Aircraft orders may be slow to come at Farnborough show

The biggest aircraft show of 2016, the seven-day Farnborough International Airshow in Farnborough, England, begins Monday.

Farnborough – and its sister air show in Paris that is held in odd-numbered years – bills itself as the world’s largest. The grounds of Farnborough will host representatives of 45 countries, 22 international pavilions and commercial and military aircraft manufacturers from around the world, including Boeing and Airbus.

Farnborough is an important show for Wichita, where Airbus operates a engineering center and Boeing accounts for a significant amount of manufacturing work for numerous area suppliers including Spirit AeroSystems, the city’s largest employer with 10,500 employees. In addition to making large parts of all Boeing airplanes, Spirit also makes parts for Airbus’ A320, A350XWB and A380 airliners.

Farnborough and Paris serve as the venue for Boeing and Airbus to introduce new airplanes and announce their biggest orders of the year. At the Paris Air Show last year, Boeing collected 154 firm commercial airplane orders worth $20.2 billion at list prices, while Airbus recorded 124 firm orders worth $16.3 billion at list.

In the past few years, Airbus and Boeing have been in an order frenzy as their airline customers recorded year after year of record profits and passengers, padding the manufacturers’ backlogs with orders totaling more than 12,000 commercial airliners.

But analysts are skeptical that frenzied demand can maintain its record pace, and that will be manifested in an unusually quiet Farnborough show.

‘Funny bubble’

“I don’t think people are going to be eager to pile on” the airplane orders, Teal Group analyst Richard Aboulafia said this week.

Aboulafia called it a “funny bubble.”

On one hand, U.S. airlines remain highly profitable and are continuing to see gains in passenger traffic in a comparatively healthy U.S. economy, he said. But, he said, “most of the world outside the U.S. is not doing well at all.”

“Softening traffic numbers. Reduced yields and load factors in Middle East. It’s showing up,” Aboulafia said.

In a report last month, the International Air Transport Association revised its 2016 profit projections upward for the global airline industry to $39.4 billion, from $36.3 billion it forecast in December 2015.

But in that same report, the airline trade group acknowledged that “weak economic conditions prevail” in the global economy. The report said that 2016 global gross domestic product is expected to grow by 2.3 percent in 2016, down from 2.4 percent in 2015 “and the weakest growth since 2008 when the global financial crisis hit.”

A weak global economy is one of the reasons why JPMorgan analysts David Perry and Seth Seifman are expecting “a subdued FAS (Farnborough Air Show), with relatively low orders.”

They wrote in a Farnborough preview last week that they haven’t seen some of the clues that typically give them an idea of how Boeing and Airbus will do with airplane orders at a big show like Farnborough.

“There are always some new orders at air shows,” they wrote. “But the usual pre-show trade press speculation about possible orders has been noticeably lacking in recent months.”

Perry and Seifman added that Airbus and Boeing don’t look like they’ll be announcing any new products at Farnborough, which they said would stimulate new orders.

Even Boeing’s considerations of potentially new 737 Max variants or a middle-of-the-market replacement for its 757 don’t appear to be far enough along for any kind of new aircraft announcements, they added.

C Series exception?

While analysts are largely downbeat about commercial aircraft order activity at Farnborough, there could be a couple of noteworthy exceptions.

One would be Boeing’s 747-8 Freighter. Bloomberg reported last month that Russian company Volga-Dnepr Group was in advanced talks with Boeing to place a firm order for 10 of the jumbo jets.

In March, Boeing reduced its monthly production rate on the 747-8 from 1.3 airplanes a month to one a month. In September, it’s expected to further reduce the monthly rate to 0.5 a month – roughly half an airplane. Such an order could stretch the life of the airplane, which has a backlog of 22 airplanes. Spirit manufactures the forward fuselage, wing leading edges, struts and pylons of the 747-8.

Another potential order to watch for is Bombardier’s new C Series airliner. The first large airliner program of the parent company of Wichita’s Learjet is entering Farnborough in a good position, aviation forecaster Rolland Vincent said.

Bombardier’s first C Series CS100, delivered last month to launch customer Swiss International Airlines, will begin service July 15, during the air show. Moreover, the C Series will be coming to the show with significant firm orders in hand, including 45 from Air Canada and 75 from Delta Air Lines.

“I wouldn’t be surprised if there was an order announcement (for the C Series),” Vincent said, adding that British Airways is one airline that has been taking a serious look at the airplane. “I think the program is in good momentum right now.”

This story was originally published July 6, 2016 at 5:24 PM with the headline "Aircraft orders may be slow to come at Farnborough show."