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Get Four
|  | JUNE 30, 2004
By Stanley Holmes A Sudden Updraft for Boeing and Airbus Low-cost carriers are putting in lots of orders for new, nimble aircraft, and both planemakers are about to benefit Commercial jetmakers Boeing and Airbus are quietly ramping up production of their commercial airplane factories –- a strong signal that deliveries are picking up faster than expected. Demand for single-aisle Boeing (BA ) 737s and Airbus A320s is so strong that the two jetmakers could each produce 100 more airplanes in 2006 than what current forecasts show, analysts say. Discounters such as Ryanair (RYAAY ) in Dublin, WestJet in Calgary, GOL Airlines (GOL ) in Brazil, EasyJet in London, Air Tran (AAI ), Virgin Blue, and Air Europa have either placed new 737 or A320 orders this year or have backlogs of existing orders, sources say. Some big carriers, such as Qantas and Continental Airlines, have also ordered new narrow-bodies or want their planes sooner. Finally, the two giant leasing companies -– International Lease Finance in Los Angeles and GE Capital -– are also burning through their backlog of existing 737 and A320 orders to fill the rising demand. This unexpected appetite for smaller airplanes underscores the strength of the discount-airline model. While some of the world's largest full-service carriers such as Chicago-based United Airlines and Atlanta-based Delta Air Lines (DAL ) continue to struggle financially, low-fare outfits such as Dallas-based Southwest Airlines (LUV ) and New York-based JetBlue (JBLU ) continue expand their fleets. Even though Boeing and Airbus are building big new twin-aisle jetliners –- the 7e7 and A380, respectively –- the most popular and profitable part of their businesses continues to be smaller jets. GAINING ALTITUDE. Most analysts had been predicting that airplane orders would pick up in 2005, followed by a sharp production hike in 2006. What makes these moves by Boeing and Airbus interesting is that both jetmakers have more than 2,500 existing orders between them that airlines had delayed because of the September 11 attacks and the recession. Now, airlines that had previously delayed orders are pressing both companies to speed up production. Most of these carriers follow the low-cost model pioneered by Southwest. At a June 16 analyst conference, Southwest CEO James Parker said his company will grow about 8% in the third quarter, 10% in the fourth, and 10% next year. Record passenger-load factors in March, April, and May exceeded 70%, Parker said, adding that the combination of high loads and yields "has produced positive total unit revenue trends." Southwest Chief Financial Officer Gary Kelly said the carrier will expand the fleet by a net 29 aircraft this year and 29 next year. Low-cost carriers typically buy one airplane type –- either Boeing's 737 or Airbus' A320. These jets can seat between 120 to nearly 200 passengers depending on the model size, but they share common cockpits and maintenance procedures that help keep operating costs as low as possible. JetBlue, which buys Airbus A320, recently converted 30 options into new airplane orders. JetBlue officials say they continue to see strong demand and have increased capacity 43% in the first five months of this year. "Unless the world ends again, this is further confirmation that the airline recovery is gaining momentum," says Jim Beyer editor of Avmark, an aviation-industry newsletter. "The discount airlines want these airplanes now."
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