Boeing sales dip as airlines suffer
By Bill Rigby , Fri 06-Jun-2008 07:05
After three years of record plane sales, Boeing Co's orders are showing signs of slipping as the world's airlines scramble to survive soaring oil prices.
The top four US airlines are planning to slash flights, lay off workers and retire older planes this winter as they look to cut their fuel bills, moves likely to be followed by overseas carriers.
Boeing says demand for its new, more fuel-efficient planes will stay strong, but airlines are showing signs of alarm as jet fuel hovers above $US150 a barrel, adding billions of dollars to airlines' operating expenses.
Amid talk of mergers and bankruptcies, new plane orders have started to slow and analysts' outlook for the next three to four years has darkened.
"The airlines are having a hell of a rough time, which means they will continue being weak financially," said Paul Nisbet at aerospace specialists JSA Research. "The US airlines in particular are going to have to delay further buying airplanes."
It's too early to call it a disaster for Boeing, said Nisbet, given that a dip in orders was already expected after the boom, and that Boeing has a record $US271 billion ($A282.6 billion) worth of jetliner orders on its books.
But the situation could become serious if oil stayed high and economic weakness in the United States spread to the rest of the world, according to analysts.
"Although the Boeing backlog is currently huge, we expect declining orders and delivery deferrals to result in a flattening off in production from 2010," said Macquarie Capital's Rob Stallard in a research note on Thursday. That would signal "the end of this aerospace up-cycle," he added.
Boeing shares fell 82 US cents or 1.1 per cent to $US77.20 in late afternoon trading on the New York Stock Exchange on Thursday. The stock is down 28 per cent since its all-time high in July last year.
Airlines signed up to buy 67 new aircraft from Boeing in May, compared with 92 in the same month a year ago, according to the latest update of the plane maker's online order book.
It sold 61 of its single-aisle 737s, mostly to unidentified customers, plus six of its 777 minijumbos. It took no orders for its new 787 Dreamliner, which is now at least 15 months behind schedule and not set to fly until later this year.
Boeing had 414 commercial plane orders at the end of May, in line with the 417 it had at the same time last year, which turned out to be its best year ever, with 1,413 net orders.
But the pace of orders has slowed from a brisk start in the first three months of the year, and few are expecting that Britain's Farnborough International Airshow in July - where airlines like to unveil big orders - will be a blow-out this year.
Boeing's main rival Airbus, a unit of European aerospace group EADS, has not yet felt a decline. According to the latest available figures, it had 397 net new orders for the year at the end of April, higher than the same time last year.
Boeing's chief concern is that airlines in the United States and Europe are aggressively cutting flights and scaling back capacity, which are the main indicators of industry growth and, ultimately, demand for planes.
Carriers in Asia and the Middle East, Boeing's strongest-growing markets in the past few years, have not shown signs of weakness so far, but high oil prices could eventually hurt them too.
"Our leading concern is outside the United States, if there is a global recession," said Douglas Harned at Sanford C. Bernstein in a research report. "Non-US (plane) orders are more for growth than replacement, and economic weakness could lower expectations."
If the rest of the world did follow US airlines, the market for new planes could grow much more slowly than Boeing has been expecting.
On Thursday, Continental Airlines Inc announced a 16 per cent cut in domestic flights this winter, following similar moves by AMR Corp's American Airlines, UAL Corp's United Airlines and Delta Air Lines Inc in the last few weeks.
Discount carriers JetBlue Airways Corp and AirTran Holdings Inc have deferred new plane deliveries and trimmed their expansion plans.
European carriers have not reacted so drastically, but more cuts in services are expected.
German discount carrier Air Berlin, a big customer for Boeing's 787, said last week it would scrap unprofitable routes, while Ireland's Ryanair Holdings Plc - Europe's biggest low-cost airline - is planning to ground as much as 10 per cent of its fleet. British Airways Plc's chief executive said last month that capacity cuts this winter were "inevitable."
Airlines are hoping that cutting flights will help them survive a brief spike in oil prices, but Boeing would have a major problem if that failed, or economic weakness spread.
"If history is a guide, it is gross domestic product that matters, not rising fuel prices alone," said Bernstein's Harned. "Short-term capacity cuts should not hurt the cycle. The greatest risk is in 2011-2012."