After years of piling on plane orders, airlines are taking a break and demanding that Airbus SAS and Boeing Co. (BA:US) deliver.
Sales of 282 Airbus and Boeing jets at the Farnborough air show this week fell 36 percent from the 2011 expo in Paris, underscoring the need to work off backlogs stretching almost to the end of the decade. Carriers such as Emirates that had been loading up on wide-bodies are now on the sidelines.
“We didn’t order any planes because we have ordered enough,” Qatar Airways Ltd. Chief Executive Officer Akbar al- Baker said yesterday in an interview at the show near London, where the carrier showed off one of the 30 Boeing 787 Dreamliners it booked in 2007.
Airbus and Boeing are rushing to boost production of single-aisle jets and prepare for upgraded models -- Airbus’s A320neo and Boeing’s 737 Max. They also are trying to prove they can meet delivery targets for the long-range 787 and superjumbo A380 after years of delays.
The 737 Max led the order book at the Farnborough show, while Airbus’s A320neo was the star in Paris last year, as it became the fastest-selling jet in aviation history.
“Everyone was spoiled by Paris, but people realized that Farnborough would never be comparable to that event,” said Rupinder Vig, an analyst at Morgan Stanley in London. “With the years of order backlog, the focus needs to move back to execution, and frankly they shouldn’t be chasing orders right now.”
Airbus disclosed a fresh setback yesterday on its wide-body A350, saying delivery of the wing was pushed back a month until October as drilling in composite-material components proved more difficult than anticipated. Meeting a 2012 goal for handing over 30 A380s will require doubling the first-half count of 10.
Boeing said last week on the eve of the show that first- half shipments of the Dreamliner and the new 747-8 jumbo jet totaled 24, scarcely a third of the combined full-year total of 70 to 85 the Chicago-based company has set as a target.
“They need to show that they can put the planes in customer hands,” Richard Whittington, a Drexel Hamilton LLC analyst in New York, said in an interview. “It sounds like the third quarter is going to be a very strong delivery quarter for the 787. At that point we can start feeling a little bit better.”
Boeing said it had 228 firm orders and 145 commitments at the show, with a total list value of about $36 billion. Airlines typically buy at a discount. All were single-aisle planes, either the existing 737 or the Max model.
Airbus reported 54 orders and 61 commitments, together worth about $16.9 billion. New commitments totaled 29 for the A320neo, less than a 10th of its haul in Paris.
The single-aisle A320 and 737 make up the bulk of the global airline fleet, and the majority of each planemaker’s backlog. Unfilled narrow-body orders at Toulouse, France-based Airbus exceed 3,000, while Boeing’s count is almost 2,600.
Airbus is increasing A320 production toward a goal of 42 a month this year, a level that Boeing is also seeking to attain for its 737 assembly plant by the end of 2013.
“Orders are great, but the real greenbacks come with the ultimate delivery of the aircraft,” Michael Lewis, a Lazard Capital Markets Ltd. analyst in McLean, Virginia, said in a phone interview. “They need to execute on deliveries and get those planes out the door. Right now, it’s stretched too far.”
Boeing is still feeling the strain of more than three years of delays delivering its Dreamliner, which didn’t enter commercial service until 2011. The 845-plane backlog through June had a value of $175.1 billion at list prices.
The planemaker’s shares have fallen 29 percent since the day before the first Dreamliner delay, in October 2007, about twice the decline in the Standard & Poor’s 500 Index. Airbus parent European Aeronautic, Defence & Space Co. (EAD) is up 19 percent in the period.
The industry’s smaller manufacturers face challenges similar to those at Boeing and Airbus.
Bombardier Inc. (BBD/B) risks having the first flight of its CSeries jet slip past the late 2012 target amid struggles with the plane’s flight controls, Bombardier Aerospace President Guy Hachey said before the show. The initial delivery is set for the end of 2013 for a plane whose orders have mostly been in handfuls, not the scores sometimes reaped by Airbus and Boeing.
Mitsubishi Aircraft Corp. (7011), buoyed by a commitment from SkyWest Inc. (SKYW:US) this week to buy 100 regional jets, has been working to ease customers’ concern about Japan’s first passenger jet after a one-year delay.
Airbus and Boeing’s booking bulge has strained the supply chain. Maintaining suppliers’ strength is among the chief tasks for the large planemakers, which are deploying “hundreds” of employees to work with vendors, according to Tom Enders, CEO of EADS. The backlogs are so big that planemakers are struggling to give new buyers a date when they could take delivery, Airbus CEO Fabrice Bregier said.
Investors will need to adjust the way they assign value to planemakers’ shares toward their receipt of payments for aircraft deliveries, not based on order taking, said Yair Reiner, an analyst at Oppenheimer & Co. based in New York.
Mounting evidence that the global economy is weakening means the planemakers’ ability to increase deliveries will be pivotal, Reiner said.
“There’s an appreciable slowdown in the airlines’ appetite to put in orders for additional planes,” he said in a telephone interview. “It looks now that the order rate is declining. Historically, that has been a warning signal for the stock because orders are a leading indicator of what deliveries ultimately do and what the stock will do.”
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