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
"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
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
"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
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
"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
Write to Doug Cameron at email@example.com
(END) Dow Jones Newswires
November 18, 2019 02:47 ET (07:47 GMT)
Copyright (c) 2019 Dow Jones & Company, Inc.
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