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Jetmakers shrug off demand risks
Published in The Saudi Gazette on 17 - 07 - 2016

When a freak English summer storm flooded exhibition halls at this week's Farnborough Airshow, the stiff-lipped announcer told sodden aerospace executives: "Please do not panic: we will not evacuate at this stage."
It was a message meant to reassure, but not exactly guaranteed to inspire confidence.
After a chaotic and storm-ridden show, "keep calm and carry on" is also the message from the world's major jetmakers as they cling to bullish long-term forecasts despite economic and political concerns overshadowing aviation markets.
Airbus, Boeing and Embraer all upgraded their demand forecasts this week. But orders were slower than some expected, with several airlines said to be holding off making decisions.
"People ask if this is showing the end of the cycle. I just have to say that ... we are on track as an industry for another good sales year and certainly on track for some really impressive delivery numbers," said Boeing marketing vice-president Randy Tinseth.
As Farnborough organisers rued their inadequate weather preparations, order announcements flowed in corporate chalets.
But they were reliant on a few players such as AirAsia boss Tony Fernandes, and some analysts say there are signs that while the jet industry remains standing, the roof is starting to leak.
That is especially true of wide-body long-haul jets, with the market struggling to absorb deliveries later this decade.
Although Airbus started the show with a high-profile order of A350 jets from Virgin Atlantic and Boeing expanded its 787 Dreamliner presence in China, there were relatively few orders for the industry's big jets, and none for the Boeing 777.
According to Deloitte, Farnborough and its sister Paris air show, held every other year, have produced an average of just over a quarter of annual airplane orders over the past decade.
That suggests this year's event might have produced close to 400 deals to be on trend. Instead, the total of firm deals was 216, though still-provisional ones would more than double that.
Now, the greater test is whether orders will hold intact and whether manufacturers can learn from past mistakes on production and deliver their record backlog of jet orders smoothly.
Deloitte says 13 percent of the industry's massive order book is vulnerable to deferral or cancellation but that jetmakers are cushioned by backlogs which have swelled to 6-10 years from 3-5 years, thanks in part to deliberate overbooking.
Several industry sources say the second half of that backlog is flimsier than the first and that many buyers have more flexibility than planemakers would like to admit publicly.
"Are they orders or cheap options? That is what we are going to find out," said Richard Aboulafia of US-based Teal Group.
Although manufacturers say deferrals have not yet risen, industry sources say they are spending more time monitoring customers to watch for any risk to near-term deliveries.
The S&P Aerospace and Defense index rose 1 percent in the past week, slightly underperforming a 1.6 percent market rise.
"People are twitchy, but they are not quite sure why they are twitchy because there isn't much evidence to support it," said Jefferies analyst Sandy Morris.
Still, the trade part of the show opened and closed with reminders of deeper political and economic risks to jet demand, which is sensitive to business confidence and consumption.
Britain's David Cameron opened the show as prime minister only to find his departure from office, following a referendum defeat, accelerated when Theresa May emerged as his successor.
Two weeks after Britain's decision to leave the European Union, online travel bookings to and from the UK remain down, according to online travel agent Tripsta. Any prolonged dip could unsettle jet buyers with large UK coverage like Emirates.
News late Thursday of a truck attack in France, killing over 80 people, also tragically underscored security risks cited by some executives, worried too about Middle East instability, tensions between the West and Russia and weak Latin American economies.
However, Airbus sales chief John Leahy said the industry had coped with a series of shocks. Only one - the Sept. 11, 2001, attacks in the United States - made an appreciable dent in a long-term trend of air traffic doubling every 15 years, he said.


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