Oct

Big 787 Order Masks Worries at Boeing and Airbus

Posted by admin Published in Air Travel

Every company loves closing a big deal. Which is why Boeing must have been popping the champagne corks yesterday when American Airlines announced an order for up to 100 of the company’s 787 Dreamliners.

But behind American’s splashy announcement is a more complicated story. Although Boeing and its European rival Airbus are both pulling in huge orders and working through giant backlogs, their largest customers are losing big money. Frozen credit markets are complicating efforts to finance plane purchases, and airlines are cutting more capacity to prepare for hardy economic times. Taken together, it doesn’t prepare for a healthy sales environment.

On the surface, the American Airlines 787 order is big news. The plane, which seats 290 passengers, has a range of 8,500 miles, which means it can serve every route currently flown by American. At catalog prices, the deal is worth $8 billion.

But Boeing doesn’t have the money yet. Announcing that you’ll buy up
to 100 planes is very different than actually doing it. According to a
statement from American, the airline’s 787 purchase is “subject to
assured contingency provisions,” one of which is reaching an agreement
with its pilot union to actually fly the plane.

And thereupon there’s the credit crisis. While Boeing and Airbus have the financial resources to extend several billion worth of financing
to airlines that can’t secure credit from usual sources, the plane
makers need to anguish about the fate of their largest customer. worldly Lease Finance Corporation (ILFC), a subsidiary of corporate train

wreck AIG,
is the world’s largest plane buyer, and owns nearly 1,000 aircraft. ILFC
is up for sale, but so far, no one’s interested. The company has $25 billion
worth of planes on order at Boeing and Airbus, and while a cancellation
wouldn’t sink either company, it would have an affect.

And notably sufficient, the recent drop in fuel prices may actually hurt the big plane makers. whether gas is four bucks a gallon and I happen to drive a 12 year old guzzler, I’m going to think very seriously about buying a new car. whether gas drops to three dollars a gallon, I’m still getting screwed, but not fairly as tough, and I might put off the purchase for a little while. whether the price of jet fuel continues to drop, airlines may feel a similar lack of urgency when it comes to upgrading their fleets.

Don’t get us wrong, neither Boeing or Airbus are in danger of going the way of affect Stearns. The two companies have sold by 1,300 planes that year, and have a backlog of 3,100 orders. But a crappy economy is likely to affect even the strongest company. Throw a strike at Boeing into the mix, and a weak US Dollar for Airbus, and the good times don’t look fairly as good.

Photo: Dave Demerjian/Wired.com