The Globe As Crystal Ball
Around the globe, aircraft manufacturers share a similar trajectory. Demand for aircraft is driven by the number of airline tickets sold and the amount of air cargo shipped, which in turn are driven by the health of the overall economy. Lately, the global economy has been a bit under the weather. However, the consensus is that it’s on the mend. Coming into 2010, signs of stabilization were readily apparent. For example, the International Air Transport Association reported improvements in the air freight business. This bodes well for the overall aircraft industry as air cargo growth typically leads economic and passenger traffic growth by three to six months. Looking forward, 2010 may well be a year of global economic recovery and 2011 a year when airlines move to profitability. Demand for aircraft is expected to improve in 2012.
Despite early signs of a recovery in the global aerospace industry, the economic environment remains difficult. In the United States, Boeing reports that civilian aircraft deliveries are likely to fall to between 460 and 465 airplanes in 2010. This is down from 481 in 2009, which itself was a weak year for Boeing with 270 orders deferred and 120 cancelled. Even so, the firm reports the number of delivery deferrals for its airliners has slowed recently, another indication that the market may be stabilizing.
Airbus, like its U.S. rival Boeing, had a difficult 2009 as carriers and air cargo operators saw a decline in business due to the global recession. Unlike its U.S. rival, the European manufacturer has also had to contend with less than favorable currency exchange rates. Worldwide aircraft sales are priced in U.S. dollars, so when the local currency strengthens relative to the dollar – as the euro has – real revenue decreases. The bottom line has also been hit because, with the drop in demand due to the economic downturn, airlines are able to negotiate better deals, compelling Airbus to lower prices for its jets. The good news is that the company is reporting signs of recovery in air freight demand and expects a recovery in total passenger traffic volume by 2010.
Bombardier, based in Canada and the world’s third-largest civil aircraft maker, reports similar market conditions and market experiences as those encountered by manufacturers in the EU and United States. The market for Bombardier aircraft was extremely challenging in 2009 and the firm expects that this scenario will likely continue into the near term as economic uncertainty continues. Deliveries and orders fell over the most recent fiscal year, reflecting the significantly reduced demand for commercial aircraft. Consistent with the conditions encountered by its competitors around the world, Bombardier reports that the business aircraft market is still experiencing difficulties due to a lack of customer financing. But there are signs of stabilization. Net orders for business aircraft, the company’s most profitable segment, recently returned to a positive position for the first time in a year.
AIA Source: william.chadwick[at]aia-aerospace.org
