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Farnborough International Airshow

Air show underscores hopes of resurgence in the airline industry

Air show underscores hopes of resurgence in the airline industry
Image via keithprowse.co.uk

By JANE WARDELL and EMMA VANDORE | Jul 21, 2010

FARNBOROUGH, England — The stream of plane orders continued at the Farnborough International Airshow on Tuesday, taking the tally past $25 billion and underscoring hopes of a resurgence in the aviation sector after a painful two-year downturn.

The deals at Farnborough, considered a barometer of the aviation and defense industry along with its sister show at Le Bourget in Paris in alternate years, show demand is reviving globally.

"This is a good time to buy aircraft," said Flybe Chief Executive Jim French after unveiling a deal to buy 35 Embraer 175 jets, worth $1.3 billion, from the Brazilian manufacturer. French said the company will use the planes, to be delivered between 2011 and 2017, to fund the regional European carrier's expansion plans.

In a further sign of the market's health, Air Lease Corp., which rents planes out to airline clients, ordered 54 Boeing 737-800s — a deal worth $4.1 billion at list prices. ALC also took out an option to buy six more of the aircraft.

"We see a lot of demand across the spectrum ... the recovery is starting in Asia," said ALC President John Plueger, adding that capacity reduction in the United States has borne fruit by increasing load factors and yields. In Europe, Plueger saw "fairly robust demand that is developing and building."

Another new leasing company, Ireland-based Avolon, which was created just two months ago, ordered 12 Boeing 737-8 jetliners in a deal worth $921 million.

"It's amazing how quickly this market is coming back," said Jim Albaugh, Boeing's Commercial Airplanes President, as he signed the deal with Avolon. "Six months ago people were worried about liquidity."

Also Tuesday, luxury carrier Vistajet ordered six new aircraft from Canadia's Bombardier in a deal worth $277 million. Bombardier said it had also received firm orders for four Global Express XRS jets from undisclosed customers based in Russia, valued at a total of $213 million.

French-Italian regional turboprop manufacturer ATR agreed sales worth $663 million at catalog prices with Brazilian carrier Azul Linhas Aereas and Air Lease Corp. for 30 ATR 72-600 turboprops. ATR also announced a deal for six ATR 72-500s worth $128 million, but did not disclose the buyer.

Airbus did not announce any new firm orders on Tuesday, but said Hong Kong Airlines intends to buy fifteen of its A350s and ten A330-200s with a new net value of $2.8 billion.

More than 1,000 exhibitors from 38 countries have signed up for Farnborough, with delegations from Egypt, Taiwan and Morocco attending for the first time. Organizers also cited stronger interest from major players China and Russia.

Analysts don't expect anything close to the record-breaking $88.7 billion worth of deals announced at Farnborough in 2008, but the gathering has already exceeded the meager $7 billion for commercial planes at Le Bourget last year.

The global industry is expected to return to a profit this year after a he huge loss of $9.4 billion in 2009. Asia and North America are expected to lead the recovery, with Europe lagging behind. Strikes at some airlines, the debt crisis and the volcanic ash cloud that caused major disruptions this spring are all hurting Europe's recovery.

Airbus chief salesman John Leahy said his company and rival Boeing survived the downturn better than in the past because in anticipation of a slump in demand they let backlogs build up without increasing production.

Still, Bombardier Commercial Aircraft President Gary Scott was cautious about the near-term outlook, saying airlines needed to be sure they could sustain recent post-crisis gains before they had the "balance sheet and the courage to order airplanes in significant quantities again."

Etihad Airways, a buyer in recent years, said it wasn't planning any new orders this year because it has taken care of its fleet needs through at least 2020. But fellow Middle Eastern airlines Emirates and Qatar did place orders, as did European carrier Aeroflot and plane leasing firms GE Capital Aviation, GECAS and Air Lease Corp.

Boeing has notched up a number of sales for its fuel-efficient 787 jetliner, which is making its international debut at Farnborough after a problem-plagued production line delayed the Chicago-based company's delivery schedule. The first 787 is due to be delivered to Japan's ANA later this year, more than two years overdue, and Boeing has said that could slip into the first few weeks of 2011.

But optimism in the aviation sector wasn't extending to the defense side of the sector, where massive cuts to Western military budgets were the talk of Farnborough.

In the U.S., the world's biggest single defense market, the Pentagon is looking to trim some $100 billion from personnel and procurement costs over the next five years. In Britain, Europe's largest market, the government is considering cuts of up to 20 percent.

Airbus' long-delayed A400M military transport plane is providing a high profile symbol of the problems facing the defense sector.

Britain has already scaled down its order for the four-engine military transport, which will take part in the daily flying display at Farnborough.

"We demand, and the nation expects, that our armed forces are provided with the equipment and support they require to do the jobs that we ask them to do," British Defence Secretary Liam Fox said at the show. "But in addition we demand, and the nation expects, that we can demonstrate value for money on defense expenditure."

Airbus expects to start delivering A400Ms sometime after December 2012, around four years behind schedule and 50 percent over budget because of technical glitches. The original seven customer nations — Belgium, Britain, France, Germany, Luxembourg, Spain and Turkey — agreed with Airbus' parent European Aeronautic Defense & Space Co. in March to spend an additional euro3.5 billion to save the project after months of bickering about who should pay for cost overruns.

Analysts will also be watching for developments in the bitter Boeing-Airbus battle to win a $35 billion contest to provide aerial tankers to the U.S. Air Force — the World Trade Organization ruled earlier this month that European governments gave Airbus illegal subsidies for the project.

The show runs July 19-25 at an airfield about 30 miles (50 kilometers) west of central London.

Source: AP
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