Boeing plane production greater than market forecasts call for

EVERETT — The world’s two biggest airplane makers are making more airplanes than ever before, and plan to make even more.

But based on analysis of their own market projections, the Boeing Co. and Airbus Group are making more airplanes than the market needs. Either current production levels will have to come down or demand for new airplanes will have to come up.

Boeing and Airbus are ramping up assembly lines faster than they project demand to grow, according to analysis of their market forecasts by the International Institute of Strategic Leadership. The institute is led by Ted Piepenbrock, a lecturer at the Massachusetts Institute of Technology.

The number of new commercial jetliners made in the next 10 years could outstrip demand by more than 20 percent, according to the analyses.

Of course, forecasts are just projections. Factors affecting commercial jetliner purchases — such as how often people fly, fuel prices, interest rates and global and regional economic performance — are not beholden to the forecasts, which are carefully constructed by Boeing and Airbus.

Both companies say they tend to underestimate demand in their projections. Overestimating demand could force the airplane makers to cut back production and lead to layoffs.

At Boeing, the 20-year forecasts are used to “help shape our product strategy and inform our long-range business plan, including rates of production,” Boeing spokesman Paul Bergman said. “We constantly monitor the markets and work to make judicious decisions about our products and production rates, and make sure that we match production with market demand”

The aerospace giant and its European rival have enough firm orders to keep their assembly lines busy for more than six years. However, airlines can always cancel orders.

Boeing has been seeing fewer order cancellations, conversions and deferrals from airlines than the historical average, he said. “Airlines are taking the airplanes they order.”

Airlines have been on a buying spree in recent years, fueled by strong and sustained profits.

Even as air carriers have grown and added capacity, “they are still filling their airplanes and operating profitably,” he said.

And aircraft leasing rates are stable — “if there were an oversupply, those rates would be dropping,” Bergman said.

Executives for two major aircraft lessors told investors this week that they are seeing demand weaken in some areas.

Aircastle has seen prices come down for newer single-aisle airplanes, “which we believe is largely attributable to expectations that fuel prices will remain low for some time,” CEO Ron Wainshal said during the company’s third-quarter earnings call.

There’s been less demand for twin-aisle airplanes for several quarters, he said. “However, it appears to be worsening a bit, as more aircraft are coming into the market, while demand — much of which has been centered in Asia — is waning.”

In August, Boeing increased its long-term forecast for airplane demand from China, despite that country’s slowing economic growth.

Worries about oversupply for leasing companies are not new.

“The general trend over the (past) 25 years has been a consistent upward sloping pattern,” said Steve Zissis, CEO of BBAM, which manages FLY Leasing.

Nonetheless, more older twin-aisle airplanes are on the market than there is demand for them, he said.

Single-aisle planes, especially Boeing’s 737 and Airbus’ A320, “are core aircraft” that are “in demand with most of our clients around the world,” he said.

The number of twin-aisle airplanes for sale will “significantly” outstrip demand by 2018, according to projections by industry analysts at UBS, an investment bank.

To balance demand and supply, Airbus and Boeing need to cut twin-aisle production by 20 to 30 percent, the UBS analysts said in a report released in late 2014.

The airplane makers are focused on increasing output, though.

Chatter about airplane oversupply driving down prices is not affecting Qatar Airways’ plans for its aircraft fleet, the airline’s CEO Akbar al-Baker said at an event in Everett earlier this month.

He said he is considering changing the Persian Gulf-based air carrier’s 30 options for 787-8s to the larger 787-9.

Dan Catchpole: 425-339-3454; dcatchpole@heraldnet.com; Twitter: @dcatchpole.