Cover photo by Alex Esguerra – Airways Staff Photographer

MIAMI – At first glance and in advance of the 52nd Paris Air Show (PAS), the twin-aisle, widebody aircraft business would appear to be a strength for global aircraft manufacturing giants Airbus and Boeing.

With widebody backlogs of 1,220 and 1,255 frames respectively (including Singapore Airlines’ commitment to buy 20 777-9Xs and 19 787-10s made earlier this year) at the end of May 2017, the two manufacturers have trillions of dollars of future orders lined up (at least $3 trillion assuming standard aircraft purchase discounts off list price).

But news over the last six months points to a substantial worsening of widebody market conditions, with a slew of airlines announcing or considering deferrals of scheduled deliveries, not to mention a few outright order cancellations.

Deferral activity and chatter have accelerated in 2017

The first six months have seen a surge in aircraft order deferrals, beginning with Delta opting to defer 10 A350-900s originally scheduled for delivery in 2019-2020 by two to three years.

Delta previously canceled an order for 18 787-8 Dreamliners in late 2016. United Airlines hasn’t formally deferred any orders, but it is considering an adjustment to its order for 35 Airbus A350-1000s (currently scheduled for EIS in 2018).

It may opt to swap the A350-1000 for the A330neo as a 767 replacement (though it has the 787 for that mission), convert the jets into a larger order of A320neo family narrowbodies, or choose to cancel the orders outright.

Any of the latter two options would be a major blow for Airbus’ widebody business. These moves by two major U.S. airlines emerged in the wake of an A350-900 deferral by American (moving initial delivery from 2018 to 2020) that also saw two 787-9s deferred from Q2 2018 to Q1 2019. This was the second major A350-900 deferral after an initial one in mid-2016.

Elsewhere, Lufthansa is considering upping its A350-900 order, but may do so at the expense of its order for 34 777-9Xs (a type for which Lufthansa is the launch customer) by deferring or canceling the 777Xs.

As for Airbus, it canceled orders for 8 A350-800s with Aeroflot earlier this year, and may end up axing the remaining 14 A350-900s (Boeing already wiped Aeroflot’s 787s from its books). Turkish Airlines deferred a few widebodies but most notably capped growth plans in March. And Jet Airways deferred 10 Boeing 787-9s from 2017 to 2019 last August.

Widebody market fundamentals are weak

The above is just an incomplete sampling of deferral activity over the last 12 months, which has simply not been compensated for by any new order activity. The reality is that at present, there just isn’t a need to buy more widebody jets.

The underlying economics of new widebodies is undercut by low fuel prices, which make older jets like the A330 current engine option (A330ceo) and Boeing 777-300ER more economical.

Even the ancient (by comparison) 767-300ER has found a second wind for carriers Hawaiian Airlines, United Airlines, and All Nippon Airways. At the same time, the growth prospects for airlines around the world have diminished in the face of anemic growth everywhere but the United States, India, and China.

The only planes that still have decent demand are the 787 and A350, and those planes are functionally sold out (substantial delivery slots aren’t available until the early 2020s) even with the recent deferrals.

Urgency has been sapped by low fuel prices, and other than the Chinese carriers (who buy on politically timed cycles), there simply aren’t that many large airlines which have substantial unmet demand for widebodies.

The one applicable example is probably Turkish Airlines, but Turkey faces geopolitical and terrorism driven demand woes, and the flag carrier recently tamped down planned fleet growth.

SAS Group would be the other major carrier without any next generation widebodies on order. Admittedly, there are also a few carriers, like Korean Air, that do need more 787s and A350s. But such examples are few and far in between. Thai Airways could also opt to grow its fleet again in the wake of surging tourist demand and profitability.

If anything, there are more risks for order deferrals and cancellations. Cathay Pacific isn’t exactly in the best economic shape and has 55 widebody jets on order. Ethiopian Airlines (15 orders) is looking to cut costs and improve cash flow, and a deferral may enable that.

And the aircraft lessors can certainly read the tea leaves about the softening of demand. Then there’s the Middle East.

Watch out for the Middle East

The Middle East is the single biggest point of risk to current widebody backlogs, as Etihad Airways (145 widebodies on order), Qatar Airways (167), and Emirates (199) collectively represent a fifth of the outstanding global widebody backlogs.

Recent market events, such as the ban on cabin electronics on flights between the Middle East and the United States, have not been kind to these so-called Middle East Big 3 (MEB3) carriers. Along with general yield pressure due to other airlines experiencing lower fuel costs, demand for the MEB3 has softened, increasing natural risk for order deferrals.

That was true even before the extraordinary events earlier this month, when Qatar Airways was sent into a near-crisis by the removal of its access to Saudi, Bahraini, Emirati, and Egyptian airspace and markets over a broader diplomatic spat with a set of Arab countries led by Saudi Arabia.

