Kevin O'Toole LONDON
Aircraft orders rebounded last year, but few doubt a downturn is on its way. Is the market in better balance this time around?
Despite some early nervousness, last year actually turned out to be another high watermark for aircraft orders. However, with the world economy at last showing real signs of weakening, including near-daily warnings from the USA and Japan, this could prove to be a final order flurry before the airlines batten down the hatches and prepare for the cycle to turn. The question is: have they and the manufacturers hit the brakes fast enough?
Certainly Airbus and Boeing are ready to believe that they will see a substantial fall in new business this year. In truth, neither had quite expected last year to be as strong as it ultimately proved. The market had already appeared to weaken in 1999, with orders falling back to just over 900 mainline jet aircraft, excluding regionals. Yet, with the US economy still in top gear, the order intake was back above 1,000 in 2000.
The final number, excluding military and corporate jet versions, comes in at a highly respectable 1,113 orders, worth a nominal $86 billion at list price. As ever, the real selling prices are likely to be 10-20% lower after discounting, but it is an impressive haul, nevertheless.
However, few believe that this rate will be sustained this year. Veteran market-watcher Ed Greenslet of ESG Aviation Services and publisher of The Airline Monitor, agrees that if the slowdown really does start to bite, then orders this year could be cut in half. "Once opinion turns, people's actions follow pretty fast," he says. After a surprisingly buoyant first half, the industry only began to think seriously about slowdown late last year, he adds. The industry has hit a downturn early in each of the past three decades and Greenslet warns that a fourth cycle could be in progress.
Airbus too has cautioned that sales are now likely to be trimmed dramatically. Commercial head John Leahy early this year estimated that orders for 2001 are likely to be in the range of 750-800.
Naturally, much will continue to depend on where the world economy heads. A sudden market collapse or political upheaval could still send air transport into a tailspin as it did at the last cycle. However, most analysts are optimistic that the industry is entering this down cycle with less excess capacity and chances favour a more orderly decline in aircraft markets than the roller-coaster boom-to-bust of previous cycles.
Delivery rates have already hit a plateau and are expected to peak this year before starting their decline. And there are more retirements of older and noisier types under way to help make room for the new deliveries. Last time, the ageing aircraft simply hung around in the desert.
In fact, output fell by around 100 units last year to below the 800 mark. That was in part due to the end of the McDonnell Douglas (MDC)product line. The final three MD-90s rolled off the Long Beech line in 2000 and there are now just three MD-11s to go. Boeing also produced the last of its previous generation 737 family, while there was some further downward adjustment to its widebody rates too. Boeing's output could have further to fall as Airbus draws level over the next couple of years.
That equality too is a significant change from a decade ago. Then Airbus was still fighting to achieve parity with the mighty Boeing and MDC was just fighting for its life. It is true that Boeing recovered leadership in the annual orders race last year, reversing a miserable 1999 performance to gain 54% of the market. However, the current order backlog for the two manufacturers gives a clearer picture (see over page). Airbus now holds more or less a straight half of the 3,206 aircraft currently on backlog. It is slightly ahead on single-aisle types for the first time and is within sight of Boeing on widebodies if account is taken of the 50 A380s which were signed but apparently not sealed last year. Those A380 orders would also help Airbus to draw even on the value of its backlog, roughly splitting half of a nominal $235 billion. The hope is that such a two-horse race should make the market no less competitive, but just a little more rational. If it does, that could be welcome news for the airline industry as well as the manufacturers themselves.
Source: Airline Business
