Sunday, June 18, 2017

At Paris Air Show, Plane Makers Tout Busy Production Schedules as New Orders Slow: Boeing, Airbus say a years-long backlog of orders ensures continued cash flow

The Wall Street Journal
By Robert Wall and  Doug Cameron

Updated June 18, 2017 11:06 a.m. ET

PARIS—It’s show time for the world’s top plane makers.

For much of the year, Boeing Co. and Airbus SE, the world’s top two jetliner makers, have warned investors that orders for new planes would decline this year. But they have said that airline customers generally still want plenty of new aircraft and there is no danger production plans—key to earnings—are in jeopardy. Order books stretch out for years, ensuring plenty of cash flow, even if buyers slow the recent blistering pace of new purchases.

They have a chance to prove that this week, as top aerospace executives, suppliers and airline buyers converge here for the Paris Air Show, which kicks off Monday. Over croissants and foie gras at Le Bourget Airport north of the French capital, Boeing, Airbus and smaller rivals will jostle for sales in what is typically the best opportunity of the year to announce new orders.

For industry watchers, the event will go some way in determining whether the recent orders slowdown is simply a cooling-off period amid years of supercharged growth, or something more worrisome. Few, however, are expecting a sudden turnaround.

“We expect a quiet show on the order front,” said Ken Herbert, an analyst at Canaccord Genuity. In particular, Middle East airline buyers and plane lessors that drove deals at recent shows have largely filled their appetite, Mr. Herbert said.

In the first five months of the year, Airbus has secured 73 net orders, compared with 162 deals signed for the comparable period a year earlier. Airbus says it expects plane deliveries to outpace new order bookings this year—the first time that has happened since 2009.

Boeing has done better. The Chicago-based plane maker has secured 176 net commercial jetliner orders as of June 13, 10 more than the same period last year.

Airbus and Boeing are expected to announce deals for as many as 680 jets in Paris, estimates consultant Deloitte. That is down 10% from the 2015 Paris Air Show. Paris alternates with Farnborough, England, as the host of the annual aviation event.

Amid the big, existing order books, shareholders have become somewhat less sensitive to deal announcements, focusing instead on deliveries. Those dictate when plane makers are paid.

Both plane makers have backlogs stretching past 2020 for their most popular models, underpinning big expected increases in output in the coming years. Boeing had a backlog of 5,646 planes at the end of May. Airbus’s stood at 6,705 planes.

“We could have no sales for a number of years and we would still have to increase production to chew down that backlog,” Airbus chief plane salesman John Leahy said. Especially popular are the two manufacturers’ single-aisle planes, models for which demand so far has remained buoyant.

That has created its own problems, as both Boeing and Airbus have struggled over the past few years with stretched supply lines. Seats, toilets and engines have all been in short supply for both companies at different times amid their recent production increase.

“Orders don’t matter, it’s deliveries that count,” said Aengus Kelly, chief executive of leasing company AerCap Holdings NV, one of the largest buyers of Airbus and Boeing planes.

Still, any sense at the end of the week that orders are dropping off faster than the industry has expected could spook investors. Especially vulnerable is demand for some of the biggest planes, such as Boeing’s 777 long-range jet and Airbus’s A350. Airlines such as American Airlines Group Inc. and Delta Air Lines Inc. are among the carriers in recent weeks to announce deferrals of some big plane orders.

Airlines in the Middle East, large buyers of big planes, are grappling with multiple headwinds. Low oil prices have depressed lucrative business travel, and a U.S. ban on the use of laptops and tablets on inbound flights from some Middle East airports has dented bookings for Persian Gulf carriers.

Emirates Airline, the world’s largest by international traffic, has signaled a wait-and-see approach on new long-haul plane purchases for now. Qatar Airways is facing even more pressure, after Persian Gulf neighbors essentially slapped Qatar with an air blockade over long-simmering political squabbles.

Airbus has booked 30 net deals for its A330 and A350 widebody jetliners this year, 46% fewer than at the end of May in 2016. Boeing has sold only 32 of its 777s and 787 Dreamliners through June 13.

“We are seeing a slight pause in widebody orders,” said Robin Lineberger, head of Deloitte’s aerospace and defense practice.

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