BloombergCHICAGO (Bloomberg) — The unprecedented jetliner shopping spree that’s spanned more than a decade is drawing to a close.
That’s bad news for Boeing Co. and Airbus Group SE, which face slowing jet sales and the highest level of airplane-delivery deferrals in at least 15 years. Final 2016 tallies to be unveiled over the next few days will probably show aircraft orders trailing shipments, a sign of a weakening market. Airline profits are poised to fall from last year’s peak, with even Persian Gulf juggernauts Emirates and Etihad Airways PJSC tempering growth.
Unlike past retrenchments triggered by terrorism or recession, demand has also been hurt by the relatively low cost of fuel. While oil has risen in the past year, prices are hovering at about $50 a barrel, half of what they were in mid-2014. That gives airlines less incentive to retire older jetliners or order newer, more efficient models.
The glut of jets is sapping interest in wide-body planes and threatening production increases that Boeing and Airbus have plotted over the next two years for the lucrative 737 and A320 families of single-aisle aircraft. With last week’s revelation that Emirates is postponing a dozen Airbus A380 superjumbos, the total number of delivery delays for the year reached 251, the most since at least 2001, according to Flight Fleets Analyzer data compiled by Bloomberg Intelligence.
“It’s not that the sky is falling, but we are definitely late in the cycle,” said Ron Epstein, an analyst at Bank of America Corp.
So far, planemakers have been able to find other takers for production slots that have been vacated as carriers such as United Continental Holdings Inc. and Southwest Airlines Co. postpone deliveries and scan the secondary market for bargains.
“The real question becomes how long are they able to do that for,” Epstein said during a presentation last month.
Nobody knows how steep the downturn will be or how long it will last, and the trade war with China threatened by President-elect Donald Trump only adds to the uncertainty. In contrast to previous slowdowns, global air travel is still growing and airlines are mostly making money, providing assurance they’ll follow through on the bulk of their orders.
Airbus and Boeing are sitting on a near-record $1.2 trillion order backlog, and to some extent are victims of their own success. Airlines aren’t racing to close deals for jetliner models that are sold out for the rest of the decade, such as Airbus’s A350 and Boeing’s 787 Dreamliner. As the second-largest U.S. defense contractor, Chicago-based Boeing has an added cushion: Weapons sales seem likely to increase because Trump has vowed to boost military budgets, even as he’s railed against costs.
There are signs, however, that the aerospace cycle has peaked. Global airline profit this year is forecast to fall 16 percent to $29.8 billion from 2016’s apex, according to the International Air Transport Association, an industry trade group. Another indicator of the aircraft manufacturing’s health, a measure of sales to shipments known as the book-to-bill ratio, is expected fall to the weakest level since the 2009 recession, according to Bloomberg Intelligence.Speech