When UK-based aerospace supplier Doncasters suggested earlier this month that overstocking last year could hit orders, it seemed that the aerospace market was seeing the first signs of a downturn. However, many observers believe this possible dip in demand will be much milder than the sharp dive experienced in 1991.
Deliveries in the civil market are predicted to decline. But, unlike 1991, when military aircraft orders also slumped with the so-called peace dividend, this time the military aerospace market looks decidedly healthier.
The airliner order cycle looks set to reach its peak at the end of this year. But with the time it takes to fulfil orders, deliveries won’t peak until the end of next year. And the fall in orders appears to hitting Boeing aircraft rather than Airbus.
Eurofighter is a notable example of the new British defence programmes which will mitigate the effect of the civil aviation downturn. Two weeks ago, Eurofighter won its first export commitment for 60 80 aircraft from Greece. These will be added to its existing 147 orders, which are already set to rise to 620 for the British, German, Italian and Spanish air forces. The expected small orders for Astor radar surveillance planes this year, other existing contracts, and prospective orders for the Joint Strike Fighter after 2001, all presage an upturn for military aerospace.
Pete Deighton, aerospace analyst at Merrill Lynch, says the peak year for civil airliner orders was 1998, and the likely delivery peak year will be this year. Boeing said in January it would deliver 620 airliners in 1999 (up from 563 in 1998), but this would fall dramatically to 480 in 2000, with the long-haul 747 a notable casualty.
Airbus predicts 290 deliveries in 1999 (up from 229 in 1998) and 317 in 2001. Thus Boeing’s expected decline in deliveries will more than outweigh Airbus’s forecast increase.
But all this is still no more than ‘a blip in the market,’ Deighton believes. This is because the so-called ‘Chapter 3’ legislation on noise regulations is another important factor adding to civil aircraft demand.
Chapter 3 will force the introduction of either ‘hushkits’ to make existing airliners quieter, or their replacement by new, quieter aircraft designs. It becomes law in the US at end of this year, after which only airliners which satisfy Chapter 3 will be permitted to fly. That means there is now an urgent need for new airliners in the US. ‘That’s why you’ve got a delivery peak at the moment,’ Deighton says.
He also believes cutbacks in China’s airliner delivery plans are easily explained and no cause for alarm. What Chinese airlines have been told, according to the official China Daily newspaper, is to place no further orders, while 40 airliners will be withdrawn from service. But this will be balanced out by deliveries of 43 new aircraft in 1999, 20 from Airbus and 23 from Boeing.
The reported ban on new orders has not been confirmed. ‘What happened was that the Civil Aviation Administration of China [CAAC] said capacity was running at such a level that they wanted to take the deliveries for this year and move them to next year and 2001,’ Deighton says. ‘But Airbus and Boeing say they’re still talking to CAAC about this,’ he adds.
Deighton says the decline in airliner orders is relatively modest. Delivery slots for aircraft cancelled by Asian customers have been transferred to eager US airlines, aiming to renew their stock because of Chapter 3.
Production rates are close to the forecast for this year. The ordering cycle is past its peak, but the US market is picking up and there is also speculative buying from leasing companies.
‘What you’ve seen this time is the requirement to replace existing capacity because of Stage 3 and because of sheer fear. Think of the recent crashes: they’ve all been old aircraft,’ Deighton says.
Some observers even believe that the Far East might start ordering again, which would help flatten out the expected downturn in 2001.