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3 Months : From Oct 2019 to Jan 2020
By Doug Cameron
This article is being republished as part of our daily reproduction of WSJ.com articles that also appeared in the U.S. print edition of The Wall Street Journal (November 18, 2019).
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 Boeing's smaller 737 MAX following two deadly crashes and production problems for single-aisle rival A320neo, made by Airbus, have focused investor attention on how the companies 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 from its current level of 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 a main conduit 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 in 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 email@example.com
(END) Dow Jones Newswires
November 18, 2019 02:47 ET (07:47 GMT)
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