Friday, August 12, 2022

Airbus & Boeing; Upwards & Onwards

by Bikram Vohra

Any predictions about the recovery of the badly battered aviation industry is predicated up until the next wave of the virus and its mutations. While Airbus and Boeing both struck a positive chime at the recently concluded Dubai airshow and there was a collective spike to the sales graph the fact is that no one really knows where we go from here. At present things are still in a flux and gouging fares are not going to be the answer. The industry has to get back to scheduled flights and lowcost airlines have to be just that…lowcost. Failure to galvanise the industry by not making flying attractive and comfortable will directly affect these new deals as they flounder and have to be sharply delayed or cut.

Let us take a gander at how the two big players have projected the near future and the long run up to 2040. I quote one authority. Airbus Chief Commercial Officer Christian Scherer has been quoted as saying traffic will fully recover between 2023 and 2025 if not more swiftly and we can see a 3.5% annual rise in traffic globally. This is a very sunny projection and one can only hope it is accurate but then again, hope is a very evanescent thing and catching its tendrils not guaranteed.

Whether Airbus sold 408 aircraft at this first in two year gathering of the faithful or Boeing did a good deal with India’s Akasa Airlines for its 72 737 Max narrowbodies this is not selling popcorn and the billions of dollars in the price tags become pretty much academic if there is a slump in demand or the manufacturer delays delivery or the carrier reworks its priorities.

Emirates slashed its order for the 777X by 30 aircraft but exercised its swap rights for 30 Boeing 787-9 Dreamliners. The rearrangement is probably because of delays in the Max deliver but anything that is negative about the badly hit Max does send a wrong signal on the market and causes other potential buyers to hesitate. All too often grandiose statements of intent are made at airshows and then they fade away and nothing happens.

As things stand the manufacturers in both hull and power plants are beholden to the carriers and will offer sweetened deals just to keep the doors open. However, whether it is Indigo Partners going in for 255 A320 family units or Airbus building Akasa and Jazeera opting for 28 more the production depends on several factors. In addition, delivery is stretched over years. Consequently, much can happen in the interim.

Boeing posted a 2020 loss of $11.9 billion and its first quarter has been a draining of $557 million. It would take three good years minimum to pull in that slack. Boeing CEO Dave Calhoun has been widely quoted as saying, “Despite solid progress on the vaccine front, the next six to nine months will remain very challenging for our airline customers and the entire industry,” Calhoun told industry analysts and reporters on the call. “COVID-19 case rates continue to be high and travel restrictions remain in place, putting significant pressure on passenger traffic.” For Boeing what is perhaps most worrying is the slowness in the purchase of widebodies and the it’s uncertainty over the demand for the 777X now.

With Emirates reviving its A380 fleet in gradual there goes the most prized high end capacity customer even though Emirates has 126 777X on order. It will concern Boeing if that gets whittled. In addition, the two 737Max crashes and subsequent grounding caused a major bruising to the bottom line the comeback trail is not going to be very swift and despite the bold move by the untried Akasa to make a big enough deal the rest of the orders will be in bits and bobs.

Moreover, it will be a long time before that $19 billion loss is recouped. While there is, some tangible comfort from Boeing’s military sales to the tune of $26 billion in 2020 and this strong showing will keep it afloat the twin negatives have been cruel. Again, the 777F, which was supposed to be a big seller, is still not a viable sales option and may not be for some years to come. Boeing’s best bet is the 737 narrowbody market and the long-haul, widebody, twin-engine jetliner787 Dreamliner.

Airbus had a better time even though it was rocked by a $1.3 billion in 2020. However, Airbus delivered 566 aircraft to global airlines in 2020, just a little more than half of what it intended to before the pandemic. With dozens of newly manufactured aircraft, waiting for their reluctant owners to fly them away Airbus is not likely to fast track manufacture any time soon. One can safely conclude that about the same number of aircraft will come off the assembly line this year and the next.

A total of 297 commercial aircraft were delivered (H1 2020: 196 aircraft), comprising 21 A220s, 237 A320 Family, 7 A330s, 30 A350s and 2 A380s.Things are pretty good on paper and Airbus has an order backlog of 6,925 commercial aircraft on 30 June 2021. Airbus Helicopters booked 123 net orders (H1 2020: 75 units), including 10 helicopters of the Super Puma Family.

In fairness, Airbus is honest about the chasm between the promise and the reality and how it can make a travesty of projections. The factors that can influence these figures are more than comfortable. By their nature, forward-looking statements involve risk and uncertainty because they relate to future events and circumstances and there are many factors that could cause actual results and developments to differ materially from those expressed or implied by these forward-looking statements.

These factors include but are not limited to: Changes in general economic, political or market conditions, including the cyclical nature of the aviation business. Significant disruptions in air travel (including as a result of the spread of disease or terrorist attacks); Product performance risks, as well as programme development and management risks; Customer, supplier and subcontractor performance or contract negotiations, including financing issues; Competition and consolidation in the aerospace and defence industry; The outcome of political and legal processes, including the availability of government financing for certain programmes and the size of defence and space procurement budgets; Research and development costs in connection with new products; Legal, financial and governmental risks related to international transactions; Legal and investigatory proceedings and other economic, political and technological risks and uncertainties;


The full impact of the COVID-19 pandemic and the resulting health and economic crisis. This list holds good for not just Airbus but any manufacturer and it is a bit of a grope in the dark.


Boeing hurt more and delivered just 157 aircraft compared with 380 in 2019 and 806 in 2018.Even though it lags in the sales race it projects a $9.1 trillion aerospace potential into 2030. The BMO projects a $9 trillion market over the next decade for aerospace products and services that Boeing addresses. The forecast is up from $8.5 trillion a year ago, and up from $8.7 trillion in the pre-pandemic 2019 forecast.

According to Boeing, the demand for domestic air travel is leading the recovery of the commercial market as in India China, Europe and mainland USA. It expects the intercontinental markets expected to reflect a surge as post Covid mass vaccine programmes ease travel restrictions. Boeing’s commercial market outlook (CMO) projects 10-year global demand for 19,000 commercial airplanes valued at $3.2 trillion and it expects long haul travel to kick in by 2023.


What is heartening in all this is that both Boeing and Airbus have survived the worst of it and are now ready to move onwards and upwards. It is not just in the passenger aircraft segment. Freight is another benediction and between the 777XF which might take some time to materialise and the plans for the A350F.


The accent seems to be on dedicated fleets and the combat zone in the larger segment would be between the A350F and the Boeing 777F. The Airbus version will be slightly shorter than the 350-1000 but hopes to exploit the current global inclination towards online purchase of perishables with the accent on freshness.


Airbus has struck a very positive note with a forecast that projects the need for some 39,000 new-build passenger and freighter aircraft, 15,250 of these for replacement by 2040. In addition, Boeing will be happy to get its fair share.

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