Comment: Parallel worlds

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The order blitz at the Dubai air show shows the optimistic side of the industry, with more growth led by the fast expanding Gulf carriers. But outside the booming Middle East, all signs point to a steeper slowdown for the global aviation industry

It's a classic plot trick of the science-fiction thriller: parallel and entirely different worlds. One is flourishing and benign, the other is cold and moribund. The film or book usually ends with the intrepid Star Treker discovering which is the real world and which is fantasy. In this incredible universe, both worlds cannot exist at the same time. Alas, in the less exotic drama of the real world, it would seem, conflicting realities can exist.

Take the bright and flourishing world represented by the just-concluded Dubai Air Show, where airliner orders surged. Airbus and Boeing sold a combined total of more than 400 aircraft worth over $70 billion. The total, when combined with sales at July's Paris air show, put the two on course to beat their best-yet record, the 2,057 annual total set in 2005.

The Dubai order blitz was in essence local sales: unlike a Paris or Farnborough, where customers come from all over, buyers at Dubai were almost exclusively Middle Eastern airlines and lessors. Most were repeat customers.

As they grow, the region's airlines stand to increase their total fleet from 550 airliners in 2006 to 900 by 2015. This expansion is led by the Gulf's next generation of world-class airlines: Emirates, Etihad and Qatar Airways.

But do the Gulf players have unrealistic expectations? That's what people have been saying since the region sprang to prominence, and the few injuries that the region's carriers have suffered have been self-inflicted.

In a truly global market, these carriers have been able to offer what people with money will pay for. The reason why the region is strong is simple: just as banks are where the money is, the Middle East and Gulf States are where the oil (and gas) is. And as the world's energy needs shift the economic centre of gravity away from Wall Street or the City of London and towards Abu Dhabi, Dubai and Doha, the oil regions have the will to spend it.

Back through the wormhole into that other universe, it's a different picture. The realities of $100 per barrel oil, the global credit crunch and tightening economic conditions all point to the gentle industry slowdown turning into something more severe.

The crystal ball-gazers, watching the industry slow to 6% traffic growth last year from the high point of nearly 14% in 2004, have long seen the danger signs and been predicting this movement. The big question was when? The cynics say that time is the peak of the order cycle.

As Steve Udvar-Hazy commented recently "ILFC is putting on its seat belt". The founder and chairman of aircraft leasing giant ILFC is focusing on strengthening his company's balance sheet in anticipation of the slowdown. He has the relative luxury of being in a position to buckle up - many carriers have much less room for manoeuvre.

If the boom swiftly becomes bust, holes could rapidly start appearing in the order backlogs that currently stretch well into the next decade. Udvar-Hazy wonders if the hundreds of narrowbody jets the low-cost carriers have on order will be delivered to time.

In the USA, the market wobbles immediately cause consolidation chatter among those keen to see fewer, larger and stronger majors. But how strong do they have to be to keep pace with those in Australia, the Gulf and Europe that are the vanguard of network carriers?

One keen observer of the US airline industry, Bill Swelbar of the Massachusetts Institute of Technology's airline project, puts it this way: "Doesn't it bother US readers that the orders [at Dubai] are not from US carriers but rather from previously obscure points on the map that have every plan to change the shape of global aviation? It sure does (bother) me. Is the US being relegated to a supporting role in tomorrow's global aviation markets? I sure hope not."

This all points to the answers surely arriving shortly as the world of booming aircraft orders finally collides with the world of economic reality.