London: The world's biggest air show opens in Farnborough near London next week with jetliner manufacturers facing a drop in orders due to high oil prices and global defence firms bracing for slower spending growth.
Many analysts say dire warnings that aviation is threatened by a permanent switch to sky-high fuel prices seem overdone and note Boeing and Airbus have enough plane orders on their books to last about seven years.
New business will get done at the Farnborough event, but it may struggle to reach even half the record tally of 600 firm new orders seen in the Paris air show just one year ago.
"There is a vague feeling that we are going straight off the edge of a waterfall, but I don't think it is that bad," said aerospace consultant Richard Aboulafia at the Teal Group.
Industry sources say there will be new orders this year for jets including the Airbus A380 superjumbo, and a major deal from leasing giant ILFC, which could be good news for Boeing.
New orders from Middle East carriers for Boeing and Airbus are expected to dominate the air show. A large order for short-haul jets is expected to be awarded to Boeing by FlyDubai, the low-cost carrier which is due to begin operations in the middle of next year. FlyDubai is expected to place an order for about 50 Boeing 737s.
Still, the industry is feeling its worst chill since a recession worsened by the September 11 hijack attacks in 2001. A year ago, the biennial Paris air show, which is held on alternative years from Farnborough, all but ran out of ink as aircraft salesmen celebrated a "longer and stronger" industry cycle following three years of bumper orders for Airbus and Boeing.
The size and luxury of purpose-built chalets where deals are signed may not reflect it - they were planned months ago - but this year's event may feel more like a wake by comparison.
Rising costs
Oil prices above $140 that read like flight numbers could spell doom for dozens of airlines. Their costs have doubled in a year. A little noticed but even more spectacular rise in the value of exotic metals used in modern aerospace production, like heat-resistant rhenium, has rattled the big engine makers.
The air show also comes close to the anniversary of a credit crisis which has mauled the business plans of new airlines and, like the oil price, led to plane order cancellations and deferrals.
"We have seen bankruptcies in low-cost airlines without a strong business model and now see the old ladies like American, Air France, Lufthansa, starting to adjust capacity," said Damien Lasou, global managing director for aerospace at Accenture.
By cutting capacity on longer routes, where fuel is a higher proportion of cost, airlines hope to save more in fuel than the revenue lost. A significant proportion of the fuel carried on the longest flights is used just to carry the rest of the fuel.
Capacity cuts can lead to older planes being mothballed and new orders being deferred, though Boeing believes fuel pressures could also speed up the switch towards efficient new planes. "Part of the downturn is a natural part of the cycle. We don't know but it could be fairly long and protracted. The only way out is to ensure aircraft are more fuel-efficient," said Howard Wheeldon, senior strategist at BGC Partners in London.
While carrying such heavy baggage, the industry is under pressure to find renewable alternative sources of fuel to reduce carbon emissions, to which aviation contributes some 2 per cent. Executives say high oil prices could provide the impetus, though few expect commercial flights powered by biofuels soon.
Boeing and Airbus will put on a show of co-operation to discuss the search for "sustainable" flight during the air show.
But they reach Farnborough battling on three fronts - a bid to control the lucrative fast-growing mid-sized jetliner market, a deadlocked trade subsidy dispute and a $35 billion contest to equip the US Air Force with mid-air refuelling tankers.
New measures: Airbusupbeat
Aircraft maker Airbus expects to announce new orders at the Farnborough air show next week, its Director-General Fabrice Bregier said in an interview published yesterday.
Bregier also said Airbus, a unit of European aerospace group EADS, would announce new measures before the end of the summer to help the planemaker cope with the weakness of the dollar compared with the euro.
"Airbus has reached 487 net orders by mid-year. We should announce further good news at the Farnborough show," Bregier said in an interview with French newspaper Le Figaro.
