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Home / Business / Companies / Airlines

Airshow orders of $38 billion 'sign of upturn'

By Jane Wardell and Emma Vandore
Bloomberg·
23 Jul, 2010 04:00 PM5 mins to read

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Plane-makers notched up orders worth more than US$28 billion ($38.7 billion) at the Farnborough International Airshow by the close of the third day of the industry's premier event.

The orders highlighted a revival in commercial aviation, despite budget cuts keeping the defence sector in the doldrums.

New deals included orders
for Airbus jets from Berlin-based airline Germania and Indonesian national carrier Garuda, while Middle Eastern airline Qatar agreed a deal with Boeing for earlier delivery of the United States company's fuel-efficient 787 jetliner.

"Air travel demand is continuing to rise in the Middle East and it's becoming clear that international demand is returning as the global economy shows signs of recovery," said Qatar Airways CEO Akbar Al Baker.

"Commercial business travel is so dependent on innovation that there will always be opportunities," Al Baker added. "Each downturn is an upturn somewhere else."

Orders are well off the record-breaking $88.7 billion worth of deals announced at the 2008 show, but the gathering has already exceeded the slow orders for commercial planes of around $7 billion last year at sister show Le Bourget, near Paris.

The International Air Transport Association recently forecast the global industry would make a small profit of $2.5 billion this year, after a huge loss of $9.4 billion in 2009 - a quick improvement from its predictions late last year of more losses in 2010.

"The number of orders shows that the economic recovery is on its way," said Commercial Aviation Consulting analyst Max Sukkhasantikul.

More than 1000 exhibitors from 38 countries are at Farnborough, with delegations from Egypt, Taiwan and Morocco attending for the first time. Organisers also cited stronger interest from major players China and Russia.

Among the big buyers were two plane-leasing companies that have only been created in recent months. New leasing company Air Lease Corp has so far signed the biggest deals, dividing orders for 115 planes worth $8.6 billion between Boeing, Airbus and French-Italian regional turboprop manufacturer ATR. Qatar's Al Baker said that his company's leasing arm was noting strong demand.

Garuda CEO Emirsyah Satar said the airline planned to use its purchase of six long-range A330-200s, worth $1.1 billion at catalogue prices, to expand its new premium service "to more international destinations in a profitable and efficient way."

Germania signed a contract for five Airbus A319s, valued at $372 million dollars at list prices. The deal is the airline's first with Airbus, marking a win for the European company over arch-rival Boeing as Germania starts a complete fleet rollover to eco-efficient Airbus A319s.

Airbus also agreed a commitment with Thai Airways to buy seven A330-300s worth $1.48 billion at catalogue prices, which Airbus expects to be firmed up by September.

The European company's arch-rival, Boeing, confirmed deals with Air Austral, a French airline based on the island of Reunion, and with Qatar for two long-range 777-220 aircraft each. Both deals, worth just more than $1 billion at list prices, were already on the plane-maker's books, but the names of the buyers had not been disclosed.

The catalogue prices quoted by plane-makers often represent an inflated value on the deals, as airlines typically negotiate substantial discounts.

Meanwhile, smaller rival Bombardier said Australian carrier Qantas Airways ordered seven Q400 turboprop airliners, worth $218 million.

But the Montreal-based company has so far failed to line up an order for its much-touted C-series, which it is marketing as a fuel-efficient alternative to the current offerings from the Boeing-Airbus duopoly.

Boeing has notched up a number of sales for its fuel-efficient 787 jetliner, which is making its international debut at Farnborough after a problem-plagued production line delayed the delivery schedule. The first 787 is due to be handed to Japan's ANA later this year, more than two years overdue, and Boeing has said that could slip into the first few weeks of 2011.

After making its international debut at Farnborough, the 787 stopped business at Farnborough on Wednesday when it was given a send-off by two World War II vintage Spitfire fighter planes as it made its journey back to Seattle to rejoin the four other test models.

The renewed optimism in commercial aviation, however, could not dispel the bad news from the defence industry, where governments are cutting budgets after spending billions bailing the global economy.

Cuts to Western military budgets have been the talk of Farnborough.

In the US, the world's biggest single defence market, the Pentagon is looking to trim some $100 billion from personnel and procurement costs over the next five years. Britain, Europe's biggest defence market, is considering cuts of up to 20 per cent.

Italian Minister Ignazio La Russa said his country would reduce its order of Eurofighter jets by 25 planes to save €2 billion ($2.57 billion).

The plane is built by a consortium of European military manufacturers, including Britain's BAE Systems PLC, the German-French EADS NV and Italy's Finmeccanica SpA.

Italy had originally ordered 121 jets and the 25 it wants to cancel come from the last batch of planes, for which contracts had not been finalised. Eurofighter spokesman Marco Valerio Bonelli declined to comment on whether Germany, Britain and Spain could reduce last-batch orders as well.

Airbus sought to gloss over problems that have dogged its A400M military transport plane.

The hulking grey aircraft is one of two star performers - the other being the also delayed Boeing 787 - of the flying displays at Farnborough.

But the plane is still around four years late and €3.5 billion over budget, and despite reaching an agreement in principle earlier this year on how to share the cost overruns, the seven customer nations have still to sign the final agreement.

The show, held at an airfield about 50km west of central London, finishes on Monday.

- BLOOMBERG

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