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Guest Blog: No Signs of Austerity at Dubai Airshow

Defying gravity, let alone already well-evident signs of global economic downturn, the world’s commercial aerospace manufacturers arrive at the Middle East’s premier Dubai Airshow in seemingly strapping health.

Boeing 747-8 Intercontinental
Getty Images
Boeing 747-8 Intercontinental

For Boeing and Airbus, the world’s two largest commercial aircraft manufacturers, this year has been truly remarkable, although it's fair to say that the same can be said for most of the world’s other players too.

On one hand the idea of another record year hardly makes sense, and yet on the other, air travel remains an industry that's still expanding. The airline industry is also hugely competitive, meaning that unless underlying revenue is growing, an airline has little choice but to further reduce cost and capacity.

High fuel costs and air travel expansion are the driving forces behind the growth of new aircraft sales. Fuel costs are, after all, the single most important cost factor that's outside of airline management control, and a sharp rise in fuel costs over recent years has forced airlines to modernize aircraft fleets built around more fuel-efficient planes.

This one factor, together with continued growth of Far and Mid-East airlines and to an extent, growth in airline travel from emerging economies, helps explain why the commercial aircraft industry enjoys record order backlogs. Can it continue? Probably not on the current scale, but that is not to suggest that there will be a major pulling back by airlines unless the global economy really does collapse.

Both Boeing and Airbus have announced large-scale engine and airframe investments in their respective narrow-bodied aircraft over the past year. Of particular note here is that less than a year after launch of the Airbus A320neo (new engine option), firm orders for the planned new aircraft already exceed one thousand planes. Boeing also announced a re-engineered version of the world’s best-selling aircraft, the 737, that will be known as the 737 MAX.

Offering airline customers considerable fuel-saving advantages over current aircraft, the company has picked up more than 500 order commitments so far. In the past month Boeing has also delivered the first two of its much delayed Dreamliner 747-8 aircraft to airline customers. With an order backlog in excess of 800 aircraft, the extended 787 family of airplanes, along with that of the hugely successful 777, leave Boeing well placed over the next decade.

With around 600 aircraft on order, Airbus continues to make great strides with the A350 XWB development, althought anticipated delivery dates have been pushed back by six months.

Meanwhile, with the order backlog of both Airbus and Boeing at record levels right now, apart from the continuing worry over airline financing and liquidity, there doesn't appear much that's likely to knock either of the two big aircraft producers off course during the next year.

The industry can't afford to be complacent, of course, and there are serious issues of concern that might yet begin to affect them soon. For instance, the now highly visible global economic problems that have forced governments to reduce deficits could, through the impact on jobs and on revenue availability of consumers soon spill over into the airline sector.

Yet another ongoing source of concern is that the average profitability of the airline customer is hardly to be considered robust. Availability of financing for new planes remains in these difficult times a very constant threat to both airline customer and aircraft maker alike. But while worries related to the global economy and growth are certainly justified, it seems that for now, the far greater concern faced by the big two aircraft makers is how quickly they can increase production capacity to meet the very strong demand for both narrow- and wide-bodied planes.

While the world’s military aircraft and defense equipment manufacturers will be showing off their wares at Dubai, announcement of orders at shows such as this one are rare. Nevertheless, while the Western world is mopping its brow waiting to see how defense cuts will bite, the Middle East continues to increase spending on defense. The good news is that while Dubai this year will feature the first showing in the region of the Boeing V-22 Osprey TiltRotor the bad news is that the ubiquitous Lockheed MartinF-35 Joint Strike Fighter will once again be missing.

While the two big commercial aircraft makers have been doing well the Canadian aircraft manufacturer Bombardier continued to struggle to achieve sales of its planned CSeries plane. While some orders have been received during the year it is clear that the company will need to work very hard to push this aircraft forward.

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Author -Howard Wheeldon is senior strategist at BGC Brokers in London