The Farnborough air show, taking place this week outside London, was supposed to be the year’s biggest bash for buyers and sellers of airplanes. Instead it’s been a disappointment, with orders falling short of expectations and “almost no one coming away from the show incrementally positive,” as Barclays analyst Carter Copeland put it in a note to clients on the trade show’s final day.
So how do you explain the billions in aircraft orders and commitments reported by Boeing Co. and Airbus SAS?
A big reason is the long lead time for aircraft production.
Even with the global economy showing signs of strain, Boeing projects airline passenger traffic will grow 5 percent a year worldwide during the next two decades. Airlines buying jets now may not get them until late this decade because of planemakers’ backlogs, and many carriers have to get in line now.
That’s because even as the global economy shows signs of strain, airlines are finding it hard to stay completely on the sidelines, which is helping keep orders for new jets from crashing.
New planes like Boeing Co.’s 737 Max, for which it has received 285 commitments this week, help them control their biggest and least predictable cost: fuel.
Boeing CEO Jim McNerney, whose company has received commitments for 373 jetliners this week, told Bloomberg that his company’s big ramp-up in production makes sense even in a teetering economy. “We appear disconnected from GDP, so I get where the questions come from,” he said. But “you’d be selling these planes at zero GDP,” he added.
Boeing’s predicting 5 percent traffic growth for the foreseeable future. Even though crude is off its peak, fuel is going to remain a dominant cost for airlines. Plane buyers may be cutting back, but they can’t afford to stand still.
With assistance from Susanna Ray.