases as the global credit crisis spirals.
"There are concerns over the ability of airlines that barely made a profit to finance huge capital projects," said Howard Wheeldon, senior strategist at BGC Partners, who believes the plane manufacturers are only just waking up to the risks.
"Pessimism in the airline industry is beginning to approach reality. The levels of optimism in the commercial aerospace industry are not even beginning to achieve a sense of reality."