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Aircraft manufacturers revel in another likely record year of orders, after strong Farnborough

With the Farnborough International Airshow over, the major aircraft manufacturers have reported their July orders and deliveries and 2014 is shaping up as another exceptionally strong year for the global airliner market.

Despite the talk of an aircraft ordering bubble, demand remains strong despite some regional weaknesses, order backlogs continue to hit record highs and the major problem for manufacturers is getting their aircraft into the hands of their customers at rates that satisfy them.

Farnborough: Airbus and Boeing starred in the USD130 billion ordering spree

After a relatively quite first half of the year, airlines and lessors lost any reticence to order aircraft, at July’s Farnborough Airshow, placing USD130 billion in orders and commitments for commercial aircraft. Boeing and Airbus took the lion’s share of the orders, with just over USD115 billion in orders between them. Airbus logged 130 aircraft orders in the month, while Boeing booked 324 orders, a calendar month record for the manufacturer.

Regional jet and turboprop manufacturers also had a strong airshow, with more than 200 orders and commitments spread between Embraer, Bombardier, ATR, and Sukhoi.

Aircraft manufacturer Farnborough International Airshow 2014 orders and commitments

Manufacturer

Orders and commitments

List price value

Airbus

496

USD75.3 billion

Boeing

201

USD40.2 billion

Embraer

118

USD7.3 billion

Bombardier

76

USD4.3 billion

ATR

38

USD837 million

Sukhoi

7

USD253 million

Total

936

USD128.2 billion

Widebodies – 777X makes strong pre-show appearance, but A330neo steals the show

Just five days before the airshow, Emirates finalised its 2013 commitment for 150 777X aircraft, covering 15 777-9X and 35 777-8X. The pre-airshow deal set a new record for the single largest aircraft order, and confirmed Boeing’s ascendency over Airbus in the widebody market. The firm order came just a month after Emirates dropped orders for 70 A350s.

Outside of the pre-show Emirates order, Boeing enjoyed more widebody order success for 777X and the current generation 777 family. Qatar Airways CEO Akbar Al Baker produced a typically surprising turn around at the airshow. Only days after stating he was in no hurry to firm up an MoU for 50 777-9Xs, Mr Al Baker turned around and signed a firm contract for the aircraft. The carrier also announced a commitment for four 777Fs, continuing its commitment to dedicated widebody freighters.

Current generation 777 orders at the airshow also included six each from Air Lease Corp and Intrepid, both firm orders. Another lessor, MG Aviation, signed a firm order for two 787-9s. CIT Group signed an order for 10 787-9s. Avolon also announced a commitment for six 787-9s.

Boeing Farnborough International Airshow 2014 orders

Customer

Quantity / model

Status

Value at list prices

Monarch Airlines

30 737 MAX 8

Purchase commitment

USD3.1 billion

Okay Airlines

6 737 MAX 8

Firm order

USD980 million

Okay Airlines

4 737-800

Firm order

Avolon

6 787-9

Purchase commitment

USD2 billion

Avolon

5 737 MAX 9

Purchase commitment

Air Lease Corp

6 777-300ER

Firm order

USD3.9 billion

Air Lease Corp

20 737 MAX

Firm order

Intrepid

6 777-300ER

Firm order

USD1.9 billion

CIT Group

10 787-9

Firm order

USD2.5 billion

Air Algerie

2 737-700C

Firm order

USD152 million

Qatar Airways

50 777-9X

Firm order

USD20.1 billion

Qatar Airways

4 777F

Purchase commitment

MG Aviation

2 787-9

Firm order

USD499 million

Hainan Airlines

50 737 MAX 8

Purchase commitment

USD5.1 billion

Total

201

 Total value

USD40.2 billion

Airbus announced the launch of the A330neo at the Farnborough Airshow, ending more than 12 months of speculation. Airbus promises the aircraft will deliver a 14% improvement in efficiency, 400 nm range enhancement and lower per-seat costs than the 787 (via higher seat count). The aircraft is due to enter service in late 2017, three years before the 777X (highlighting the benefit of the company’s minimum design change philosophy for its ‘neo’ aircraft).

Airbus logged 121 commitments for the A330neo, with the first firm orders expected to be finalised before the end of the year. The largest customer was AirAsia X, which has long been an advocate of re-fitting the A330 with new engines. AirAsia X signed an LoI for 50 A330neo aircraft. It currently has 38 A330ceo orders and 10 A350-900 orders, but there is no information how many, if any, of these may be exchanged for A330neos.

