With both major European air shows canceled after the onset of the global pandemic, Farnborough’s expectations for 2022 are challenging to predict. Nonetheless, we will provide our views on what to expect at the show. We’re not expecting any earth-shattering changes, but a continuation of the industry recovering from the pandemic shutdowns, with reactions to pent-up demand, and supply chain and labor shortages as we slowly return to normal.
We do expect a resumption of orders by airlines for new equipment, several announced at the show. After a couple of years of hiatus, Farnborough 2022 provides an ideal outlet to announce key new orders of Airbus, Boeing, and Embraer. As we’ve mentioned previously, Airbus will confirm the large order for nearly 300 narrow bodies from China, and Boeing will likely use the show to confirm a MAX10 order from Delta Air Lines. Our sources indicate that there are several other deals in the works, including a major deal with Malaysian and the potential for the A220 in China. Potential orders for wide-body aircraft are also in the works as international markets begin to re-open.
We expect Airbus to maintain its industry-leading pace in orders, particularly for the hottest model on the market, the A321neo, and its long-range variants. With many airlines having adapted route structures during the pandemic, this is the perfect aircraft for route development and reducing the costs of operating a wide-body on 4,000nm routes, which include smaller cities in Europe to smaller cities in the US. The A321XLR will become a route development tool, as airlines work to generate additional traffic and eventually up-gauge routes to larger aircraft.
The A350, which has been involved in a controversial “paintgate” dispute with Qatar Airways, may win a key order from Air India, with some delivery positions initially scheduled for Qatar that were canceled by Airbus now available to Air India. We also expect additional sales for the new A350F freighter, as Airbus has decided to compete in the remaining segment that until now has remained a virtual Boeing monopoly.
Farnborough expectations for Boeing are a bit more clouded. Boeing would love to deliver its first 787 in more than a year to Lufthansa, but the decision to issue an airworthiness certificate is no longer in Boeing’s purview, as the FAA has taken back that authority for both the 787 and 737 MAX. The quality problems that plagued Boeing may prevent them from staging what would be a welcome comeback for the 787 with an “at the show” handover. We’ll just have to wait and see.
While the A321neo is likely to generate additional orders, the 737 MAX10 is less competitive on long-haul international routes. However, it will be a very efficient aircraft for transcontinental routes within the US, with exceptionally low seat-mile costs. It should have excellent domestic flight economics. But the outstanding question facing the MAX 10 is whether Boeing can gain a Congressional exception to avoid having to install an EICAS system and other upgrades, which would likely entail another two-year delay. Southwest and WestJet have similar concerns regarding the MAX 7, which faces the same deadline, as it appears that Boeing is placing a priority on the MAX10 over the MAX 7. We won’t know the answer until year-end, but a key indicator will be the delivery time periods associated with new orders and whether any MAX10 orders are contingent based on FAA certification of the existing design.
Farnborough expectations for Embraer are modest, as the E2, a logical replacement for EJets, faces a fleet that remains too young to replace. We expect that Embraer remains a couple of years off from replacing EJet fleets, facing much stiffer competition from Airbus than it would have from Bombardier. Nonetheless, Embraer’s business jet and emerging Eve Urban Air Mobility business units are performing well, and Embraer’s reputation places it in a leadership position in the UAM marketplace.
Embraer is continuing to research new designs for regional aircraft, particularly turboprops, and the potential for hybrid options. However, we do not expect any major developments in that regard in our Farnborough expectations. Perhaps Paris 2023?
With respect to engines, work continues on two fronts. Conventional engines are being adapted to enable them to run on Sustainable Aviation Fuels, and electrification remains in an R&D stage as batteries, hydrogen fuel cells and other concepts are being evaluated. Today, there are no easy solutions for electrification, and our Farnborough expectations are for continued discussion of R&D efforts and potential new concepts that could change the industry in the 2035-2050 time frames. Each of the engine OEMs is working on advanced technologies, with research into what could become the first major change in propulsion since the dawn of the jet age. The questions remain when and how, rather than if, as the industry has committed itself to change.
Shortages continue to plague the industry, with OEMs finding it difficult to smoothly ramp up production and a shortage of pilots plaguing the industry worldwide. In the US, regional airlines are facing a crisis and grounding aircraft and cutting services due to a lack of pilots. Internationally, similar issues exist but can be more rapidly solved given regulatory differences in total flight hour requirements for pilot certification.
Supply chain issues remain a focus, as some traditional sources of metals, including Titanium, have been disrupted by the conflict in Ukraine, and recovering from pandemic-related shutdowns has pushed back schedules around the globe. With new strains that are more highly contagious, albeit less life-threatening, emerging, we may not be finished with the pandemic for another year. Continuing disruptions will create havoc with schedules, and we suspect Airbus and Boeing procurement personnel will be busy at the show looking for second sources for key components. As a supplier, this may be a once-in-a-decade chance to break into the aerospace supply chain as a second supplier for key components.
From an M&A standpoint, our Farnborough expectations are for additional consolidation. Potential deals that may further consolidate the supply chain will be on several agendas at the show. While we are not anticipating announcement of a blockbuster deal, we believe that several potential deals are under consideration, but may not be consummated before the show. The pandemic is creating new opportunities, and some savvy industry players are looking to take advantage of lower multiples and equity values in the near term. Farnborough may be just a bit too early but look for deals before the end of the third quarter.
On the business jet side, Bombardier, Gulfstream, Dassault, Textron, and Embraer will all show their latest jets, with the Global 8000, Gulfstream G800, and Dassault Falcon 10X competing at the top of the market. With a positive outlook for business jets, these new programs should prove successful, and bring Dassault back into the mix, especially with the Falcon 6X also nearing entry into service. We expect NBAA to be the venue for any new variants, and aren’t expecting much action from the business jet manufacturers at Farnborough.
The UAM segment has been emerging over the last three years, without an air show to demonstrate the new technology aircraft. We expect several of the key players to showcase their new products, both in the static and flying displays. If you are looking for something new at Farnborough, UAM will be the segment to focus on, as electrification, high tech, and short-haul vertical flight blend together.
The Bottom Line:
Farnborough and Paris are all about rekindling relationships and meeting people. We haven’t really had that opportunity in three years, and we expect that Farnborough will return with good, but not record levels, of participation and crowds. The Russian industry will be missing given sanctions and the Ukraine conflict, and the Chinese presence may be limited by fears of staff bringing another wave of the pandemic back home. Our expectations are for a good show, but with more limited crowds as the pandemic isn’t fully over. As a major international event, this is an opportunity for new variants to spread, and some concerns remain over how extensive a presence some companies should have at the show. Nonetheless, we expect a very successful show given today’s geo-political, pandemic, and economic issues.
