Slow sales expected at Farnborough airshow

Farnborough International Airshow 2006
The Royal Air Force’s Red Arrows flying team accompanies the Airbus A380 as part of a display at the U.K.’s Farnborough International Airshow in 2006. This year’s show is expected to see slow sales, as the world’s aviation industry is buffeted by high fuel prices and the credit crisis.Tim Ockenden / AP file
/ Source: The Associated Press

The headwinds buffeting the aviation industry from high fuel prices and the credit crisis will be blowing strongly through the Farnborough International Airshow next week.

With $2.3 billion in industry losses forecast this year and 25 airlines shuttered in the past six months, many carriers who usually use the event to trumpet new plane orders are expected to keep their wallets firmly shut.

"Everybody's too nervous to order airplanes, and also rather concerned that they ordered too many last year and the year before," said Evolution Securities analyst Nick Cunningham.

Farnborough is still a key date on the industry's calendar, with more than 300,000 people expected at the show outside London starting Monday. Almost 1,500 exhibitors from 35 countries will show off the latest in aviation technology, including flight simulators and surveillance aircraft.

The show, which alternates years with an event at Le Bourget in France, usually hosts a duel between U.S.-based Boeing Co. and European rival Airbus for customers, but this year questions are likely to focus on how many orders the pair may see canceled later this year.

Airbus has booked 487 net orders for aircraft so far this year, besting Boeing's total by 12 aircraft, but both expect their 2008 order totals to fall far short of their record 2007 total of 2,754 orders.

The only clear buyers for commercial aircraft so far at Farnborough are from oil-rich Gulf states, who can rely on sovereign wealth funds to back their purchases.

Qatar Airways has announced plans for a joint press conference with Airbus at the weeklong show, suggesting that the state-backed carrier will announce a major order. Qatar currently operates a fleet of 62 aircraft and has ordered 200 aircraft worth $30 billion.

Etihad Airways, the national carrier of the United Arab Emirates, has indicated it is likely to order between 50 and 100 aircraft during the show from Boeing and Airbus. Etihad currently has a 32-strong fleet, which will rise to 42 as it takes delivery of new aircraft between 2008 and 2011.

Russian aircraft maker Sukhoi has also said it plans to sign deals for 30 of its new regional passenger jets, but did not reveal who was buying.

Meanwhile, purchasing from U.S. or European carriers is almost certain to be subdued as oil prices surge. Crude oil reached a new record near $146 a barrel on Friday.

Kerosene, the fuel used to power planes and distilled from crude oil, now accounts for around 40 percent of airline costs, up from 13 percent five years ago, according to International Air Transport Association.

Airlines in Western countries are also coping with inflation, the credit squeeze and slowing economic growth — all factors expected to reduce demand.

Among the 25 carriers already out of business are business-class airlines Silverjet and MAXjet, Cameroon Airlines and Denver-based Frontier Airlines. In comparison, only eight airlines folded in the six months after the 9/11 terror attacks.

Los Angeles-based International Lease Finance Corp., the world's largest aircraft lessor, has suggested it might order jetliners from Boeing and Airbus to meet demand from airlines that can no longer afford to buy their own planes and those postponing deliveries to cut costs.

Still, any deals it agrees to are likely to take over orders canceled by other buyers, rather than represent completely new purchases.

Analysts expect the lessor to get a good price, with Boeing and Airbus likely forced to discount prices in return for ILFC taking over the risk financing of the aircraft.

Announcements at the air shows usually include a mix of firm orders, which mean a deposit has been made and binding contracts signed, and memorandums of understandings for future orders.

Aircraft makers have been pushing the idea that crude prices could prompt airlines to fast-track investment in fuel-efficient planes, such as the Airbus A380 and A350, as well as Boeing's 787.

Boeing earlier this week raised its outlook for spending on commercial airplanes by all plane makers, including Airbus, over the next 20 years by 14 percent, helped in part by an expected 5 percent rise in worldwide air travel and the demand for more fuel-efficient planes.

However, Cunningham said that plane makers were still not manufacturing the new narrow body, fuel- efficient aircraft desired by carriers. "Ironically, the market's crying out for it, but the product's not there," he said.