Outlook for Paris Air Show

As we head into the Paris Air Show, here is AirInsight’s outlook:

The big news at air shows are orders for new aircraft.

Forget the drivel that Airbus “saves” up orders for the show and Boeing doesn’t. Customers drive when the announcements are made, and many like the limelight of air shows, and some don’t. Boeing has announced many orders at air shows that were “Unidentified” on the order books. Airbus typically has fewer Unidentified orders on its spreadsheet and we know that Airbus works mightily to conclude orders at the air show—as well as converting MOUs to firm orders during the show and re-announcing them—but this is all part of the game.

So here is a company-by-company run-down of what we expect:

Airbus

This going to be Airbus’ show.

A320neo

We expect hundreds of A320neo orders to be firmed up and new ones to be announced, from perhaps as many as about a dozen customers. We expect the long-talked about AirAsia to place an order to as many as 175 A320neos; we also think GECAS may be ready to place its first neo order. We know any neo order by GECAS will be with family-member CFM LEAP-X engines; GECAS has a corporate policy that it will not place orders with rival engine companies. We also believe AirAsia will select CFM engines.

Other neo orders likely:

• Republic Holdings, which placed a deposit to hold neo positions, is expected to announce an order, although news last week that Republic is under financial pressure and wanting to cut $100m in spending raises a question in our mind about this deal;
• In addition to GECAS, another lessor should join ILFC’s previously announced and firmed-up order for 100;
• a long-rumored order from Qatar, and several existing A320 customers adding neo to their fleets.

The anticipated neo order from Delta Air Lines is not likely to be ready until later this year. There is an outside chance it could happen at Paris, but we believe it will be later this year.

A330 and A350

We think there will be only a smattering of A330 orders. There should be some big news for the A350 program, not only on the order front but also about the program itself. We anticipate some more A350s from China and we believe there could be an order coming from the Air France-KLM group–but this might not be ready, so this one could go either way. A few other carriers may have some orders, but given that there are no significant delivery slots until 2018, there’s little reason for customers to rush an order in time for the air show.

Lufthansa is comfortably down the road.

A380

Airbus should have some new A380 customers to announce at Paris. The one from Hong Kong Airlines, thought to be a Zhuhai Air Show order that did not materialize, may be back on track and ready for Paris, for five aircraft.   A few additional orders are likely.  Emirates however, while likely to place another order for 30 A380s, may hold off until the Dubai Air Show.

Boeing

The big question facing Boeing is what will they do to compete with the neo – will it stick with the existing model with incremental improvements, re-engine the airplane, or focus on an entirely new aircraft for the 2019-2020 time frame.  Boeing has been purposely ambiguous on this issue to the point that it has caused Embraer to indicate that they will “wait for Boeing” before deciding on their new aircraft.  Right now, Boeing has little incentive to announce its intentions, but has been hinting at an all-new aircraft to potential neo buyers.  So far, that strategy isn’t working very well.

While we expect new 737 orders, they won’t be near the volume of neo orders for Airbus.

737

We expect modest 737 orders to be announced (some undoubtedly coming from “Unidentified”), including the 737-900ER, which has been finally catching on.  Boeing plans a briefing about the 737 and the new airplane, but there won’t be any announcements or decisions about intentions. Inevitably there will some questions from reporters about the prospect of re-engining the 737.

The shift from the -700 to the -800 and -900 are strong indications that Boeing will focus on the 160-180-200 seat size for its 737 replacement.

747-8

Boeing’s sales force has been working mightily to gets orders (mostly from Asia) for the slow-selling 747-8 Intercontinental. Despite Boeing’s protests that it doesn’t save up orders for the air show, we know that sales has been working hard to get these orders for an air show splash. We believe there will be some success.

787

As for the 787? There might be some, but this airplane is largely in the same predicament as the A350:  no significant near-in delivery slots. We largely expect more stagnation in 787 orders until Boeing starts delivering the airplane and ramping up production. Air France-KLM is also a prospect to announce a 787 order, sharing its medium twin-aisle order with the A350, but we don’t know the split. Furthermore, as noted above, this order might not be quite ready for Paris.

Bombardier

Bombardier disappointed at Farnborough because expectations elsewhere for CSeries orders weren’t met. AirInsight predicted 10 days or so before Farnborough that there would be no orders announced and we were right.  This year we predict the drought is over (a position we came to before the pre-Air Show order for 10+10 from Braathens Leasing for Malmo).

CSeries

Given the smaller market segment of the CSeries, the number of orders won’t be anything like those to be announced by Airbus and Boeing, and we’re not predicting as many as 50, but we do expect multiple customers in groups of five to 10 to 20.  Braathens started the process, and we expect the long-rumored order from Qatar to finally get back on track. On the other hand, Akbar Al-Baker is so unpredictable that this might not happen, either. You can never tell with him–he’s alternatively embarrassed Boeing, Airbus and Bombardier. We just don’t know how to predict Qatar.

Q400

Turboprops always do well in high fuel cost environments, and with high fuel prices, we expect additional orders for the efficient Q400.  The real question, with PW and GE each working on new turboprop engines that are more efficient, is when the 90+ seat “Q500” will arrive with even better seat-mile economics.  We don’t expect an announcement this year, but perhaps by Farnborough next year, there will be a new model added to the line-up. Bombardier has indicated 2015 might be a reasonable time frame for a new airplane.

