Analysts expect ‘second sales bow wave’ to mitigate industry’s peak and trough cycle

Aviation industry experts predict the airliner order boom could well continue for several years with high order levels, rather than follow the familiar, but damaging, peak and trough pattern of previous cycles.

Including regional jets, a record-breaking 2,312 airliners were ordered in 2005, of which 1,111 were placed with Airbus and 1,105 with Boeing. Orders for airliners with more than 100 seats accounted for 2,126 against 643 in 2004 and 526 in 2003, and dramatically eclipsed previous record years such as 1998 when 1,212 orders were placed, and 1989 when 1,594 orders were notched up by Airbus, Boeing and McDonnell Douglas.

“I think you could be looking at an extended good run,” says industry analyst John Walsh. Speaking at the recent Speednews suppliers conference in Los Angeles, Walsh added that, unlike previous cycles, the current order run could be affected by a “secondary bow-wave of US carriers, plus Boeing 787 deliveries starting in 2008.”

Morgan Stanley aerospace and defence senior analyst and managing director Heidi Wood asks: “Can the cycle be extended? We believe ‘yes’.” Unlike the previous five delivery peaks since the first in 1968, when the new aircraft being delivered represented 26% of the world fleet, the 668 new aircraft delivered in 2005 represented only 4.3% of the global fleet. “This time the increase in capacity is much more digestible, and it does not look like we’re in danger of ‘over-capacitising’ in terms of deliveries,” she says.

Boeing market analysis director Andrew Magill says “we don’t think the airlines have over-ordered, and we need to be very cautious going forward” as regards increasing production to meet the surge in demand.

Airbus marketing vice-president Colin Stuart echoes these concerns, saying “we’re looking at quite a significant increase this year, and we see it continuing, though maybe not at the same rate in 2007. The Airbus production system will be increased with care.”

Airbus and Boeing are together expected to deliver around 815 aircraft in 2006, with more than 900 due for delivery in 2007 and a similar number the following year. Airbus says its current backlog of almost 2,200 aircraft represents around five years worth of production, while Boeing, with a backlog of around 1,800, says most production slots are effectively sold out until late 2007.

Unlike previous cycles, the analysts all point out that the latest upturn is being driven by orders from Asian, Middle Eastern and global low-cost carriers instead of legacy and network operators in the USA and Europe. Only 17% of all 2005 orders came from Europe and 11% from North America, while 40% were from Asia.

International Lease Finance chief executive Steven Udvar-Hazy believes that even though “about one-third of the orders from last year will be deferred or cancelled,” the industry “will see others come in to take them”. Hazy describes the order scramble as a “feeding frenzy” and questions whether the huge amount of the activity from China and India last year is “real”.


Source: Flight International