Boeing and Airbus will once again be competing for bragging rights at the Paris International Air Show in the coming week and investors will be closely monitoring announcements from the arch rivals as well as other manufacturers for any signs of a slowdown on the booming aircraft industry's horizon.
"Big orders get executed at the show," said Robert Toomey, chief equity strategist at E.K. Riley Investments. "There are a lot of people there, there's a lot of jockeying between manufacturers, and people are looking for deals. It's the equivalent of a sidewalk sale."
That sidewalk sale will feature 140 aircraft on display, plus some 40 performing in the air. Slightly fewer than 2,000 exhibitors will ply satellite technology, engines, weapons systems, navigational aids, fabrication materials and myriad other aerospace products for 500,000 visitors. The event runs from June 18 to June 24.
But as usual, the slugfest between heavyweight commercial airliner makers Boeing and Airbus will take center stage at this year's show. Airbus stripped Boeing of its decades-old lead in annual orders in 2000, then pulled past Boeing's sales total in 2004. In 2005, Airbus was No. 1 in both categories. Last year, though, Boeing outpaced Airbus in orders as customers firmed up deals for the Chicago-based company's big, fuel-efficient 787 Dreamliner. More than half of Boeing's orders are now for widebody, or twin-aisle, planes, compared with only a quarter at Airbus. Toomey forecasts Boeing overtaking Airbus in sales either this year or next.
Hoping to Leave Bad News Behind
Investors will watch Paris for any order news from Airbus that could take the sting out of a host of recent manufacturing miscues and the departure this month of strategy chief Jean-Paul Gut from Airbus parent company EADS.
US Airways Group Chief Financial Officer Derek Kerr recently said the airline would make a decision this month on whether to stay with Airbus on a 2005 order for 20 A350s—or to flip to Boeing's 787.
Airbus is expected to reveal whether it will deliver its first A380 jumbo liner on time to Singapore Airlines by the end of the year. A series of production delays have made carriers hold off on orders.
Airbus is likely to play up recent orders from Qatar Airways and Aer Lingus, among others, but JSA Research aerospace analyst Paul Nisbet warns against reading too much into aircraft manufacturers' order announcements in Paris. He says most are "puffery" that have already been revealed. Publicly traded airlines don't often delay announcing purchases until one of the major air shows, because they have to report any material changes to their outlook. "Certainly," Nisbet said, "a major order for aircraft would qualify."
Boeing, too, has faced production problems. The company downplayed production snags with the 787, including delays at partner Vought Aircraft's Charleston, S.C., facility, which builds the plane's aft fuselage. The Vought executive in charge of the location resigned in early June, shortly after Morgan Stanley analyst Heidi Wood issued a report describing delays at the plant. Wood stopped short of saying the problems she observed in Charleston meant that Boeing would miss its 2008 delivery forecast for the 787. Boeing has received 584 orders for the Dreamliner from a total of 45 customers, according to the company's Web site.
Slowing Boom?
Paris is likely to see deals for more than 300 planes worth $30 billion this year—strong numbers, but short of the $50 billion announced there two years ago, according to media reports. Bear Stearns conducted a survey of more than 40 airlines and leasing companies and said in a report this month that carriers' average yields from flights are on the downswing—which could foretell cooling demand for new planes.
That said, even a slightly slower market for new planes would keep the industry in record territory, and analysts expect manufacturers' sales to remain robust as they fill orders that that in the case of some planes run to 2014 and beyond. "The sector is extremely healthy," Toomey said. "It's among the healthiest it's been overall in a couple decades."
In early June, Boeing upped its 20-year growth forecast for the industry overall, predicting that 28,600 new planes worth about $2.8 trillion will be sold over the next two decades. The company's previous forecast of 27,210 new planes got an upgrade in the face of surging passenger and cargo traffic, especially in Asia. Boeing expects world air carriers to be flying a total of 36,400 planes by 2025—double the number of big jets in operation today.
India's Jet Airways will send 20 representatives to Paris as it undertakes a $3.7 billion expansion that has so far included the purchase of 20 Boeing 777s and Airbus A330s, plus an order for 10 787 Dreamliners. The carrier added routes to New York and San Francisco this year.
Jet Airways sizes up aircraft based on operational reliability, customization opportunities, residual value, cross-crew qualification, range and payload, among other attributes. "Jet Airways strongly believes in maintaining a young fleet, as it has its own set of benefits like better operating economics, higher resale value and lower technology rollover cost," said Jet Airways Chief Executive Wolfgang Prock-Schauer.
Also sending a large contingent to Paris will be GE Commercial Aviation Services, which currently owns about about 1,450 planes. As the aircraft leasing arm of General Electric (the parent company of CNBC.com), GECAS is both a buyer of aircraft from manufacturers and a provider to the airlines.
GECAS Chief Executive Henry Hubschman said carrier demand currently outstrips aircraft availability. The company will use the Paris show as a chance to gauge airlines' demand going forward, and what carriers want now in terms of types of planes.
"We meet with the OEMs—Boeing, Airbus—regularly. It's what we do all the time," Hubschman said. "When you go to the show, for us, it's more of an opportunity to meet with the airlines themselves."
JSA Research and E.K. Riley Investments do not do investment banking business with any of the aerospace companies mentioned in this story, and neither Paul Nisbet, Robert Toomey nor either of their families own any of the stocks mentioned in this story.