Leasing companies also committed heavily to the reworked aircraft. Air Lease Corp, another long term advocate for the aircraft (having forecast a market for more than 1000 A330neos by 2030), signing up for 25. Its commitment was followed by other from CIT Group (15 aircraft) and Avolon (15 aircraft).

Russian Transaero committed to 20 A330 family aircraft – eight A330ceo to round out its existing fleet and 12 A330neo aircraft, for delivery from 2018.

Airbus also broke a six-month A350 order drought, signing an agreement with Air Mauritius for four A350-900s. The Mauritian national carrier will also lease two more A350s, taking its fleet to six,

Airbus Farnborough International Airshow 2014 orders

Customer

Quantity / model

Status

Value at list prices

International Airlines Group

20 A320neo

Converted options

USD2.06 billion

Air Lease Corporation

25 A330-900neo

Memorandum of Understanding

N/A

Air Lease Corporation

60 A321neo

Firm order

USD7.23 billion

AerCap

50 A320neo

Firm order

USD5.14 billion

SMBC Aviation Capital

110 A320neo

Firm order

USD11.31 billion

SMBC Aviation Capital

5 A320ceo

Firm order

USD469.5 million

BOC Aviation

7 A320neo

Firm order

USD719.6 million

BOC Aviation

36 A320ceo

Firm order

USD3.38 billion

CIT Group

15 A330-900neo

Memorandum of Understanding

N/A

CIT Group

5 A321ceo

Memorandum of Understanding

USD469.5 million

Avolon

15 A330neo

Memorandum of Understanding

N/A

AirAsia X

50 A330-900neo

Memorandum of Understanding

N/A

Air Mauritius

4 A350-900

Firm order

USD1.18 billion

Hong Kong Aviation Capital

40 A320neo

Firm order

USD4.11 billion

Hong Kong Aviation Capital

30 A321neo

Firm order

USD3.62 billion

Transaero Airlines

8 A330ceo

Letter of Intent

N/A

Transaero Airlines

12 A330neo

Letter of Intent

N/A

Undisclosed customer

4 A330neo

N/A

N/A

Total

496

 

USD75.3 billion

Airbus took a total of 133 widebody orders and commitments at Farnborough while Boeing scored a healthy 84 widebody orders. Including the pre-show Emirates 777X order would boost Boeing’s 234, making July a more successful month for Boeing than for Airbus.

Post-Farnborough, Airbus did book a conversion order, with Hawaiian Airlines signing an MoU to swap the six A350-800 widebodies it previously had on order for six of the A330-800neos. The conversion is another sign that the A350-800 is living on borrowed time. It reduces orders to just 28 aircraft from four customers.

For the year to the end of July, Boeing has booked 273 widebody orders. In comparison, Airbus has logged just 66 after cancellations. However, Airbus still has more than 120 A330neo commitments to firm up.

Once again notable by their absence were the four engine widebodies Both manufacturers have active sales campaigns for these aircraft, but Airbus hasn’t announced an A380 sale success since Feb-2014 and was forced to cancel six A380 orders in Aug-2014, and Boeing hasn’t won a new 747-8 customer since Dec-2013.

Airbus remains more optimistic about the potential for the large aircraft, particularly as a vehicle to capture growing traffic between congested airports in aviation ‘megacities’. However, both it and Boeing are tweaking their very large widebodies to make them more attractive to new customers.

Airbus has been looking at floor configurations to increase capacity, including an 11-abreast seat configuration and some other improvements. The manufacturer has been reluctant to commit or reject an A380neo, despite prodding from Emirates, the largest A380 customer, on the concept.

Meanwhile, Boeing has been looking to improve the range and reduce the fuel burn of the 747-8. With a firm order backlog of just 50 aircraft as of the end of Jun-2014, Boeing needs to find more customers for the aircraft, or risk having to slow production again on the programme. Boeing cut production from 1.75 to 1.5 aircraft per month in 2013.

Unfortunately for Boeing and Airbus, the large widebodies serve a comparatively small niche - primarily high-capacity, long-haul routes. However, the introduction of newer, higher capacity twin-engine widebodies – with capacity for 350-400 passengers and better than 8000 nm in range – crowds them even further. Both manufactures have reportedly been offering discounts of around 50% of list prices in their sales campaigns.

Narrowbodies – neo, MAX continue to shine

Farnborough 2014 continued the unparalleled success of next-generation Airbus/Boeing narrowbody aircraft, with 480 orders between them. This was equal to slightly better than half of the narrowbody aircraft deliveries in 2013.

Since Airbus launched the A320neo in Dec-2010, and Boeing countered with the 737 MAX in Jul-2011, the two manufacturers have logged firm orders for 5,275 between the two aircraft families, as well as another 215 commitments.

