Puzzling jet market for Boeing, Airbus

By Michelle Dunlop Herald Writer

LYNNWOOD — Inexplicable. That’s how one analyst describes the commercial aviation market over the last year.

While global air traffic declined in 2009, the two top jet makers, the Boeing Co. and Airbus, delivered a record number of aircraft.

“I can’t figure it out,” Richard Aboulafia, analyst with the Teal Group, told hundreds of participants at the Pacific Northwest Aerospace Alliance conference earlier this week. The conference ended Wednesday.

Particularly bewildering to Aboulafia was the number of single-aisle aircraft delivered by Boeing and Airbus last year coupled with the fact that the two aren’t slashing rates on their respective 737 and A320 jet production lines.

“I just don’t know what to make of this,” Aboulafia said.

Airlines continued to retire aircraft at a swift pace. Carriers mothballed not only older MD-80s but also working, single-aisle aircraft such as 737s with the intent of replacing those jets with newer, more fuel-efficient aircraft. The only way they were able to do that was through government-backed financing.

“This is sort of a cash-for- clunkers program that has gone further than any other cash-for-clunkers has,” Aboulafia said.

The result could be an oversupply of aircraft, especially if air traffic doesn’t pick up again in the next few years. Overall, with airlines slashing capacity, the demand for new aircraft deliveries should be minimal, Aboulafia said. The record deliveries are driving down the value of existing aircraft. And that has hurt aircraft leasing companies, such as International Lease Finance Corp.

“Every day that these jets keep rolling out, the more complicated things get,” Aboulafia said.

One way that Boeing and Airbus may temper deliveries: announcing models of their single-aisle aircraft with new engines. Aboulafia believes an announcement could come from both jet makers this year, leading customers to delay deliveries for new A320s and 737s until the “re-engined” single-aisle aircraft are produced.

Neither Boeing nor Airbus should expect to see a strong year for new aircraft orders in 2010, as this downward cycle in the aviation business drags on.

“We’re really not out of the minefield yet,” he said.

At the end of 2009, the value Boeing and Airbus’ backlogs were almost equal with Boeing’s at $257.9 billion and Airbus’ at $257.5 billion.

As long as Boeing can deliver on the new 787, the company’s future looks strong, Aboulafia said.

Airbus, however, has challenges. It’s developing a mostly composite jet, similar to Boeing’s 787, that will compete more directly with Boeing’s 777. The European company plans to deliver its A350 in 2013. But Aboulafia sees a cash crunch at Airbus that could hurt the A350 program.

“For Airbus, it’s all about the A350,” Aboulafia said.

Airbus and its parent company, EADS, are saddled with the troubled A400 military transport aircraft program. The company has said it may cancel the program if it doesn’t receive help from European governments that have ordered the aircraft. Airbus’ A380 superjumbo jet also is a drain on the company’s finances. The “colossally irrelevant” A380 is an unprofitable program with little hope of ever making Airbus money, Aboulafia said.

“There’s not a lot of margin for error,” Aboulafia said.