MIAMI – As the 52nd Paris Air Show (PAS) opens this week, the global aerospace industry faces the most uncertainty it has seen since the late 2000s global financial crisis.
Behemoths Airbus and Boeing, who together control more than 80% of the global civil aviation market by value, each had their worst sales year since 2010 (and worst outside of a recession since 2004), winning 731 and 668 net orders respectively. The pace of orders has slowed even further across the first five months of 2017.
As of May 31, Boeing had won just 205 net orders for the year and Airbus 73. The latter figure is perhaps a bit depressed due to Airbus’ usual practice of holding back orders to announce them at PAS or Farnborough. But even adjusting for that, these figures point to 2017’s orders developing even slower than 2016.
The news isn’t that much better for secondary manufacturers. The nominal “big three” of Embraer, Bombardier, and ATR, each face substantial challenges. Embraer hasn’t won a meaningful order for its EJets E2 since last year’s Farnborough Air Show, and its only order in 2017 has been a top up with American Airlines for 4 E175s.
Bombardier hasn’t won a CSeries order in more than a year despite the type entering into service last year with Swiss, and now faces the threat of an unfavorable ruling from the U.S. Commerce Department that could impose duties on Bombardier’s sale of 75 CS100s to Delta Air Lines.
ATR is in fair shape, particularly with a provisional order for 50 ATR 72-600s from the Indian ultra-low cost carrier (ULCC), IndiGo, that may be firmed up at PAS 2017.
But ATR faces its own long-term questions and shackles due to its close ties to Airbus (which may be preventing ATR from launching a larger turboprop). Mitsubishi hasn’t seen any progress on the scope clause relaxation that would allow its Mitsubishi Regional Jet (MRJ) to operate for U.S. regional airlines.
And low oil prices have taken a bite out of the ability of Russia to support exports of Irkut’s MS-21 and the Sukhoi SuperJet. Both SuperJet International and Irkut have had plenty of rumors about future development and tie-ups with China: neither has won a significant order in the last 12 months. All in all, the state of global aerospace is far from idyllic.
With that in mind, the analysis that follows explores key themes and things to watch for each manufacturer at PAS 2017.
Here comes the Boeing 737 MAX 10 and NMA (797)?
For Boeing, the major news is likely to center on the so-called middle of the market (MOM) spanning 180-240 seats. This is a market segment that Boeing has struggled to capture with its 737 MAX 9 (200-400 orders) against Airbus’ A321neo (1,416 orders).
The most likely development at PAS 2017 is a formal launch of the MAX 10 (if only through the signing of order commitments), as well as 2-3 new customers. Indonesian ULCC, Lion Air, will likely be a launch customer, per comments from Lion Air Group President, Edward Sirait.
Across its various subsidiaries, Lion Air has ordered 201 737 MAX jets, and our view is that any 737 MAX 10 order would come largely out of existing frames (with perhaps 20-25 additional net orders).
Other customers that we have heard serious market intelligence on, includes Jet Airways, which is planning an order for 75 single-aisle jets to add to its existing order book of 79 737 MAX 8 jets (against a current narrow body fleet of 71 737NGs). Some, or all, of the 75 could go to the MAX 10 if launched per market intelligence.
Rival Indian ULCC, SpiceJet, is also reportedly weighing an order for the MAX 10, though its current backlog of 205 MAX 8 orders against a current 737 fleet of just 32 frames, suggests that it too may focus on conversion of existing orders.
Copa Airlines has 61 737 MAX orders as compared to a 737NG fleet of 81 jets, and a top up focused on the MAX 10 would make sense. The MAX 10 could substantially lower operating costs for Copa, allowing it to compensate (on the bottom line) for economic uncertainty in many of its Latin American trunk markets.
If the 737 MAX 10 comes to fruition, Chinese carriers will almost certainly buy it, which clarifies reports of a potential Chinese lessor customers.
Other lessors are more likely to be cool on the MAX 10, likely waiting for Airbus to clarify its A322neo plans before progressing. But the big kahuna would be United Airlines, which has just 100 next generation narrow-body jets on order against a current generation fleet of 561 jets.
It even has 61 deferred 737-700 orders that Boeing would be more than happy to convert to MAX 10 orders. We view a United order at PAS as unlikely but not out of the question.
We will also be looking for Boeing to clarify its NMA plans further, building on details shared at the company’s pre-PAS briefings in Seattle earlier this month. We don’t expect Boeing to launch the NMA until mid-2018 at the earliest (though we have been surprised before), but more color is hoped for at PAS.
Outside of the MOM hubbub, we expect a quiet show for Boeing. The 787 is still functionally sold out for the next couple of years and airlines are in no hurry to add to their wide body fleets.
The most we’d expect to see is a firming of WestJet’s order for 10 787-9s placed earlier this spring. On the 777X, we are hearing talk of an order from Air New Zealand, but if that doesn’t materialize there really isn’t much going on.
