Submit Press release  ∑ eTN Team ·  Advertising  ·  eTN Awards  - Worldtourism Events    


Dreamliner is key for Boeing as industry faces possible downturn  Dec 21, 2008

While the year ahead for the broad economy looks frightening, the aerospace sector should fare better than most in 2009.

Savor the good news while it lasts. After next year, the industry could slide into a trough.

There will be bright spots in 2009: The 787 Dreamliner should finally fly by next summer.

Despite a steep decline in air travel, U.S. airlines forecast a modest 2009 profit after years of losses.

And though Boeing won't deliver any Dreamliners in 2009, it should roll out about 480 other airplanes for the year.

However, as airlines line up to defer or cancel orders, an aviation bust further out is now clearly on the radar.

Aerospace analyst Richard Aboulafia, of the Teal Group, expects the downturn to hit Boeing in 2010 and last at least three years ‚ÄĒ and that's his optimistic forecast.

"If we make the assumption that the worst is over in the financial crisis, what's left is years of digging the economy and the industry out," said Aboulafia. "It's going to be one of the longer-lived downturns."

That's too pessimistic for Wall Street analyst Joe Campbell, of Barclays Capital, who expects air traffic to recover from the global economic crisis by 2010.

Airlines will need planes, Campbell said. Boeing may need to slow production in the second half of 2010, but any cuts "will not be deep and prolonged." How the Puget Sound region emerges from any aerospace-industry downturn depends on the 787 Dreamliner.

If the 787's troubled suppliers and assembly operations can be fixed and production gets moving, that could take most of the sting out of any downturn here. That would leave Boeing in much better shape than its European rival, Airbus, to withstand the industry's troubles.

Airlines lose passengers

In recent years, Asia and the Middle East have showered Boeing and Airbus with enormous orders.

But after years of record sales built a combined backlog of almost 7,500 jets for the two plane makers, that dazzling growth is over for now.

The global financial crisis has shaken China's export-driven economy. The collapse of oil along with the financial markets has deflated the bubble economy of Dubai, home of Emirates airline, which has ordered 51 Boeing wide-body jets and 58 Airbus A380 superjumbos.

The huge sales backlog could easily erode, however.

It includes big orders from rivals such as Emirates and Qantas that are chasing some of the same air traffic ‚ÄĒ "Two (airlines) punching each other for the same passenger," Aboulafia said. They can't both win the same market.

In any case, he said, there was also a huge backlog during the last aviation downturn, in 2002-03 after the 9/11 attacks. Airlines deferred or canceled as they needed, and production at Boeing plummeted.

"The order backlog meant exactly nothing when it came time to deliver planes," Aboulafia said.

Boeing's 2009 deliveries are relatively safe, mainly because buying a plane is a long-term planning commitment.

But as the airlines see traffic fall dramatically, they are deferring deliveries further out. If that continues, Boeing production in 2010 will need to slow.

The International Air Transport Association (IATA) this month forecast that international air traffic will fall 3 percent in 2009 and that airlines worldwide will lose $2.5 billion.

Surprisingly, North America, where airlines will lose a total of almost $4 billion in 2008, is the only region predicted to make a small profit in 2009, about $300 million. U.S. carriers, shaken by the crushing oil prices earlier this year, slashed costs and fleet capacity and are now benefiting from lower fuel prices even as passenger demand falls.

Local carrier Alaska Air Group has cut about 1,000 employees and reduced its flights. Though it will receive 11 new Boeing jets in 2009, it still plans to cut passenger capacity a further 9 percent.

"Given the unemployment numbers, we believe customer demand is going to weaken," said Alaska Chief Executive Bill Ayer.

Boeing and Airbus

The plight of the airlines today determines the fate of the jet makers tomorrow.

Airbus will tally more sales than Boeing this year. It rang up 756 net orders through last month, compared with 639 for Boeing.

Airbus will also outdeliver Boeing by a wide margin, thanks to the Machinists strike that halted production at Boeing for two months this fall.

Still, Airbus looks weaker going into the New Year.

Boeing's customer base is more solid and diverse. A quarter of the Airbus wide-body backlog rests with three Middle East airlines.

Though 10 of its double-decker jets are now flying and impressing passengers, the A380 program remains an expensive and slow exercise in hand building massive planes.

The real market is for Airbus' new A350, due in 2013 to compete against the 777 and the 787.

Airbus pushed out the finalizing of the A350 design into next year. And the plane might not be delivered until as late as 2015, said Doug McVitie, a former Airbus salesman and now an aviation consultant in France.

On the plus side for Airbus, the heated controversy over possible financial aid for the A350 from European governments may lose its urgency in 2009.

Four years ago, the U.S. government filed a case against the European Union (EU) with the World Trade Organization, primarily to block loans for the A350. The EU countered with a suit alleging that the U.S. subsidizes Boeing. Rulings could come next year in both those cases.

But the idea of governments subsidizing industry with large loans hardly seems scandalous after this year's widespread bailouts of banks, insurance companies and automakers.

"Say what you will about subsidizing the A380, it sure beats bailing out the Hummer," Aboulafia said.

Tanker, defense spending

That same instinct for protecting U.S. industry during an economic crisis could benefit Boeing's defense business.

This year, Boeing initially lost the multibillion-dollar Air Force refueling tanker contract to a joint venture between Northrop Grumman and Airbus parent EADS, but the choice of the Airbus A330 jet over Boeing's 767 was scrapped by the Pentagon after Boeing protested and the Washington state and Kansas 's congressional delegations weighed in. The competition is suspended until the Obama administration arrives.

Loren Thompson, a defense analyst with the Lexington Institute, said that in the renewed competition, "The decline of the economy means that economic nationalism will play a big role."

Boeing also would gain political advantage from its support by unions and by Democrats in Congress.

Thompson said he expects no new tanker decision before 2010.

"With the Democrats in control, Boeing can basically block anything," he said. "They feel time is on their side."

Elsewhere, though, Boeing's defense unit is vulnerable. The economic crisis means Pentagon budget cuts are certain.

Two big Boeing programs, missile defense and the Army's Future Combat Systems, are potential targets.

So is the Lockheed Martin F-22 advanced fighter. More than a thousand Boeing defense workers build the F-22's wings and rear fuselage in Seattle.

Thompson said one item in the defense budget could be worth $5 billion to Boeing: The Navy wants to order at least 100 of the St. Louis-built Super Hornet jet fighters.

For aerospace in the Puget Sound region, though, only one airplane project can stave off the worst of times.

In 2009, Boeing has to get the Dreamliner back on track.

Dreamliner is key for Boeing as industry faces possible downturn
Image via

Premium Partners