Airbus logged 317 A320neo orders at Farnborough, with the large A321neo having another strong showing, accounting for 100 (31.5%) of the orders. The largest customer was SMBC Aviation Capital, which announced an order for 110 A320neo family aircraft. Other lessors also making large narrowbody orders were Hong Kong Aviation Capital committing to 70 (including 30 A321neo) and Air Lease Corp ordering 61 A320neo.

Airbus also continues to fill out the remainder of the available A320ceo production slots, securing orders for 46 aircraft. BOC Aviation ordered 36 A320ceo (as wells as seven A320neo), while SMBC Aviation Capital topped off its A320neo order with five A320ceo. CIT Group also signed an MoU for 15 A320ceo.

Order momentum for the 737 MAX has remained strong, with Boeing winning 111 orders. Almost half of these came from Hainan Airlines, which committed to 50 aircraft. Monarch Airlines also signed a conditional agreement for 30 737 MAX 8 aircraft, a deal which will see it defect away from Airbus and the A320. Air Lease Corporation orders 20 737 MAX aircraft, with Avolon and Okay Airways rounding out Boeing’s order book.

The 737NG was also on Okay Airways shopping list, with the carrier ordering five. Air Algerie ordered two 737-700s as well.

Regional aircraft – Embraer scores big, CSeries momentum slowly grows, ATR beats-out Bombardier

Embraer emerged from Farnborough as the most successful of the regional aircraft manufacturers, announcing deals for 100 of its new E-Jets E2 family, valued at more than USD5 billion. It also scored 38 orders for its current generation E-Jets. To date, Embraer has received orders, options and letters of intent for 550 E-Jets E2s. The first new E2, the E190-E2, is due to enter revenue service in 2018.

Embraer Farnborough International Airshow 2014 orders

Customer

Quantity / model

Status

Value at list prices

ICBC Leasing

10 E190-E2

Firm order

USD550 million

Tianjin Airlines

20 E-Jets and 20 E-Jets E2

Conditional order

USD2.1 billion

Azerbaijan Airlines (Azal)

2 E190

Firm order

USD95.4 million

Fuji Dream Airlines

6 E175

Firm order

USD258.6 million

Azul Airlines

30 E195-E2

Letter of intent

USD1.86 billion

Trans States Holdings

50 E175-E2

Conditional order

USD2.4 billion

Total

138

 Total value

USD7.26 billion

The most significant customer was Trans State Holdings, signing a conditional purchase agreement for 50 E175-E2s, the smallest of the new three aircraft family. The deal continues the rapid acceptance of the E-Jets E2 in the US. There are already orders for 100 E175-E2s from SkyWest Airlines and 50 from ILFC (which has since been acquired by AerCap). Embraer sees more demand in the US for regional jets, with carriers phasing out older aircraft, up gauging their fleets and taking advantage of changes to scope clauses in pilot contracts.

Another important contract win was from Azul, already a major Embraer operator with 82 E190s and E195s and11 more on order. At Farnborough, it placed a LoI for 30 new E195-E2s. The announcement makes Azul the launch customer for the E195-E2, which will seat up to 130 passengers.

Tianjin Airlines, a subsidiary of the HNA Group, is another adding to its existing fleet of E-Jets. The carried signed orders for an additional 20 current generation E-Jets, the first of which will be delivered in 2015, and 20 next generation E2s.

Bombardier recorded no contract wins for its in-production CRJ ,family but it did take a number of new contracts for the CSeries, building firm orders past 200 and combined orders and commitments to just under 300. While Bombardier hasn’t won the large orders that Embraer has for its E-Jets E2, it is building the customer base for the aircraft, with orders from 23 different customers now on the books.

Shortly before the airshow, Falko Regional Aircraft Limited signing two letters of intent (LoI) for up to 24 CSeries aircraft. Another major tentative deal for the CSeries came on the first day of the airshow, with Chinese carrier Zhejiang Loong Airlines signing a letter of intent to acquire 20 CS100s.

