Paris Air Show: Not Much of a Party

Declining air traffic, canceled and delayed orders, and the Air France crash make for a sullen mood at the 2009 Paris Air Show

By Carol Matlack

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The mood is grim as global aerospace leaders gather for the June 15 opening of the Paris Air Show. And the scarcity of new orders is the least of their worries.

With passenger traffic worldwide expected to decline 8% this year, aircraft buyers are canceling or delaying orders, forcing airplane makers and their suppliers to curtail production and furlough workers. The cutbacks affect nearly every sector of the business, from small private planes to corporate and commuter jets, to the big Boeing (BA) and Airbus (EAD.PA) widebodies flown on international routes.

Things probably won't start to improve before 2011, says Randy Tinseth, vice-president for marketing at Boeing's commercial airplane unit. "There are fewer planes flying now than a year ago," Tinseth said at a Paris briefing, calling the situation "the most difficult we've seen in years."

Adding to the gloom are costly production delays on aircraft, including Boeing's 787 Dreamliner and the A400M military transport plane that its European rival Airbus is building. All this, while three major players in French aviation are dealing with tragedy: the still unexplained May 31 crash of an Airbus A330, killing all 228 people aboard, on an Air France (AIRF.PA) flight from Rio de Janeiro to Paris. Airspeed sensors known as pitot tubes, made by French defense electronic group Thales (TCFP.PA), have been identified as a possible factor in the accident.

Cancellations Galore

As the air show opens, Airbus is slightly ahead of Boeing on orders for the year. Since Jan. 1, the European planemaker has booked a net total of 11 orders, after 21 were canceled. Boeing has netted only 7, after 66 cancellations, including 45 cancellations of the forthcoming 787.

The numbers are paltry—but racing to win more business could be risky. Any airlines shopping now—such as United Airlines (UAUA) is reportedly doing—are likely to demand rock-bottom prices. "The game is no longer about orders; it's about backlog management and program execution," says Richard Aboulafia, an aerospace analyst with Fairfax (Va.)-based Teal Group.

Indeed, both Airbus and Boeing look vulnerable to further erosion of their current order books. At least two customers of Airbus' A380 mega-jet—Thai Airways and U.S.-based International Lease Finance Corp. (ILFC)—have said they are thinking about canceling orders for the plane, while the A380's biggest customer, Emirates Airline, has said it may delay some of its order.

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