We also don’t expect much 777 classic bridge activity, though Boeing may win a couple of top-up orders to close out 2017’s production slots. The 747-8 is all but dead and the freighter market isn’t in good shape.
The 737 MAX faces the same problem as the 787 – it’s functionally sold out for most of the world’s airlines. Other than the Chinese carriers (who won’t buy at PAS for geopolitical reasons), there simply aren’t that many major carriers that have large fleet replacement needs who haven’t already ordered the A320neo or 737 MAX.
And those that haven’t (like Delta Air Lines) are in no hurry to do so in the current fuel environment. But we would expect to see a few top up and new small customer orders at PAS 2017.
Airbus will “win” PAS but we want to hear about the A322neo
Like clockwork, each year in early June Airbus announces a slew of orders at either PAS or Farnborough, beating out Boeing and earning headlines that point to Airbus “winning” the orders battle.
This is not an accident. Airbus absolutely holds back orders to announce them at the mid-summer Airshow while Boeing tends to announce them as they occur throughout the year, and don’t let anyone tell you any different.
Functionally it doesn’t matter (Airbus’ advantage in airshow orders is much bigger than its advantage in overall orders) and there’s nothing wrong with it, but it should lead you to read any analysis that pegs Airbus as having won the PAS order battle with a grain of salt.
In terms of orders, we expect Airbus to have its usual strength in A321 orders, perhaps winning a couple more customers for the A321LR (the biggest scalp here would be a U.S. giant like American Airlines, Delta Air Lines, or even JetBlue).
The A330neo has been steady winning 40-50 orders apiece across 2015 and 2016, and while we have no specific intelligence about A330neo buys, we’d expect maybe one to be revealed at PAS.
The A350 is functionally sold out (like the 787) and the A380 (classic) is dead, plus or minus the random counter-cyclical Emirates A380 rumor (20 additional frames) that Bloomberg reported on earlier this month.
The big questions for Airbus will be around upgrades to existing families, namely a stretched “A322neo” to combat the 737 MAX 10, a potential upgrade or re-engine of the A380 (a project that has run hot and cold over the last 18 months despite a weak backlog), and (less likely) a stretch of the A350-1000 (dubbed the A350-1100) mulled since Farnborough 2014 to better compete with the 777-9X.
None of these programs is likely to be announced formally or even softly at PAS, but we do expect Airbus to provide additional color on the A322neo. As a reminder, our view is that the A322neo would once again render the MAX 10 uncompetitive (after the MAX 10 achieves parity or a slight advantage against the A321neo).
Bombardier needs to recapture CSeries momentum
The forthcoming Commerce Department decision about Bombardier’s sale of 75 CSeries jets to Delta has cast a pall over an excellent 2016 that saw Bombardier outsell rival Embraer (161 net orders for Bombardier versus 78 for Embraer) for the first time in years.
Bombardier won two blockbuster orders for the CSeries from Air Canada and Delta in early 2016 but has not sold a single frame since despite delivering both the CS100 (to Swiss Global Air Lines) and CS300 (to airBaltic) in 2016.
Especially with the Delta order up in the air as we await a potential imposition of trade duties by the Commerce Department, Bombardier needs an additional, meaningful CSeries customer (the two CS300s sold to Air Tanzania last December aren’t going to cut it).
At the end of 2016, Bombardier executives expressed confidence that they would win another big CSeries order in 2017. To date, we have not heard much market intelligence to that effect, and we do not expect anything major to develop at PAS.
Embraer could use more E2 orders as it ramps up to EIS
Embraer is in the same position of facing a slow pace of orders for its re-engined EJets E2 family over the last year and a half. The backlog of 233 jets a year and a half before entry into service (first half of 2018 with SAS Group regional carrier Wideroe) is no better than that of the CSeries, and Embraer doesn’t appear to have an order the size of Air Canada’s CSeries buy (let along Delta’s) on the immediate horizon.
At the same time, Embraer isn’t in dire financial straits and it hasn’t bet the company on the E2 in quite the same manner as Bombardier with the CSeries. The technical execution on the E2 has been excellent with first flight occurring ahead of schedule earlier this year. Still, we hope to see more E2 orders at PAS.
Other manufacturers expected to have a quiet show
For ATR, we don’t see any major developments other than the aforementioned IndiGo order.
Sukhoi and Irkut will flit around the air show but we don’t see any meaningful order activity occurring at PAS. The Turkish Regional Jet has been out of the news since Farnborough last year, but the recent nationalistic turn of the Erdogan government could prompt an order for a few jets from the country’s military.
In our view, Mitsubishi is the one to watch as it may need to announce plans to strip weight out of its MRJ variants to get back in line with U.S. scope clauses.
To end on an outlandish note (NOTE: WE ARE NOT SAYING THAT THIS WILL HAPPEN), it would truly represent the peak of (U-Turn) Akbar Al Baker, if the outspoken Qatar Airways CEO uses PAS 2017 to attempt to pressure the U.S. government to take its side in the dispute with Saudi Arabia by announcing major cancellations for Boeing jets.