News
First quarter orders for new aircraft have not been robust in 2019. Boeing, amidst the problems with the MAX, has seen orders for that aircraft dry up, as has Airbus. Gross orders for 2019 are lower than 2018, dropping from 68 to 50 this year at Airbus and net orders fell from 180 to 91 at Boeing. Airbus had negative net orders for the first quarter when cancellations are subtracted from new orders.
Are we seeing the beginning of the end for the ten year boom cycle in aviation? Does the falloff in orders represent airlines “catching their breath” as they absorb new aircraft in record fashion, or is this indicative of an economic change that could negatively impact the industry.
Analysis
With strong backlogs for both narrow-body and wide-body aircraft, the aviation industry should remain strong for the next decade. In reality, it is deliveries, not orders, that really count, and they have remained strong at Airbus and, until the grounding of the MAX, sound at Boeing as well.
While the grounding of the MAX will have a significant impact, as Boeing cut production from 52 to 42 aircraft per month, the industry is still producing aircraft at a very high level. Boeing had intended to ramp MAX production to 57 per month later this year, and the supply chain had geared up for this increase. We suspect that, once back in production, Boeing will accelerate that increase to make up whatever ground it can on late deliveries to customers who need lift to accommodate fleet replacement and growth.
Deliveries remained strong, with 162 from Airbus and 149 from Boeing in the first quarter. Those compare to 122 and 184 respectively, in 2018. Airbus deliveries have increased, and Boeing, without the MAX problems, would have likely exceeded its total from last year. Production remains strong.
Insight
The weakness in new orders reflects the record backlogs of seven years or more for narrow-bodies returning to a more normal 4-5 year backlog. The spike in fuel prices several years ago led to an order frenzy, which continued as airlines wanted to ensure that they have appropriate delivery provisions.
Increased production rates by both OEMs have resulted in additional availability and have begun to trim the backlog, which remains quite substantial. By the time the current backlog is exhausted, Airbus and Boeing will be touting the next generation of narrow-body jets that will enter service around 2030, and kick off the next major order cycle in the industry.
Our view is that the outlook for commercial aviation remains strong, despite a drop in orders during the first quarter of 2019.
