Airline Industry Crisis At Air Show, the Worry Is Too Many Planes?
As airlines cut back on services and lay off thousands, planemakers such as Airbus and Boeing are sitting on a record backlog of orders.
International air shows, with their flashy aerial displays and throngs of onlookers, are a time-honored venue for airlines and aircraft makers to announce lucrative new orders. But the big question at this year's Farnborough Airshow, which opens July 14 near London, isn't how many new planes will be sold -- it's whether airlines are really going to buy the ones they've already ordered.
The airline industry is in crisis, battered by record-high fuel prices and economic malaise. Airlines worldwide are expected to lose at least $6 billion this year. Already, many are curtailing services and laying off thousands of workers.
Airbus A380 test flights: With the airline industry in crisis will some struggling carriers defer their orders?
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But some other orders look less certain. "There are about 2,000 too many aircraft in the backlog at the moment," says Chris Tarry, an independent British aviation consultant. "A number of orders are clearly going to be modified or deferred."
The biggest risk of cancellation doesn't come from the US, where most airlines have been too financially strapped in recent years to invest in upgrading their fleets. Of 2,880 planes ordered last year from Boeing and Airbus, only 210 were from US carriers. Middle Eastern airlines, by contrast, ordered 406 planes, while Asia-Pacific carriers ordered more than 600.
Which orders could be at risk? Analysts point to India, where airlines are expected to lose a jaw-dropping $2 billion this year. Two of the country's biggest airlines, Air India and Jet Airways -- which together have 80 planes on order from Boeing -- each are losing about $2 million a day. "It's very possible" that some of those planes will never be delivered, says analyst Peter Harbison of the Sydney-based Center for Asia Pacific Aviation.
Another Asian carrier that may have overreached is Malaysian discounter AirAsia, which has more than 130 Airbus A320s on order. Its shares have plummeted more than 70 percent in the past year, as investors fret over its exposure to soaring fuel prices.
In Europe, the region's No. 3 discount carrier, Air Berlin, recently issued a profit warning and has announced plans to reduce its fleet, raising doubts about its outstanding order for 110 Boeing 737s.
But many airlines are likely to stick to their order plans despite the economic turbulence. Some, such as Russian regional airline S7 -- which has ordered 40 Boeing and Airbus planes -- are desperate to replace their fuel-guzzling Soviet-era planes with more-efficient models. Others figure that new planes will help them grab market share from weakened rivals. Still others simply want to avoid the penalties they'd have to pay Airbus and Boeing if they canceled or deferred orders.
And some airlines will go right on ordering new planes. One likely buyer: Abu Dhabi carrier Etihad, which has reserved a conference room at Farnborough for a major announcement on July 14. The show, after all, must go on.