Boeing, Airbus Defiant Even as Airline Profits Plunge
Boeing and Airbus, the world’s biggest aircraft manufacturers, say they aren’t that worried about a slowdown in the global airline industry, which is expected to see profits plunge by more than half this year.
The industry may be facing economic headwinds, especially in Europe, but Boeing hasn’t seen a significant pullback in orders, Jim Albaugh, Chief Executive Officer of Boeing Commercial Airplane told CNBC on Monday in Beijing.
“We’ve got a backlog of about 4,000 airplanes, that’s over $300 billion and we should do pretty good this year,” Albaugh said. "You always have cancellations, you always have some deferrals. Yes, we have seen some, but nothing out of the ordinary.”
Boeing, which last year announced plans to build a newer version of its narrow-bodied 737, called the 737 MAX, has so far notched up around 450 orders. Speaking to CNBC, Albaugh said the company hopes to have a thousand orders for the plane before the year is done.
The global airline industry is expected to see profits cut by more than half to $3 billion this year from $7.9 billion last year, the International Air Transport Association (IATA) said on Monday. A double whammy of more expensive oil, which makes up a third of airlines’ cost, and a weak global economy, will continue to hurt the industry, Tony Tyler, Director General of IATA told CNBC on Monday.
“Fuel prices have come down a little bit but…It’s still very high by historic standards,” Tyler said. “And the reason it has come down is that the economic outlook is not so good. This is going to be a mixed blessing for airlines. The cost side is improving but if the economy weakens, traffic slows and yields fall, then it’s not going to make life much easier for airlines.”
Europe’s carriers are expected to lose $1.1 billion, double a previous estimate of $600 million released in March, IATA said on Monday, basing its forecast on the assumption that Brent crude will average $110 this year.
Despite a bleak economic environment, bright spots exist in North America and Asia, where profits will still hold up, Tyler said in Monday’s interview.
Airlines are in fact still placing orders and reports that manufacturers have had to aggressively slash prices are exaggerated, Airbus said on Monday.
“We’ve got a record high backlog right now,” John Leahy, Chief Operating Officer told CNBC in Beijing. “In fact, we’ve got about 4 to 5 years of production. If we don’t sell anything for the next 4 to 5 years, we’ll be running flat out with our assembly line so it’s a little bit exaggerated that there’s a price war going on.”
Airbus has received orders for about 250 planes so far this year, compared to net orders of around 1,400 last year after the company redesigned its narrow-body A320 with more fuel-efficient engines and wings. Orders for its new A320neo jets, helped the company post record sales last year, a feat unlikely to be repeated this year.
—By CNBC’s Jean Chua.