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2018 Farnborough Airshow Results

The 2018 Farnborough Airshow generated impressive results for the commercial sector as both major manufacturers Boeing and Airbus announced a healthy number of new orders and commitments. At the end of the week, Boeing has a slight edge over Airbus with a total of 673 orders and commitments compared with Airbus’ 431. While both the aviation rivals had their share of successes at Farnborough, they will continue to face challenges to keep up with market demand, including engine productivity and overlying trade wars between the United States and China.

An Aviation Rivalry in Flux

Ten years ago, Airbus and Boeing were regularly neck and neck when it came to the backlog of firm orders. However, for the last five years, Airbus has managed to receive more firm orders than its rival, with an aircraft backlog reaching a surplus of 7,000 compared with Boeing’s 6,000 aircraft backlog, at the end of last year. Despite having the backlog advantage, Boeing is slowly increasing its numbers and threatening to bump Airbus from the leading backlog position.

With high hopes for the future, both manufacturers have stated that they intend to reach a set monthly production rate for their leading narrowbody aircraft by the end of next year. Airbus hopes for 63 aircraft monthly for their A320 Family, while Boeing plans to produce 57 per month for their 737. The planned increase in output was announced after both companies recognized the necessity for higher production rates in order to avoid losing their current orders. The biggest challenge for both entities will be making sure the engine manufacturers are able to fulfill their own production goals. Through all of this, the influx of orders and commitments prove that the market is still craving narrowbody aircraft, just as long as Boeing and Airbus can keep up with the demand.

Farnborough Orders & Results

Airbus began the week leading up to the Farnborough Airshow with a year to date total of 321 orders. Before the week closed, the European manufacturer added 93 firm orders and 338 memorandums of understanding (MoUs), increasing total orders and commitments to 431; by comparison, 105 more than the Paris Air Show the previous year. Forty-two of the commitments are for both models of the new A330neo. Another notable agreement came from JetBlue Founder, David Neeleman, who also signed an MoU for 60 A220-300s which he plans to add to a new U.S. carrier. Neeleman’s agreement came shortly after JetBlue placed the exact same order. Through the success of orders flowing in, Airbus Chief Commercial Officer Eric Schulz believes the results show a “strong market appetite for all [their] leading aircraft product families…” covering all models except for their A380, which Schulz believes is now breaking into the second-hand market.

While Airbus had a strong showing in Farnborough this year, Boeing’s time at the airshow was also well spent. Coming in with year to date orders reaching 460 aircraft, they wrapped up their week with a total of 673 orders and commitments, which was 242 more than their main competitor and 102 more than their own numbers at the Paris Air Show in 2017. Seventy-three of those orders and commitments were for their freighter aircraft. These total results cash in at $100 billion, $2.1 billion of which is dedicated to commercial and defense services, while the remaining account is for commercial aircraft. The success of the week, according to Boeing, shows “resurgence in demand for freighters and strong order activity for the 737 MAX and 787 passenger airlines.” Two new customers signed on for the MAX 10 and the 787 alone will soon reach more than 1,400 orders once the commitments from this air show are solidified.

 


Source: Cargo Facts

Evidence of Trade War Impact

An important item to note as the 2018 Farnborough Airshow came to a close is that of the total 1,104 orders and commitments, just over 29% of them were placed by unidentified customers. The first two days alone saw undisclosed customers signing for 180 A320neo Family aircraft, starting the show off on a high note for Airbus. According to Cargo Facts, it is believed that a good portion of those orders were placed by Chinese companies intentionally to mask their moves due to the growing trade war between their country and the United States.

The trade war began after the US tariffed $34 billion worth of items from China, with the looming threat of $500 billion in tariffs. Firing back, China placed tariffs aimed at specific regions throughout the States, especially hitting the Midwest. According to the Washington Post, the country at risk for more economic loss is China, as 20% of their exports are sent to the US. However, China has the ability to withstand more in the coming year due to their political system having an immensely different chain of command compared to the US. This ongoing trade war seems to be the primary reason for an uptick in unidentified customers at the Farnborough Airshow.

The implications of this trade war threaten the aviation industry in the States as well. For example, the 25% tariff on aircraft weighing anywhere between 33,000-99,000lbs greatly affects Boeing’s 737s, which is the most common aircraft in that spectrum. Additionally, 20% of Boeing’s order book is comprised of orders from Chinese organizations, which is where the anonymity of this year’s airshow comes into play. If the trade war continues, the industry could see a noticeable hit to aircraft manufacturer’s profitability, particularly in Boeing’s case.

Future Outlook

Overall, the increase in orders and commitments at this year’s Farnborough Airshow demonstrates the strength of the manufacturers and the positive outlook organizations have for the coming years. While Airbus and Boeing both had strong showings at the event to increase their aircraft backlog, their potential to reach their own productivity goals and fulfill orders remains tied to the engine manufacturers’ ability to meet the demand. Lastly, both organizations must look to overcome the market challenges presented by the US-China trade war.

mba’s STAR Fleet Analyzes Aviation in Japan

Japan Aviation Market Snapshot

Powered by mba’s REDBOOK STAR Fleet

Leading up to the 7th Annual Japan Airfinance Conference, mba generated a brief analysis of the Aviation Market in Japan using data from REDBOOK’s recently launched STAR Fleet.

Here are some of the insights derived from the report:

  • Currently 717 aircraft are operated by Japanese carriers
  • 21% of aircraft operated in Japan are leased
  • 62% of the country’s fleet is operated by the top two carriers

Bar Chart Illustrating the Competitive Landscape in Japan

  • In 2017, there were 1,101K frequencies and 201.4M seats (each way) recorded in Japan

mba’s STAR Fleet Analyzes Aviation in South Korea

South Korea Aviation Market Snapshot

Powered by mba’s REDBOOK STAR Fleet

Leading up to the 2nd Annual Korea Airfinance Conference, mba generated a brief analysis of the Aviation Market in South Korea using data from REDBOOK’s recently launched STAR Fleet.

Here are some of the insights derived from the report:

  • Currently 396 aircraft are operated by South Korean carriers
  • Half of all aircraft operated in South Korea are leased
  • 75% of the country’s fleet is operated by the top three carriers
  • In 2017, there were 368K frequencies and 76.9M seats (each way) recorded in South Korea

Low Cost Carriers Emerging Against the Odds in Latin America

2017 has seen growth for Low Cost Carriers (LCC) in Latin America through both start-ups and airlines changing their business models. Despite mixed outlooks for the region due to political crises in major countries and commodity price and exchange rate shocks in 2016, IATA forecasts 5.4% annual growth of Revenue Passenger Kilometers (RPKs) over the next 20 years. LCCs are on a mission in the region to capture a large portion of that growth.

Source: OAG, World Bank; 2017 Data current as of 3Q
The first LCC in the region, GOL, began operations in 2001. For the next 15 years another LCC entered the market approximately every two years increasing to eight LCCs in 2016. In 2017 alone we have seen five LCCs begin operations in three countries where low cost service did not exist before, and the year isn’t over yet.

Figure 1 – Low Cost Carriers by Volume and by Country

 

LCC penetration has increased steadily over the last decade. Mexico and Brazil boast the highest LCC market share at 61% and 55% respectively. Colombia and Chile have recently seen LLCs take a 12% traffic position in their countries where there was no LCC presence five years earlier. Joining this growth segment, there are several additional LCCs expected to enter the region, specifically in Argentina and Peru, by early 2018.