Paris Air Show: Lots of cutbacks, and where is Boeing's 787?

The watchwords for the 2009 Paris Air Show? A pair of 'Bs' – belt-tightening and Boeing.

Airline manufacturers are belt-tightening amid airline cutbacks and order cancellations and deferments, and with good reason, MarketWatch reported Monday: the International Air Traffic Association expects the industry to lose $9 billion in 2009, due to a projected eight percent drop in passenger traffic and a staggering 17 percent plunge in cargo.

And the scaled-down 2009 Paris Air Show (PAS) reflects the cautious era: fewer, new aircraft will be exhibited at this year's event which runs through June 21, Bloomberg News reported Monday.
Moreover, the airline sector's woes, from manufacturers to carriers, parallel those of the U.S. housing sector: plenty of overbuilding and economic forecasts that turned out to be far too optimistic, which translates into excess capacity throughout the sector.

For the airlines, that means taking planes out of service, and laying off personnel. For commercial airline manufacturers like Boeing (BA) and Airbus, that means striking new agreements with airlines whereby the latter delay or cancel orders for new planes.

No 'just in time' commercial planes

To be sure, some of the sector's woes are intrinsic -- there's no such thing as 'just in time' inventories in commercial aviation. Commercial airplanes take years to build, and orders placed during boom times are delivered years later, when economic conditions are different, and sometimes worse. That happened again during this economic cycle.

However, some of the sector's woes are self-inflicted. Boeing is frittering away a technological advantage due to delays in the delivery date for its next-generation 787 Dreamliner, expected to be the world's most fuel-efficient commercial airplane. At the 2007 PAS, Boeing said the Dreamliner would be delivered "bang on schedule," in 2008, Bloomberg News reported Monday. They didn't come close to that date, with production and development delays pushing back the first delivery by at least two years.

Boeing's delay has left some at the PAS wondering what would be a reasonable delivery date for 787: the company said it is absolutely committed to getting the 787 off the ground with its first flight in the next two weeks, or by the end of June, Boeing's CEO Jim McNerney, told European newspapers Sunday, Reuters reported.

Moreover, rival manufacturer Airbus has seized upon Boeing's mistakes to secure unexpected plane orders. Although Airbus will reduce deliveries of its superjumbo A380 airliner to 14 from 18 in 2009, due to the recession, the two-year 787 delay has enabled Airbus' 350-seat A350-1000 -- which carries 60 more passengers than the 787 -- to grab market share from the Dreamliner, Bloomberg News reported Monday. The A350's gains have been so large that Boeing may build a new wing for its existing 370-seat 777 plane, to grab some orders that the A350 might swipe, while design and testing work for the Dreamliner continues.

Airline Sector Analysis: Boeing is expected to deliver 480-485 planes this year, according to MarketWatch. Look for that number to be lowered amid additional order delays and cancellations in 2009 as the global economy inches toward recovery. Investors should expect Boeing (and Airbus too) to struggle to meet 2009 revenue forecasts. For the typical traveler, look for U.S. and foreign carriers to continue to cut capacity, and that means full/near-full planes, fewer (or no) extras on flights, and likely additional charges (fare increases, or additional fees). In sum, the pronounced economic downturn will continue to create difficult travel conditions for all parties in commercial aviation – manufacturers, airlines, travelers – for at least the next nine to 12 months.
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