Clouds of worry have been gathering over the commercial aviation industry, but the sun was shining in Paris last week as plane makers and suppliers gathered for the biennial Air Show.
I mean that both literally — it was hot — and figuratively, with every executive I talked to adopting the same tone of cautious optimism. They conceded the market is slowing: Amid sputtering air traffic growth, weakening airline profits and a slowing global economy, orders at the Paris Air Show trailed the tally from last year’s Farnborough Air Show on both a unit and dollar basis, according to an analysis by Bloomberg Intelligence’s George Ferguson and Francois Duflot.
And the orders that were announced weren’t always written in stone. Vertical Research Partners analyst Rob Stallard counted about 610 commitments for new planes between Boeing Co. and Airbus SE (short of his forecast for 800), but only about 160 of those are firm orders for large aircraft and all of those belong to Airbus.
Some orders for Airbus’s new A321XLR — a longer-range version of its top-selling narrow-body jet that was unveiled as expected last week — were converted from existing commitments for previous A320-family models. But there were orders, including a surprise bid from British Airways parent IAG SA for Boeing’s embattled 737 Max jets.
While everyone no doubt would have preferred a stronger showing, no one was panicking, either.
Global growth in demand for commercial aviation is likely to slow to a pace of about 5 per cent this year from around 7.5-8 per cent in the past few years, according to the International Air Transport Association. “That’s still a pretty good place to be — look at what many other industries are doing,” Tony Wood, CEO of aircraft braking and fire-protection equipment maker Meggitt Plc, said. “It’s certainly quicker than the world is growing.”
Tim Mahoney, CEO of Honeywell International Inc’s aerospace unit, pointed out that airlines are filling the capacity they lost when two fatal crashes prompted a global grounding of Boeing’s Max through leases and older aircraft that are staying in service longer than planned. Jet Airways India Ltd. suspended operations in April after running out of cash and is heading to bankruptcy court, but some of its fleet has already been reallocated, Mahoney said.
“It’s a validation that the demand from the flying public is there and it continues to grow,” he said.
Boeing, meanwhile, now expects the commercial aviation market to need 44,040 new jets and $9.1 trillion of services over the next 20 years. That compares with last year’s prediction of 42,730 jets and $8.8 trillion of services.
So, Boeing and Airbus’s backlogs are likely safe in their robustness for the time being. But as I said going into the show, the question is whether they’ve already saturated the market and whether those backlogs will continue to grow.
Executives from CFM International, the engine joint venture between General Electric Co. and Safran SA, weren’t super enthusiastic about production rate increases for Airbus’s A320 family. It’s not clear that the supply chain is capable of handling a more aggressive pace, particularly the forging and casting companies, which have been the primary source of delays over the past few years.
At a media briefing, CFM executives said they also want to be sure any production rate increase is sustainable and will serve the market over the long-term — not just at its peak. The relative dearth of orders at this year’s Air Show would seem to support their cautious stance.