The spat was initially expected to see a quick resolution after it began on June 5, but a week and a day (at the time of writing) into the crisis, any easy resolution is not immediately apparent.

If the current state of matters persists for an extended period of time, our view is that as many as 50 widebody orders would be at risk of deferral with perhaps 20-25 at risk of outright cancellation (if nothing else due to Qatar’s need for leverage with the United States).

An extended crisis or added conditions could put as many as 100+ orders at risk (particularly if access to Bahraini airspace is fully cut off from Qatar Airways, at which point the carrier cannot operate).

At the very least, it appears that Qatar Airways won’t be buying new widebodies any time soon, and a rumored Emirates order for regional widebodies (likely the A350-900 or 787-10) is probably off the table for 2017, if not 2018 as well.

Turkish Airlines has no next generation widebodies as mentioned before, but with softening tourist demand and geopolitical uncertainty, a Turkish Airlines order for either the A350 or especially the 787 is not necessarily forthcoming. As the 2017 Paris Air Show approaches, the widebody market is not in good shape.

Program specific backlog analysis – Boeing

747 Backlog

The 747’s backlog of 20 frames (5 747-8i and 15 747-8F) is meaningless and we don’t see much risk there.

767 Backlog

Boeing currently has a backlog of 105 767s, split as 67 767-300 Freighters and 38 KC-46 tankers. We do not view any of these orders as being at risk, though Boeing itself delivered the KC-46 earlier this year.

777 Backlog

The 777 classic has a backlog of 115 frames (84 777-300ERs and 31 777Fs), and we don’t view any of those orders at risk.

However, we do see Boeing having trouble filling the “bridge” between 777 classic and 777X production, particularly in 2018 (before the dip to 3.5 aircraft per month in 2019). The 15 Iran Air orders are at risk pending the foreign policy of the Trump administration, but we don’t count them in the firm backlog.

The 777X has a healthy backlog of 326 frames (including Singapore Airlines’ “commitment” for 20 777-9Xs), split as 53 777-8Xs and 273 777-9Xs. We see risk for up to 100 frames worth of deferrals and 30-40 frames worth of cancellations, mainly from the MEB3 and Lufthansa.

The 15 Iran Air orders are at risk pending the foreign policy of the Trump administration, but we don’t count them in the firm backlog.

787 Backlog

The 787’s backlog of 689 frames (86 787-9s, 435 787-9s, and 168 787-10s, including the most recent 19 from Singapore Airlines) is in relatively strong shape (and less exposed to the MEB3 than that of the A350) but doesn’t have any upward momentum with the Emirates order failing to materialize (we had pegged that order for the 787-10).

In all, we see (firm order) cancellation risk of <25 frames and deferral risk of <25 frames as some of the “bad” orders like Delta’s 18 787-8s have been purged from the books.

Program specific backlog analysis – Airbus

A330 Backlog

Airbus has a backlog of 131 A330ceo (40 A330-200s, 4 A330-200Fs, and 87 A330-300s) that is very safe. The Iran Air deal for 8 A330-200s may be at risk from the Trump administration’s foreign policy. In all, we see little to no cancellation and deferral risk.

The backlog of 210 A330neos (6 A330-800neos and 204 A330-900neos) is also pretty safe, though much of it sits with lessors that haven’t made great progress in placing the jet. The Iran Air deal for 28 A330neos may be at risk from the Trump administration’s foreign policy. In all, we see little to no cancellation and deferral risk.

A350 Backlog

The backlog of 775 A350s (8 A350-800s, 556 A350-900s, and 211 A350-100s) is in pretty strong shape as Airbus ramps up delivery, but Qatar Airways and Etihad have 80 and 62 A350s on order respectively that are at severe risk of deferral.

The United A350s and even the American A350s may be at some risk of further deferral, if not outright cancellation. In all, we see cancellation risk of 30-40 frames and deferral risk of 100-120 frames.

A380 Backlog

The 104-strong A380 backlog is not in good shape meanwhile, despite rumors of an Emirates top up. Amedeo has not found customers for its 20 A380s on order (that may be where the Emirates rumors are coming from).

We view Emirates as likely to defer some of the 47 outstanding A380s it has on order, and we do not think Qantas will take delivery of its 8 remaining A380s on order. Ditto for Virgin Atlantic and its 6, and the unidentified customer with 10 A380s on order does not exactly inspire confidence.

In all we see deferral risk of 60-70 frames and cancellation risk of 30-40 frames.

Backlog Analysis – Summary

Taken across the programs, we assess cancellation risk of 55-65 frames and deferral risk of 100-125 frames for Boeing and cancellation risk of 60-80 frames and deferral risk of 130-160 frames for Airbus.

The two programs with the most systemic risk are the 777X and the A380, as they are most exposed to the MEB3. Regardless of the specific figures, the widebody market is not in good shape entering PAS 2017.