Airlines Vie For Delivery Slots
By Joseph C. Anselmo 
Financing for new jets continues to be difficult for airlines, but a sizable number of carriers are still ready to grab any delivery slots that come open at Boeing or Airbus, a new survey finds.
Sixty percent of airlines responding to the global survey by UBS Investment Research say that financing for new aircraft is not available at reasonable terms. And nearly half those planning to take delivery of an aircraft over the next 12-18 months say they still haven’t secured financing.
UBS did not reveal the names of respondents to its survey but says they make up nearly one-third of operators worldwide with 100 or more aircraft in their fleets.
While Boeing says financing has been secured for nearly all of its deliveries this year, industry veterans caution that 2010 could be rough for aircraft builders if lending conditions don’t ease soon. The gloomy environment prompted Boeing to announce last week that it will reduce production of 777 widebody jets from seven a month to five by June 2010, and several analysts predict that production cuts to 737 narrowbodies will follow later this year. For its part, Airbus continues to maintain that it will not need to cut output in 2010 because of record backlogs.
Those backlogs have helped shield the two aircraft builders from the brunt of the global economic downturn so far. While 28% of respondents to the UBS survey say they are likely to defer delivery of an aircraft on order, a similar percentage say they would seek to move up their deliveries if earlier slots became available.
But global demand for new jets is plummeting along with demand for passenger and cargo services. Just 38% of European airlines responding to the UBS survey say they are in discussions for new aircraft or plan to be within a year, down from 88% a year ago. And just 33% of Asian respondents say they plan to be in purchasing talks within the next year, down from 83% a year ago.
Demand has held up better in the North American market, where sharp capacity cuts have positioned the U.S. airline industry to possibly turn a small collective profit this year. Sixty percent of respondents from the region say they are in or plan to be in discussions within the next year, up from 55% a year ago.
But the retirement of older aircraft appears to have slowed as fuel prices have plunged from record highs last summer. Thirty-two percent of respondents to the UBS survey say they plan to accelerate the retirement of older aircraft because of fuel prices, down from 38% just four months ago. “A slower pace of aircraft retirements will reduce new aircraft demand,” notes UBS analyst David E. Strauss.
On Monday, Strauss joined a chorus of analysts who believe Boeing will have to cut 737 production rates because of weaker demand. “While Boeing is holding its 737 rate steady for now, we believe a 30%-40% cut is necessary,” he wrote in a research note to his clients. “Given shorter lead times, we would anticipate a move lower on 737 to be communicated later this year.”
Meanwhile, Cowen & Co. analyst Cai von Rumohr on Monday downgraded his rating on Boeing’s stock to “underperform” from “neutral,” citing a potentially long downturn in the civil aircraft market and the company’s exposure to cuts from U.S. military restructuring.
Von Rumohr predicts that further cuts in Boeing production rates are likely. “Barring vigorous snapback in the economy and traffic growth in 2010, we think the delivery decline may at least match the four-year average of past downturns, even if credit markets loosen,” he says.
But Morgan Stanley analyst Heidi Wood reiterated her “overweight” rating on Boeing’s stock, noting that share valuation is “scraping near post- 9-11 lows with measurably greater long-term visibility.”
Photo: Boeing
