By Doug Cameron
Airlines are shying away from buying more of the biggest
jetliners produced by Boeing Co. and Airbus SE because of slowing
passenger growth and a slump in air cargo traffic.
Sales this year of the twin-aisle jets -- mainstays of
intercontinental travel -- are on track to be the lowest in a
decade, and their rental rates have fallen sharply, according to
aircraft leasing companies.
The grounding of the 737 MAX and production problems for
single-aisle rival A320neo have focused investor attention on how
Boeing and Airbus manage the weakness in demand for larger planes,
such as the 777 and A330, that remain their most profitable
products.
Boeing in October said it would cut monthly production of its
787 Dreamliner to 12 from 14 in 2020, just a year after raising
output. It may also pull back on the 777 because of delays in
introducing a revamped 777X version that is set to fly for the
first time next year. Airbus has shelved plans to boost output of
its rival A350 to more than 10 a month.
Meanwhile, the two plane makers are working through more than
10,500 combined orders for their single-aisle planes.
Some airlines that placed orders when growth prospects were
better are already looking to offload upcoming wide-body
deliveries.
"If you have a buyer at a profit, give us a call," said Niels
Smedegaard, chairman of Norwegian Air Shuttle ASA, which has five
787s due next year to join the dozen now in its fleet.
Dubai-based Emirates Airline, the biggest operator of twin-aisle
jets, is reviewing its big order book. This includes deals for the
777X and 787 and commitments for the A350 and smaller A330neo.
Deutsche Lufthansa AG, the launch customer for the 777X, this
month said it would drop options to buy 14 of the planes, while
retaining an order for 20. British Airways owner International
Consolidated Airlines Group AG said it would pare growth plans in
part by deferring some deliveries of the new Boeing wide-body.
The moves contrast with the industry's upbeat mood six years ago
when Emirates and Qatar Airways signed the largest jet order in
history. Jim McNerney, Boeing's chief executive at the time, flew
to the Dubai Airshow to sign the airlines' joint deal for 150 of
the 777X jets, worth $100 billion before discounts.
However, increasing competition has diminished Emirates' status
as the benchmark for connecting passengers between Europe, Asia and
North America, and profit from its fleet of more than 270 wide-body
jets has tumbled.
Emirates, Qatar Airways and Abu Dhabi's Etihad Airways together
account for 10% of the order backlog at Boeing and Airbus. However,
passenger traffic in the Middle East was up just 1.7% this year
through Sept. 30, the weakest growth of any region, according to
the International Air Transport Association.
The slowdown is a particular challenge for Boeing's 777X.
Two-thirds of the orders for the plane come from the trio of Middle
East carriers.
Trade tensions between China and the U.S. have weighed on
long-haul travel and shrunk air-cargo volume for 12 straight
months. The dispute also has frozen sales into Boeing's biggest
market. Chinese airlines accounted for a quarter of the company's
plane deliveries over the past two years, but the carriers haven't
placed a direct order with Boeing since 2017.
Flag carrier Air China Ltd. has no Boeing twin-aisle deliveries
scheduled through 2023, though it will take 17 big Airbus jets.
"The lack of orders from China in the past couple of years has
put pressure on the production rate," Boeing CEO Dennis Muilenburg
said on an investor call last month.
While twin-aisle planes are mostly associated with
intercontinental travel, Asia's vastness has made the 777 and the
A330 popular for airlines flying intra-Asia routes, such as Hong
Kong to Beijing. However, traffic growth on Asian routes halved to
3.6% in September compared with a year earlier, according to
IATA.
"Wide-bodies have weak demand, with many used A330s and 777s
hard to place" by leasing companies, said Doug Harned, sector
analyst at Sanford Bernstein & Co.
Boeing's output of new wide-body jets also has to compete with
dozens of used planes coming off lease over the next several years
-- though the company may use discounts linked with compensation to
airlines hit by the MAX grounding to drive some additional sales of
its larger jets.
Airlines are also keeping planes for longer, sprucing them up
with new seats and interiors to appeal to their most profitable
premium fliers. Adding seats -- most 777s are now 10-abreast in
coach -- has allowed carriers to boost capacity without buying
additional planes.
Still, both plane makers are counting on airlines replacing the
hundreds of jets set to turn 25 years old early next decade.
Delta Air Lines Inc., for example, has 56 Boeing 767-300ER
planes that are on average 20 years old, and has orders for just 47
wide-body planes out of an aging fleet of more than 200. The
Atlanta-based carrier, which flies eight different types of Airbus
and Boeing wide-body jets, also wants to simplify the fleet to
lower costs.
"If you talk about the largest wide-bodies, we're going to see a
huge replacement wave in 2022 through 2025" within the whole
industry, said John Plueger, CEO of plane-rental giant Air Lease
Corp.
Write to Doug Cameron at doug.cameron@wsj.com
(END) Dow Jones Newswires
November 17, 2019 07:14 ET (12:14 GMT)
Copyright (c) 2019 Dow Jones & Company, Inc.
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