Blog archive - June 2011

The following are my thoughts regarding the upcoming Paris Air Show at Le Bourget. Apart from my opinion regarding the success of the Neo programme, I am going against all consulting "rules" in trying to predict orders so close to an event. Indeed consultants and analysts typically create forecasts well in advance and rightly so in some cases (see here http://reut.rs/dSOZ3R). So here it goes... B737 replacement Following yesterday’s announcement (16th June) of the two major orders from Cebu Pacific and GoAir, the heat is on in the Airbus-Boeing order feud at the Paris Air Show. The latest orders for the new A320neo take the number of firm orders for the type to 434 and the number of operators, with plans to introduce it, to 7. This is an important announcement for Airbus, leading up to the Paris Air Show, but definitely not a surprise nor a major breakthrough for the re-engined A320. Four of the seven operators are low cost airlines with aggressive growth plans and with an existing all-Airbus fleet; their decision is driven by their business models, where economies of scale through fleet commonality would have excluded them from ordering any new B737 variant. In addition, ILFC that has ordered 100 A320neo, is a major lessor with a clear objective to stock any aircraft required by their customers. Their decision to order the Neo is not the result of a major fleet assessment; they will also order the new B737 variant as soon as it is announced. The only airlines with Neo orders and a relatively diversified fleet are legacy carriers Lufthansa and Brazilian TAM. Nonetheless, both of them have showed preference for Airbus short-haul aircraft in the past. Lufthansa operates mainly A320s and some B737 Classics, while TAM operates only A320s short-haul. As a conclusion I do not view these latest orders as either surprising or a major win for Airbus. As the Neo enters operations, older A320 variants will be discontinued, thereby offering no alternatives to airlines that operate Airbus fleets short-haul and have ambitious growth plans. However, if airlines that have yet to make announcements, like Scandinavian Airlines, China Southern or BA-Iberia were to make firm orders for the type, it would be a major blow to Boeing. Should Boeing continue to delay its announcement for either a re-engined B737 or a completely new aircraft, only then will we see the first airlines shifting to Airbus, to satisfy medium-term growth plans. However the timeline for a Boeing announcement is not as tight as it may seem; I expect a decision by end of the year and one that confirms reports about a complete replacement to the B737, rather than a re-engined model. Getting it right to begin with is far more important than making rushed decisions and changing aircraft specifications later; as witnessed by the U-turn on the A350-1000 (http://bit.ly/llRaUU). Expected order numbers and airlines that may make headlines Based on market sentiment, the Paris Air Show is due to follow the early recovery signs of Farnborough 2010 (237 Airbus/Boeing orders), though the number of orders will most likely trail behind Farnborough 2008 (480). I expect Airbus to win this battle, as they’ve done in recent years, with approximately 200 orders, for a total between the two manufacturers of 300-350. Airbus should dominate narrowbody orders, while Boeing aims to further establish itself in the widebody market. Airlines that could have an impact this year are the Chinese carriers, particularly China Southern, Air France-KLM, BA-Iberia (widebodies), Scandinavian Airlines, Monarch, Qatar Airways and Air Canada. Unlike past events, I expect more active role from the European carriers that have been going through phases of consolidation and network restructuring. Their orders will both serve the purpose of replacing older fleets and allowing further expansion. I will be here to discuss the accuracy of my predictions next week...