Airbus Group SE and Boeing Co. racked up their lowest tally of aircraft orders since 2010 at the aviation industry’s annual showcase, as a slowing global economy and concern about the effect of Britain’s decision to quit the European Union curbed demand.
At the Farnborough International Airshow this week, deals for about 400 jets were worth $50 billion, less than half the value of the contracts unveiled at last year’s marquee event in Paris. Orders were propped up by aggressive buying from Asian upstarts, while major American, European and Gulf carriers were all but absent.
“Let’s be real, there are not too many orders going around,” said Tony Fernandes, CEO of AirAsia Bhd., who pulled off the biggest deal of the week with a 100-plane Airbus order valued at $12.6 billion. “It has been a dry-up period for aircraft manufacturers after a boom period. We capitalized on Brexit and the fact there was a lack of orders and took a punt. We are very happy with what we got.”
While both Airbus and Boeing sit on huge order backlogs, that cushion could provide little protection if headwinds continue and airlines start to feel the pinch from lower fares. A spate of deferrals would pose a dilemma to the manufacturers as they embark on the industry’s biggest-ever production ramp up.
New business was skewed toward a handful of mainly eastern markets, with 116 of 127 aircraft sold by Boeing destined for Chinese customers, and Airbus reliant on two south Asian discounters, which bought 172 planes, and a deal from the parent of Brazil’s Avianca to outsell its rival by more than two to one.
With no major new programs starting up, the 2016 show had never been expected to deliver dozens of deals. Yet high-profile planes including the Boeing 777, Airbus A330neo and Bombardier Inc. C Series drew a blank and the A380 superjumbo took a step toward extinction with production rates slashed.
“It’s not the kind of order activity we saw two and three years ago, but you can’t sustain that growth,” said John Wojick, Boeing’s chief salesman, adding that the goal is to roughly match orders with deliveries this year. “We are on track to get there,” but there is “work to do” in securing deals for wide-body jets, particularly the 777.
Boeing so far this year has sold eight 777s against an annual target of 40. The shortfall could present production issues as the company seeks to transition to the new 777X, due in 2020.
Airbus, meanwhile, remained resolutely upbeat. Fabrice Bregier, chief of the European company’s commercial plane division, said there’s “no drama” in the sluggish order pace, with overall sales trend “still extremely positive.”
Still, there were notes of caution in the industry. Warren East, CEO of engine maker Rolls-Royce Holdings Plc, indicated the industry’s production boom risks leading to an industry slump as seat capacity exceeds normal levels.
“Whether it gets sufficiently far ahead to trigger off what you might call a cycle, I don’t know,” East said in a briefing at the airshow. “We’re not seeing a huge amount of concern that it’s going to cause a big cycle, but you just have to look at the arithmetic and the numbers.”
With capital gradually becoming more expensive and fuel cheap, the incentives for airlines to replace older planes aren’t there in the same way they were a decade ago, said Richard Aboulafia, vice president of aviation consultants Teal Group. On top of that, emerging markets like China, Brazil and Russia have faltered.
“There’s an overarching realization that orders would be meaningless at this point given the dark macroeconomic clouds and gloom,” said Aboulafia. “We have been insulated from the various storms and droughts and whatever else. But if that changes so will the deferral picture.”
By Christopher Jasper, Julie Johnsson and Andrea Rothman, with assistance from Richard Weiss and Benjamin Katz