Fitch: Commercial aerospace outlook continues to improve
Fitch Ratings published (11-Jul-2011 ) its '2011 Midyear Credit Review and Outlook' for the global aerospace and defence markets. The ratings agency reports the outlook for commercial aerospace has continued to improve throughout 2011, "on the back of a sustained rise in airline traffic in most regions, strong orders, good and diverse availability of aircraft finance, a low level of cancellations and deferrals to date and the high likelihood of positive, albeit lower than in 2010, airline profitability this year". High, good quality backlogs at Airbus and Boeing underpin the optimism of the two manufacturers shown in a number of announced production increases.
- Production and deliveries: In 2011, Fitch anticipates large commercial deliveries will exceed 1,000 aircraft, 6%-7% higher than in 2010. In both 2012 and 2013, production increases are likely to be in double digits percentage range, with Airbus and Boeing looking to fulfil the strong demand for aircraft. Other segments of the commercial aerospace sector, such as business and regional jets, have yet to show signs of recovery and may not do so until 2012.
- Risks: High jet fuel prices remain a risk to the commercial aerospace outlook. Jet fuel prices are up nearly 50% in the past 12 months and up about 17% in 2011.
- Narrowbody aircraft: Airbus' successful introduction of the A320neo "illustrates airlines' strong demand for fuel-efficient aircraft". Fitch continues to expect that Boeing will target a new narrowbody aircraft by the end of the decade, combined with incremental improvements to its existing B737 product line in the interim. A decision to target a larger aircraft could benefit some of the new entrants into the narrow body sector such as Bombardier's CSeries, as well as influencing the product development plans of other manufacturers such as Embraer.
- New entrants: Fitch believes that new entrants from China, Russia and Canada are unlikely to pose a serious threat to the incumbents until at least 2020.
- Mergers and acquisitions: Fitch believes the potential for growth in M&A in the coming 12 months is high, especially involving European companies, given the stability in commercial markets, large cash piles and a strong appetite for inorganic growth owing to the stagnant home markets. Many European companies remain interested in defence acquisitions in the US to gain access to that country's large defence budget and Fitch believes a pick-up in acquisition activity involving European companies in the US is likely in the coming year. [more]