Demand for aircraft interior equipment has reached record high levels and is expected to increase further even as airlines look to potentially slow down capacity growth in response to soaring fuel prices. B/E Aerospace, the market leader in supplying interiors for new-build aircraft and retrofit programmes, reported this week record bookings for the segment during 1Q2011.
B/E says its aircraft seating group had a book-to-bill ratio of 1.26:1 in 1Q2011, surpassing the booking record it had just set in 4Q2010. The US-based supplier now expects a record year in bookings for 2011 as several potential deals discussed at the recent Aircraft Interiors Expo in Hamburg will be booked over the next three quarters.
B/E claims interest from airlines in new cabins has never been higher, as evident in the attention it received during what it believes was its most successful aircraft interiors event ever. B/E took at the show bookings from three customers worth USD100 million, most of which will show up in B/E’s figures for 2Q2011 as the show was held in early Apr-2011. B/E CEO Amin Khoury says during the show B/E also spoke to delegations from about 50 airlines and reviewed new aircraft interior programmes worth more than USD2.3 billion.
Some of these programmes are expected to turn into bookings later this year or in 2012. All of this is on top of the more than USD500 in contract awards booked during 1Q2011, giving B/E optimism that its backlog will continue to grow for the next several quarters.
As a result, B/E expects to raise its previous 2011 revenue guidance, which had predicted 20% growth over 2010 levels including 12% growth from acquisitions and 8% organic growth. Mr Khoury acknowledges the 8% organic growth rate “is going to be higher than we originally guided to and anticipated” but says B/E is still crunching its numbers following Hamburg and will wait until it reports 2Q2011 financials to come out with new numbers.
“We are absolutely inundated,” Mr Khoury said. “Really surprisingly, about half the business on the seating side is retrofit business. It's very, very active. We're all incredibly busy.”
The other half of the cabin equipment sales activity is for new-buy programmes, which is growing almost as fast due to the increases in widebody aircraft production rates at Airbus and Boeing. B/E expects widebody aircraft deliveries to increase by about 25% in 2011. While European and Middle Eastern carriers continue to be the biggest purchasers of new cabin equipment, B/E says it is also starting to see some activity from US carriers, particularly on the retrofit side.
The boom in its aircraft interior business helped drive a 30% increase in total revenues at B/E in 1Q2011 to USD600 million, including a 35% increase in revenues at the commercial aircraft segment to USD310 million. Operating earnings were up 39% to USD100 million, including a 46% increase in the commercial aircraft segment to USD49 million. Net earnings increased from USD34 million in 1Q2010 to USD50 million in 1Q2011. Bookings across the business were up 48% to a record USD756 million. As of 31 March 2011, B/E had a backlog worth USD3.2 billion, an increase of 19% compared to one year prior.
While oil prices also began rising during 1Q2011, Khoury does not expect the new challenges confronting the global airline industry will dampen demand for new cabins or other B/E products. He points out that global passenger traffic, including premium traffic, continue to show signs of recovery and its customers “have responded rationally to rising oil prices by carefully managing capacity and passing on cost increases in an orderly fashion”.
B/E says order rates for spares and consumables are continuing to grow at double-digit rates. B/E also sees increasing demand in the aftermarket sector and an uptick in MRO activity, which Goodrich also indicated in its 1Q2011 earnings discussion was picking up significantly along with its smaller aircraft interior equipment business. The aftermarket and MRO demand is being driven by growth in global passenger traffic and a need to invest in overhauling older generation aircraft and components after deferring maintenance during the global downturn.
Khoury says “the economic recovery is gaining momentum” and global GDP growth is expected to remain healthy despite the earthquake in Japan, instability in the Middle East and the rise in oil prices. “We remain optimistic because the airlines are well prepared, have managed capacity growth and successfully raised fares and fees,” Khoury says, also pointing out rising fuel costs has an upside for B/E because it drives up demand for more fuel efficient new aircraft.
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