2008-2010 flight plan for commercial aerospace - From order frenzy to delivery overload?

2008-2010 flight plan for commercial aerospace - From order frenzy to delivery overload?

Just a few months ago, commercial aircraft deliveries were expected to fall from 2009 onwards. Now it is widely expected that the cycle will last until 2010 or 2011. There is high need for new aircraft, while the production remains constrained. The resulting shortages mean lengthening order books and vindicate aircraft manufacturer plans to increase output rates. But the current massive ordering could result in a delivery overload, that would unlock a sharp fall in the sector.
We have analysed the markets in the US, in Europe, in China and India, as well as the leasing companies. We have looked into the current and new programmes on the supply side, to point out what the weakest links are today.

Summary 2

1. Foundations supporting the current cycle 8
1.1 - Main markets in terms of air traffic 8
1.2 - Main markets by traffic growth 9
Current situation 9
Short-term trends 9
Long-term trends 11
1.3 - Main markets by in-service fleet 12
1.4 - Main markets by order backlog 13
1.5 - Main markets by airline company profits 13

2. US airlines, what support for the current cycle? 15
2.1 - Attractive profits but question marks over volumes 16
Q2 2006: attractive profits 16
Q3 2006: legacy airlines up, low-cost airlines down 16
Q4 2006: follow-through of Q3 trend 17
Q1 2007: slowing volumes 17
2.2 - Markedly improved operating conditions 18
Domestic market/international markets 18
Controlled decline in domestic traffic 18
International traffic rising, but growth slowing 19
Domestic capacity falling, load factors at their peak 20
International capacity rising, load factors at their peak 20
Domestic yield: a welcome rebound 21
International yields 22
Aviation fuel 22
2.3 - Potential for narrowbody orders from North American airlines 23
North American airline orders for short- and medium-haul aircraft 23
Low-cost and legacy carriers – what share of historical delivery figures? 25
Low-cost and legacy carriers – what trends for 2007-2010? 26
What is the long-term potential for legacy carriers? 28
Leading North American airlines by short/medium-haul aircraft fleet 29
Ageing fleets in need of renewal 30
Non-existent order backlogs to trigger new orders 32
Large order books discourage new orders short term 34
2.4 - Widebodies and US airlines 36
North American airlines and widebody aircraft orders 37
Leading US airlines by widebody fleet 38
Orders still to come 38
Airlines already on manufacturers' order books 40

3. European Airlines – solid foundation, but limited growth 42
3.1 - Profits attractive but have probably peaked 42
Q2 2006: tangible improvement 42
Q3 2006: still positive momentum but not as strong as in Q2 43
Q4 2006: still improving 44
Full-year 2006 profits: a mixed but overall positive performance 44
3.2 - Steady growth in traffic 44
Impact of international markets 44
Steady growth of European airlines’ international traffic 45
Comparatively steady growth in European domestic traffic 46
Passenger load factors at their peak 46
3.3 - Widebody aircraft and European airlines 47
European airlines’ order backlogs for widebodies 47
Main European airlines by widebody fleet 49
Short-term requirements of certain major airlines 49
Other major airlines have longer-term requirements 51
Smaller airlines: a source of future growth 52
3.4 - Narrowbody aircraft and European airlines 52
The main European airlines in terms of narrowbody orders 53
Main European airlines by short- and medium-haul aircraft fleet 54
Ageing fleets and thin or non-existent order books 55
Recent fleets 58
Mixed fleets 59
Smaller airlines : a growth driver, but not the main one 60
Low-cost airlines account for the majority of the backlog 60

4. Chinese airlines – supporting the market at a high level 61
4.1 - Mixed profits performance points to further restructuring 62
Mixed profits performance 62
Still-changing market structure 62
4.2 - Narrowbodies and Chinese airlines 64
Leading Chinese airlines by narrowbody orders 65
Leading Chinese airlines by short-and medium-haul aircraft fleet 66
Well-filled order books but never enough 67
New entrants into Chinese market 70
4.3 - Widebodies and Chinese airlines 71
Leading Chinese airlines by widebody orders 71
Leading Chinese airlines by widebody fleet 72
Limited potential for new orders in the short term 73

5. Airlines in India – a source of growth and risk 76
5.1 - Strong traffic growth, but risky financial position 76
Accelerating growth in domestic market 76
Indian airline balance sheets are weakening 78
5.2 - Narrowbodies and Indian airlines 79
Leading Indian airlines by narrowbody orders 79
Leading Indian airlines by narrowbody fleet 80
Thin order book 80
Already well-filled order books could be topped up towards end of decade 81
Already well-filled order books 82
5.3 - Widebodies and Indian airlines 83
Leading Indian airlines by orders and by widebody fleet 83
Air India's existing fleet undergoing renewal 84
Two airlines with significant order books to build their fleets 84
Airlines with small fleets and no aircraft on order 85

6. Aircraft leasing companies: the tide is turning for deliveries to the leading Airbus & Boeing customer segment 86
6.1 - Main leasing companies 87
6.2 - Leasers have provided solid support for deliveries in recent years 88
6.3 - Sharp fall in deliveries to leasers from 2008 89
ILFC order book deliveries to drop off sharply from 2008 89
GECAS deliveries also to decline from 2008 89
6.4 - Geographic sensitivity to risk 90
Geographic breakdown of ILFC revenues 90
Geographic breakdown of CIT assets 91
Geographic breakdown of AerCap revenues 92
Geographic breakdown of Airbuses delivered by leasers 93

7. On the supply side 95
7.1 - Aircraft manufacturers endeavouring to increase already-stretched production capacity 95
7.1.1 - An exceptionally large order backlog 95
7.1.2 - Planned acceleration of production rates 96
2007-2008 production programme 96
No downturn expected in 2009 as production capacity remains stretched 97
Planned acceleration in production rates 97
Orders for 500 narrowbodies to be filled by end-2009 to meet planned upsurge 98
7.1.3 - Risk factors associated with production 98
Supply chain 98
Industrial unrest at Airbus 99
7.1.4 - B787’s entry into service 99
Probable delays 99
A second assembly line of little help for the moment 101
A healthy and highly-diverse order backlog 101
7.1.5 - The very special case of the A380 103
Production delays and output rates 103
Order backlog and long-term production programme 103
7.2 - Aircraft leasing rates confirm the market’s current healthy state 105
7.2.1 - Narrowbodies: continued strong demand exerting upward pressure on rates 105
7.2.2 - Widebodies: the market peaking at an equilibrium point 106
7.3 - Outlook for replacing A320s and B737s 107
7.3.1 - Key role of engine manufacturers and planned projects 108
Engines on existing narrowbodies 108
Planned overhauls of existing architectures 109
Radically new architectures 111
7.3.2 - Design office capacity and choices between aircraft manufacturer projects 112
7.3.3 - Financing-related constraints affecting Airbus 114
Effects of A380 delays 114
Public-sector support for R&D 115
7.3.4 - The role played by new sector entrants 116
Brazil: developing steadily and a worthwhile partner for Airbus 116
Russia: ambitions incompatible with a European partnership? 117
China: future competition that needs to be channelled into partnerships 120
Japan: structural links with Boeing 123