Bombardier Farnborough International Airshow 2014 orders

Customer

Quantity / model

Status

Value at list prices

Unidentified existing customer

7 CS300

Conditional order

USD553 million

Unidentified African customer

5 Cseries

Letter of Intent

USD365 million

Nok Air

2 Q400

Conversion of purchase options

USD66 million

Abu Dhabi Aviation

3 Q400

Order confirmation

USD62 million

Falcon Aviation Services

5 Q400

Letter of Intent

USD160 million

Falcon Aviation Services

3 CS300

Firm order

USD153.6 million

Alaska Air

1 Q400

Firm order

USD32.6 million

Petra Airlines

2 CS100

Letter of Intent

USD136.5 million

Zhejiang Loong Airlines

20 CS100

Letter of Intent

USD1.28 billion

airBaltic

3 CS300

Order confirmation

USD228 million

Falko Regional Aircraft Limited*

24 CS100

Letter of Intent

USD1.48 billion

Total

75

 Total value

USD4.25 billion

Bombardier also collected a slew of smaller orders: airBaltic was confirmed as a customer for 3 CSeries, Petra Airlines signed for 2 CS100s and Falcon Aviation Services signed a deal for two aircraft. In addition to this, there were SC300 orders from two undisclosed buyers, one an existing customer which order seven aircraft and one from an Africa carrier, which ordered five.

The major concern for Bombardier is not the aircraft’s lack of sales, but the extended grounding due to the issue with its Pratt & Whitney PW1500G. The uncontained engine failure during stationary maintenance testing grounded the aircraft at the end of May-2014, and not announcement on when testing will resume has been forthcoming. In the meantime Bombardier has announced a major restructuring of its Bombardier Commercial Aircraft division, along with a significant management reshuffle. Several key executives involved in the CSeries programme have departed the company.

ATR continues ascendency over Bombardier in turboprop market

In the turboprop market, ATR has continued its dominance over Bombardier. ATR announced firm orders for 38 of its -600 series aircraft, 25 ATR 42-600s from Nordic Aviation Capital, seven ATR 72-600s from Air Lease Corporation and six ATR 72-600s from Myanmar Airways.

ATR Farnborough International Airshow 2014 orders

Customer

Quantity / model

Status

Value at list prices

Nordic Aviation Capital

25 ATR 42-600

Firm order

USD516.5 million

Air Lease Corp

7 ATR 72-600

Firm order

USD172.9 million

Myanmar Airways

6 ATR 72-600

Firm order

USD148.2 million

Total

38

Total value

USD837 million

In comparison, Bombardier won just 11 orders and commitments for the Q400: five from Falcon Aviation Services; three from Abu Dhabi Aviation; two from Nok Air; and, one from Alaska Airlines.

To keep orders coming, Bombardier is innovating with the Q400. Bombardier unveiled a cargo-passenger combi configuration at Farnborough, which follows 2013’s announcement of higher capacity configurations.

ATR has been well ahead of Bombardier in the turboprop market for a number of years and that dominance looks set to continue this year, particularly with the delicate global geopolitical situation pouring cold water on Bombardier’s proposed USD3.4 billion deal to locate a Q400 assembly line in Russia, with up to 100 turboprop orders tied to it.

While Bombardier has struggled to book consistent orders for the Q400, ATR set a six-month period record of 144 firm orders and 112 options over 1H2014 and is now aiming to beat its full-year sales record of 157 orders. ATR’s new CEO Catrick de Castelbajac has also announced the company is shifting its priorities away from a new 90-seat turboprop (which previous CEO Filippo Bagnato supported and 50% shareholder Airbus opposed) in favour of concentrating on delivering on the company’s now record backlog, accelerating and smoothing production and further improving the existing aircraft, possibly with a ‘neo’ style rework of its own.

Six months of orders booked in four days, but still some gaps in order books

Aircraft manufacturers booked a little over 900 orders between them at Farnborough. In perspective, aircraft manufacturers delivered a little over 1500 new commercial aircraft in 2013 (1300 from Airbus and Boeing) and will deliver around 1600 this year.

2013 commercial aircraft deliveries by manufacturer

The orders at this year’s Farnborough add significantly to already bulging aircraft manufacturer backlogs. With the strong ordering of the last five years due to traffic growth and high fuel prices, most aircraft programmes now enjoy firm order backlog of at least two to three years. Some, such as the A320neo and Boeing 737 MAX and the 787 and A350, enjoy backlogs that are reaching seven to eight years.

There are some programmes that still have gaps left to fill. Despite the returning traffic growth, Airbus and Boeing have struggled to secure orders for their very large A380 and 747-8, as the more fuel efficient twin-jets continue to grow in size and capabilities and make inroads into their market niche. Both have production slots open in 2015. At the other end of the scale, Bombardier’s Q400 firm order backlog stands at only around 18 months production, despite a relatively successful run of small orders over 1H2014.

Airbus and Boeing still have some work to do to close the production gaps between their current generation widebodies and their successor aircraft. Boeing will need to sell around 200 to 300 more 777s to ensure a smooth transition to the 777X in 2020 without significantly slowing production. Airbus, which is bringing its A330neo to market by late 2017, has less of a gap to close, but it will still want around 50-80 more sales.

