Chris Jasper and Max Kingsley-Jones/LONDON
When the aerospace industry last gathered in Singapore, for Asian Aerospace '98, the sense of gloom was almost palpable. Subsequent events fully justified that pessimism. Only now are Asian orders beginning to recover, although as far as Western airframers - particularly Boeing - are concerned, the damage is done.
The Asia-Pacific boom turned to bust with alarming speed and it is clear that in the few years before the collapse, the region's growth was fuelled by an unshakeable belief in an Asian "miracle", and precious little else. East Asia's star performers had, in reality, become overheated. In the last two years a painful adjustment has inevitably taken place.
As the miracle crashed around the boosters' ears, the whole of the region suffered, although the slump's impact hit some countries more severely than others.
Global impact
While for certain industries the effect of the Asian decline was limited to that continent alone, the impact was felt globally in the aerospace and airline sectors. Airframers were hit not only by the fall-off in Asian airliner demand, but took more punishment from the crisis' knock-on effect on Western airlines, which lowered their widebody aircraft requirements.
At the time of the 1998 show, East Asian airlines' orders accounted for a fifth of the entire world backlog. Today, this proportion has halved to 10% as the order intake from the region has tumbled to the point where the combined tally for 1998 and 1999 was lower than the number placed in 1997 alone.
Civil aircraft manufacturers enjoyed the ride as the region's economies boomed throughout the 1980s and 1990s, so when the Asian slump broke, they had much to fear. As the worst economic decline in recent history, the crisis at one point threatened to drag down Latin America and perhaps even the USA and Europe along with it. The airframers prepared for a collapse rivalling that which followed the Gulf War in the early 1990s, when - in 1993 - world orders net of cancellations fell to a low of just 15 jet airliners.
The more recent decline was not as precipitous - although, given the Asian boom's central role in fuelling orders, it was, inevitably, still steep. Not only had the airlines of China/Hong Kong, Japan and South-East Asia between them typically accounted for a quarter to a fifth of orders during the 1980s and 1990s, but their thriving economies had also powered demand for long-haul travel in Europe and USA.
As 1997 drew to a close, Western and Asian airlines alike saw their 400-seat Boeing 747s running half-empty as business passengers no longer flocked to and from Asia. This had two effects: first, it caused airlines to re-align their capacity by shifting it to other markets, and, second, it prompted them to re-examine their own fleet and capacity growth plans.
Even with the redistribution of aircraft, no one could deny that simply too many airline seats were available worldwide. No amount of capacity juggling was likely to overcome this and, often, aircraft redeployment had negative effects: flooding the traditionally high-yield transatlantic market, for example, where it led to price discounting and, ultimately, a painful impact on many major carriers' profits.
Given this reality, the over-capacity problem inevitably affected all widebody sales worldwide, with the 747 particularly hard-hit. Boeing's star performer, once the darling of the Asian carriers, was sidelined not only by the sudden lack of interest from that region but also lost business from elsewhere as airlines in the USA and Europe dropped or deferred orders as they, too, felt the secondary effects of the Asian downturn.
Sales of other widebodies were also affected, but some types, such as the 777, received an unexpected boost as carriers like British Airways switched to the smaller-capacity twinjet at the 747's expense.
The most recent aircraft buying frenzy began in the mid-1990s (see graph 1), with orders mushrooming from 480 units in 1995 (airline customers only, not including lessors) to around 1,000 aircraft in 1998. At the same time, Asia's share of the tally fell from 30/27% in 1995/6 to just 5% as the cycle peaked in 1998.
The graph illustrates the direct role that Asia's airlines have played in dictating the fortunes of Airbus and Boeing. This becomes even more evident in table 1, which provides a "before and after" snapshot of the two manufacturers' order books in relation to the Asian downturn.
First rumblings
Three years ago, in January 1997, when the first rumblings of disaster could be faintly heard, Asia held orders for around 550 of the 2,440 aircraft on backlog, or 23%. Asia also accounted for roughly the same proportion of the two manufacturers' individual backlogs. Moving forward three years, the total backlog is up by 20% to 2,900 aircraft, but Asia's relative share has more than halved to 10% of the total orders.
The overall backlog increase is largely due to fleet renewal, pursued by Western carriers despite the Asia crisis, and to the attractive terms offered to weaker airlines by airframers desperate to move unwanted aircraft. A surge by Airbus has seen it double its order book over the three years, while Boeing's has contracted slightly. The European consortium is less reliant on the Asian market than its rival, with 6% of orders held by airlines from the region, as opposed to 13% in Boeing's case.
Graph 2 shows annual order backlog since January 1996 for jet and turboprop aircraft, as well as Asia's share of the total, for airline customers only. The total backlog has grown from 2,000 aircraft in January 1996 through a peak of 3,400 aircraft at the start of 1998, to around 3,250 aircraft now.
During the same period, after initially increasing, Asia's component has contracted as its airlines have stopped ordering. The Asian figure could have fallen further, had the manufacturers not agreed to defer certain orders, rather than cancel them outright.
Table 2 provides a breakdown for the three sub-regions within East Asia, showing how orders have dried up and deliveries have been scaled back. The number of aircraft delivered to the region last year was the lowest since the mid-1990s - and this when airliner output worldwide was at an all time high.
Although orders continued to be taken from the region during the 1997-9 slump, the rapid rise in cancellations during the two years means that the adjusted net order tally still made uncomfortable reading at the end of the period, amounting to just six aircraft.
Renewed optimism
Nevertheless, with Asia on the way to recovery, there is renewed cause for optimism. As the region's economy hauled itself up off the floor last year, the bulk of its airlines posted month-on-month improvements, with lean operators such as Cathay Pacific bouncing back strongly.
Orders have also climbed as a result. Significantly, as graph 1 shows, as the global buying cycle began its downward tumble last year, the Asian market began to pick up, with orders up by a modest 12 units (to 65 aircraft), but its share of the total doubling from 5% to 10%.
In its regional outlook for 1999-2003, the International Air Transport Association (IATA) predicts 2% annual growth in the transpacific passenger market this year, increasing to 4% in 2003, and stable growth of around 5.7% in the Europe-Far East and intra-Asian markets over the same period. IATA assumes that economies hit by the Asian crisis will continue to recover, although demand in Japan and Hong Kong, will remain depressed.
Over the longer term, International Civil Aviation Organisation studies predict, Asian markets will grow as forecast before the crisis, lagging a couple of years behind original projections. This may be the case, although Asia has yet to confront many of its faults - Japan having failed to implement wide-ranging institutional reform, for example - so that there remain grounds for caution.
Much will depend on how the Chinese economy fares, with most upbeat assessments of Asian airliner sales over the next few decades dependent on high and sustained economic growth within the world's largest country.
Source: Flight International
