All but one analyst see no bubble looming for jets

LYNNWOOD — Is the commercial airplane industry’s historically large order backlog legitimate or a bubble waiting to burst?

That question kept coming up on the opening day here of Washington’s largest annual aerospace conference. Industry insiders — from analysts to airline executives to suppliers to airplane makers — responded all but unanimously: There’s probably not a bubble, but there could be.

Economic bubbles are prone to burst, sometimes forcing violent market realignments that can consume companies, swallow individuals’ investments and drive up unemployment.

The huge order backlog — most of which is for jetliners made by the Boeing Co. and Airbus — is unusual enough to worry some in the aerospace industry. Their concern is that the airlines that placed the airplane orders could cancel or delay them, which would send a ripple through the industry.

“The foundation for everybody’s health in this industry is the airlines,” said David Fitzpatrick, an aerospace analyst with AlixPartners, based in San Francisco, during a panel at the Pacific Northwest Aerospace Alliance’s annual conference.

Fitzpatrick is not worried about a bubble, though.

He pointed to improving global economic conditions, airlines reducing the number of empty seats on planes and the need to replace aging aircraft as some of the reasons that demand for new planes isn’t going to burst.

“You should invest in this industry. There’s growth here,” he said.

There might be some “irrational exuberance” in some of the orders, but “have faith in the future — no bubble,” Fitzpatrick said.

Forget faith, there’s a bubble coming, said David Strauss, an analyst with UBS.

Strauss was the only speaker to take such a dim view of the industry’s next few years.

Air traffic isn’t growing fast enough, and airlines are keeping older planes in service too long to support the supply of new airliners, Strauss said.

Analysis by UBS indicates the oversupply of commercial airplanes will be big enough to start driving down production rates by 2016.

If UBS is right, that means there’s a bubble and it will burst — or at least start deflating — in a couple years.

Boeing doesn’t appear concerned. On Tuesday, the company announced that it is increasing the 737 production rate to 42 planes a month at the Renton plant.

The Chicago-based company will likely increase production further in coming years, according to Boeing.

Airbus will likely match Boeing’s production rate as the two fight each other and new entrants in the single-aisle jetliner market, said Scott Hamilton, an aerospace analyst with Issaquah-based Leeham Co.

The current order backlog for narrow- and wide-body jets is so big that even “if you cancel 10 percent, what does it really matter?” Hamilton said.

The PNAA conference continues through Thursday at the Lynnwood Convention Center.

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

More in Herald Business Journal

Peoples, HomeStreet banks bump lowest salaries after tax cut

The banks with Snohomish County branches will raise minimum salaries for employees to $15 an hour.

Electroimpact cuts Mukilteo staff by 9 percent

“What we’re missing now is a monster anchor project,” the company’s VP said.

Exotic animals find compassionate care in Bothell (video)

At the Center for Bird and Exotic Animal Medicine, vets treat snakes, hedgehogs and even kangaroos.

How can you tell if you are getting good financial advice?

Assume that it’s still the same buyer-beware market that has always existed.

Amanda Strong (left) tries on an Angel of the Winds Arena hat as she and Courtney Brown hand out gift bags after the renaming ceremony Dec. 13 in Everett. The new name replaces the Xfinity name. (Andy Bronson / Her file)
Angel of the Winds to break ground on $60M casino expansion

“We think we’re on the cusp of becoming a major resort.”

In this Dec. 20, 2017, photo, a clerk reaches to a shelf to pick an item for a customer order at the Amazon Prime warehouse, in New York. (AP Photo/Mark Lennihan, File)
Amazon’s potential HQ2 sites leaves many cities disappointed

And yet, some municipal leaders are looking at the bright side of being rejected.

How do you retrieve an errant Boeing 737 from a muddy slope?

Turkish authorities used cranes to lift a plane that skidded off a runway.

Don’t take economic forecasts to the bank — or the casino

Air travel delays could spur a rebirth of passenger rail service.

Emirates orders 20 more Airbus A380 jumbos, saving program

The Dubai carrier also has options to buy 16 more. The program seems safe until 2029.