Boeing, Airbus face turbulence as airlines defer orders

International aircraft giants Airbus and Boeing are bracing for a rough year in China.

The next 12 months will be "much different from the last four years," said Laurence Barron, Airbus China president.

The two companies were both enormously successful over the past few years, netting a combined 6,800 orders from 2005 through 2007. Last year demand for planes started to drop but Airbus still managed to sell 777 and Boeing 662.

Growing demand in Asia-Pacific and the Middle East and pressure for airlines to modernize their fleet to improve fuel efficiency drove the boom.

But the global economic downturn is curtailing air traffic and many airlines are finding it hard to get financing. Boeing and Airbus have a massive order backlog (3,600 jets each) that might help get the companies through the crunch. But some carriers are grounding jets and canceling or deferring delivery of planes they've ordered.

"The most important thing for us is to carefully match our production to our orders so that we don't produce white-tailed aircraft (planes without buyers). It is also very important to carefully manage pre-delivery payments and our cash position," said Barron.

Airbus said in mid-February that it would cut the monthly output of its best-selling A320 aircraft from 36 to 34 starting in October and was abandoning plans to ramp up production of two other models - the A330 and A340. The company said it may make "further production cuts if the need arises."

Bloomberg News reported last month that Boeing is also preparing to cut its output by about 10 percent next year if more orders are deferred or canceled.

Barron said Airbus is still negotiating with some Chinese airlines over deferrals and altered payment schedules. Airlines usually have to pay charges for changing an order. Airbus is expected to deliver 70 to 80 jets to China this year, fewer than the originally planned 83, said Barron. It delivered 73 jets to Chinese airlines last year.

The Civil Aviation Administration of China, an industry watchdog, said last year that it would "encourage" airlines to cancel or defer receiving new planes this year in order to help balance their books.

Earlier media reports said China Eastern Airlines plans to receive 40 percent less aircraft (just 13) than it had intended. It also said it will cancel some Boeing and Airbus plane orders.

The other two major Chinese carriers, Air China and China Southern Airlines, have so far not made any public comment on their plans.

But Barron said he remains upbeat about China's huge potential. The country's commercial aviation market has grown at an annual double-digit rate for the past three decades.

"China has not escaped the global economic crisis, but personally I think China will be one of the first countries to show signs of recovery," Barron said. He said the government's massive economic stimulus packages, the 2010 World Expo in Shanghai and the 2010 Asian Games in Guangzhou would spur demand for air travel.

Airbus also said the current financial crisis would not alter its commitment to expand industrial cooperation with China.

"Our industrial cooperation projects are all long-term projects. You can't run a long-term project with a short-term approach. We are on a steady course with all our industrial cooperation projects in China," said Barron.

Airbus will not change the output target at its Tianjin final assembly line despite the plan to trim A320 production, he said.

The Tianjin facility will deliver its first plane this June and roll out 10 more by the end of the year.

"For the time being we will stick to our plan (for production in Tianjin). But if things get worse and we have to progressively adjust our production rate, we may have to rethink Tianjin," said Barron.

The facility was set up in September last year as Airbus' third final assembly line. The other two are in France and Germany. It is supposed to put out four jets a month by the end of 2011 and was established as part of Airbus' previous plan to increase monthly A320 production from 36 to 40 jets.

(China Daily 03/09/2009 page8)