A summer battle for orders is underway in the global jet industry, which gathers in Beijing on Sunday for the first of two crucial events in two months, pitting the world's largest planemakers against each other in a race for deals worth $50 billion at catalogue prices.
The potential deals span all continents and every pattern of powered flight from the largest airliners to warplanes and luxury business jets, shielding aerospace workers from the worst effects of a slowdown spreading from Europe's debt crisis
But analysts say Airbus and Boeing
are having to offer sporadically hefty discounts to ride out economic
uncertainty, especially for maturing models or early batches of new ones like
the 787 Dreamliner.
Boeing is expected to win the
fiercely contested annual order race for the first time since 2006 as it
catches up with a decision by Airbus to revamp medium-haul jets, resulting in
big fuel savings for airlines on the Airbus A320 and Boeing 737.
The dominant civil planemakers are
also positioning themselves early ahead of next month's Farnborough air show,
with deals worth $14 billion announced in the past 72 hours.
Both companies have accused each
other of waging a price war to win hundreds of orders for the revamped A320neo
and 737 MAX respectively, and deny cutting corners themselves. Several industry
analysts say pricing is under pressure this year.
"Both sides are heavily
discounting," said Richard Aboulafia, aerospace analyst at U.S.-based Teal
Group.
Although the madeover medium-haul
jets offer airlines a reduction of 15 percent in fuel, the industry's highest
cost, most carriers remain under financial pressure and some are delaying
deliveries to shore up their cash positions.
Airlines meeting in Beijing are
expected to hear that their industry body, the International Air Transport
Association (IATA), has left its forecast for 2012 sector profit unchanged at
$3 billion, but unease is growing as Europe discusses a new bailout and China's
economy slows.
Major characters in the aerospace
industry are in the Chinese capital negotiating on the sidelines of IATA's
Beijing summit, which comes weeks before another showcase, the July 9-15
Farnborough air show in Britain.
Chicago-based Boeing was relegated
to the background during most of last year's equivalent event as Airbus broke
records with sales of the A320neo, but later opted for a similar upgrade.
This year will be different.
Boeing is preparing to hit back with
a spree that could soon include an order from United Continental for 100
narrowbody jets plus some 70 options, industry sources said.
It will want to persuade the top
five aircraft leasing companies led by AIG unit ILFC to put firm signatures on
undisclosed draft orders that U.S. aerospace analyst Scott Hamilton estimates
at 300-400 jets. These will include an order from GECAS, whose General Electric
makes 737 engines.
SUMMER SHOWDOWN
If all goes as some in the industry
expect, Boeing could double the number of firm orders for its revamped 737 MAX
to as high as 1,000 by the end of Farnborough. It may be European Airbus's turn
to be overshadowed, though possibly not without surprises such as a new order
for its A380 superjumbo.
Airbus on Friday reached 1,425 sales
of the revamped A320neo since it was introduced, giving it a share of 76
percent in medium-haul, the market's hottest segment. Over time the balance of
power is expected to be roughly equal as the duopoly recovers.
Boeing has 451 firm MAX sales and
its data suggests it has at least 549 draft orders including 414 yet to be
identified.
The industry's arch-rivals are also
facing off indirectly in the global arms market this summer with a competition
to supply dozens of fighters to South Korea.
Bids are due on June 18 and industry
sources believe a decision may come as early as September in an $8 billion
contest between Boeing's F-15, the Eurofighter made by a group including Airbus
parent EADS , and the Lockheed Martin F-35.
Asia, the Middle East and Latin
America are re-arming to replace ageing equipment or in the face of regional
threats, and Western suppliers are wooing them aggressively to try to offset
domestic budget cuts.
The global fighter market is pegged
at $15-20 billion a year excluding lucrative parts and upgrade deals. The share
of exports within this total hovered around 30 percent for the past decade but
is moving towards 50 percent, Aboulafia said.
Manufacturers are also seeing a
steady rise in demand for top-line business jets from China as the number of
millionaires in the world's second largest economy rapidly expands.
China accounts for a quarter of
global consumption of luxury goods despite a recent cooling of its economy, and
suppliers like Brazil's Embraer say China's super-rich are jumping straight
into buying the biggest business jets.
The key unknown is to what extent
the crisis in Europe will escalate, and throw fast-growing new economies off
course.
For now, emerging market growth in
transport rolls on.
On Friday, Boeing confirmed that
Indonesia's Lion Air had placed a draft order for model 787 Dreamliners after a
record order for over 200 smaller 737s. Finance for the purchase has been
heavily supported by U.S.-backed export loan guarantees.
The 787-8s are part of an early
batch that had to be reworked at significant cost and are expected by analysts
to be sold for less than half the $194 million price tag, driven down by
competition from Airbus's older A330. Boeing aims to focus its efforts on
improving pricing for the more popular 787-9 model.