Despite these issues, commercial aircraft manufacturers are in an enviable position. Airbus and Boeing now have a combined firm order backlog of more than 10,000 aircraft. The smaller regional aircraft makers have much smaller backlogs, and smaller production capacity, but for the most part their backlogs are also at or approaching record levels.

Instead of worrying about sales, aircraft manufacturers a now more concerned about their ability to ramp-up production and manage their suppliers in the process. They are also looking to deliver on their new aircraft programmes to maximise revenues and returns, and get as many newer and more efficient aircraft into operation with their customers.

Aircraft manufacturers headed for more than 2000 orders in 2014

With a little four months of 2014 to go, aircraft manufacturers are now closing in on more than 2000 aircraft orders for the year. After more than 3000 orders were recorded between the five major large commercial aircraft manufacturers: Airbus, Boeing, ATR, Bombardier and Embraer in 2013, the ordering expectations for this year were not particularly high. However, airlines and leasing companies have continued to exhibit the strong purchasing momentum the commercial aircraft market has exhibited since the end of the 2007-2009 global financial crisis.

Aircraft ordering has now passed the peak of the previous cycle, with orders for more than 10,000 aircraft placed in the past five years. For the period to the end of Jul-2014, Airbus logged 980 gross aircraft orders, while Boeing has logged 837. Jul-2014, the month of the Farnborough Airshow, was particularly successful. Over the first seven months of the year, Embraer, ATR and Bombardier have reported better than 350 firm regional aircraft orders between them

Western commercial aircraft orders: 2007-2013

Cancellations have eaten into the ordering most significantly for Airbus. The European manufacturer lost 275 aircraft orders this year, cutting its total to 705. Boeing has been much less affected, with just 54 cancellations (all for 737 family aircraft) reducing its net orders to 783.

Even accounting the cancellations, 2014 firm aircraft orders are approaching 1850 aircraft. Several hundred aircraft purchase commitments and LoIs remain to be firmed up, many of which are expected to be concluded by the end of 2014.

The ordering has been particularly weighted towards narrowbody aircraft facilities. A320ceo and A320neo orders have accounted for 914 of Airbus’ 980 gross orders, or 93% of ordering. Boeing’s orders have less weighted towards the smaller aircraft, but the 737NG and 737 MAX have still contributed 75% of total ordering.

Boeing’s 777 and 777X have been the most popular widebodies this year, with orders for 219 aircraft. Airbus could pull back some ground later in the widebody market later in the year, as it converts tentative agreements for the A330neo in to firm orders. The first of these are expected to go ahead 4Q2014, meanging Airbus may finish the year with a flourish.

Ordering cycle now the strongest in aviation history

The strong Airshow combined with the steady 1H2014 order has allowed aircraft manufacturers to shrug off the idea that the aircraft ordering boom is about to come to an end. The current ordering cycle is the strongest seen in commercial aviation history. The combination of steadily growing air travel demand, consistent airline profits and high fuel costs has seen airlines and leasing companies order more than 10,000 commercial airliners over the past four years.

Western commercial aircraft manufacturers firm orders: 2009 to 2013

Manufacturer order books are now at all time highs. Airbus has just over 4,750 aircraft in its backlog while Boeing has better than 5,500 unfilled orders. Narrowbodies account for almost 8700 of these orders, with the production gaps between existing aircraft and their successors now fully bridged and production for the A320neo and 737 MAX allocate for the majority of the next five years.

Airbus and Boeing narrowbody order backlogs

With the A330neo announcement, the manufacturer’s aircraft line ups have become pretty much static – apart from the A350 and the CSeries, no new all-aircraft are expected to be developed by the major manufacturers before 2020. The large manufacturers are now focusing development on derivative aircraft – the A330neo and A320neo for Airbus, the 737 MAX, 777X and 787-10 for Boeing.

Embraer too is focusing its efforts on a development aircraft, while ATR appears to have abandoned its goal of an all-new 90-seat turboprop for a focus on higher production rates and better profitability. This leaves just two major programmes - the A350 and the CSeries – to come to market.

Increasing production rates and squeezing suppliers for better prices and higher volumes is now the order of the day for manufacturers. While question marks remain for a few programmes, the sales of the A380 and 747-8, as well as build rates on the A330ceo and current 777, manufacturers are enjoying the fruits of rapid airline growth and sustained airline profitability.

The combined aircraft build rates at Airbus and Boeing are forecast to reach 150 per month by 2018, with smaller aircraft manufacturers contributing 200-250 p/a. If achieved, commercial aircraft deliveries could reach an unprecedented 2000 aircraft, nearly triple the rate only ten years ago.

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