CRJ-1000

The CRJ-1000, the latest version of the CRJ line, shows that Bombardier is a master at stretching designs for better seat-mile economics.  For existing CRJ operators, this is a strong candidate to replace CRJ-200s that are becoming economically obsolete.  But with the CSeries offering a better cabin in the 110 seat size, we see only a handful of orders at the show, but enough to keep the line moving until CSeries production begins.

Embraer

Embraer is waiting to see what Boeing does before deciding to enter the market with a competing aircraft in the 120 to 155-seat range, slightly larger than the CSeries.  If Boeing continues to compete in the market below 150 seats (unlikely with a new airplane, but continued offering of the 737-700), Embraer may not move forward, and simply re-engine its E170-190 series to more effectively compete with the CSeries and MRJ, each of which will have a fuel efficiency advantage from the PW GTF engine.  (We consider this scenario unlikely.) Of course, having announced that they will wait for a decision from Boeing, this provides Boeing an incentive to delay their decision as long as possible to keep Embraer from launching an aircraft that could potentially compete at the low end with their airplane.

Embraer appears to be afraid to go head-to-head against Boeing or Airbus, unlike Bombardier, which has caused quite a stir as well as concern in Toulouse and Seattle.

E170-190

We forecast limited success for the E170-190 series in the short-term, with a few additional orders.   With the CSeries and MRJ looming three years out with superior economics, the competitions will begin to heat up significantly for what has been a very good airplane.  Additions to existing fleets and those needing immediate lift will purchase, but several potential large orders will be decided in competition with the MRJ and CSeries, both of which will have a fuel savings advantage with the PW GTF.

Embraer is considering a re-engining for the E-series, which is still quite young in its product life cycle.  A design implemented just before a step change in engine economics from the GTF and LEAP-X will simply not have the operating economics to compete once new models enter the market.  A re-engining with the GTF or LEAP-X would re-invigorate the E-Series, already the market leader in its size class.

Business Jets

Embraer has quite rapidly become a major player in business jets, and its Phenom 100 and Phenom 300 models are rapidly becoming the replacement for the venerable Cessna Citation series.  We expect continued success from Embraer as it expands its product line in this market using derivative models of passenger airliners, including the Legacy that derived from the EMB-145 series.  Bombardier proved the synergy of business and airline markets with the Challenger and CRJ, and Embraer entered with its Legacy derivative with modest success.  The Phenom, their first pure business jet designs, has done quite well and has quickly made Embraer as a key player in the business aviation market.

Mitsubishi Regional Jet

We understand that a major order from ANI in Indonesia is near completion, which would provide additional momentum to the MRJ program.  With the Trans States deal finalized, the MRJ, like the CSeries, needs to build backlog.  With the GTF now selected by Airbus, customers that were initially skeptical of the GTF are now seriously considering the product as initial entry into service is within 2 years.

We expect at least one and perhaps several orders for the MRJ over the next few month

CFM International

CFM will have its first A320neo orders at the show, including as noted above an order from family member GECAS.  In addition, we expect AirAsia (historically financed by GE) and Virgin America (an existing CFM customer) to go with LEAP-X.  ILFC will also likely split the remainder of their 100 aircraft order with 40 LEAP-X orders  (60 GTF were already announced).  Word on ILFC and Virgin America leaked out in a news report this week, but none of the parties confirmed it. Our sources tell us CFM has these deals.

Engine Alliance

The GE-PW Engine Alliance has the market share advantage on the A380, and will continue that with new orders from Emirates.  While the recent engine difficulties were costly to RR on the A380, with the problem fixed we would expect them to continue to do well in attracting customers.

GE Engines

GE Aircraft Engines will chug along on the 787 and 777, as well as gain some orders for the 747-8.  While we are not expecting a major volume of wide-body orders, GE will maintain its market share. GE and Rolls-Royce will likely split any A330 orders.

Pratt & Whitney

PW will continue to dominate A320neo orders, and we expect about at 2/3^rd – 1/3^rd split over the longer term between the GTF and LEAP-X.  In the short-term, LEAP-X may appear to gain some momentum with large orders at the show, but we expect several additional PW orders on neo by the end of the year, if not by the end of the show, that will cement its market leadership.

In the wide body sector, we don’t expect much for PW in the short-term, but note that the GTF technology is applicable in the 100,000 thrust range as well, which could make life interesting given its superior economics.  The 777 replacement aircraft could be an interesting first application—but this isn’t likely until the next decade.

Rolls-Royce

Despite the negative headlines in the last year, Rolls is well positioned on 787 and A380 programs and it remains the dominate supplier on the A330 and it is, of course, the sole-source engine provider on the A350 XWB.

We expect a major announcement from Rolls at the Air Show, however; we believe Rolls is going to announce a larger version of the Trent XWB for the A350-1000, with an incremental thrust increase of perhaps 5,000 lbs.

The disconcerting element for Rolls is the loss of the narrow-body market, which they participated in through IAE and the V2500, replaced by the GTF for neo.  The good news for IAE is that it appears to be the engine of choice for the Brazilian KC-390 tanker developed by Embraer.

ATR

The ATR42-600 and ATR-72-600 series models are now certified (or close for the -72) and will make major inroads at Paris.  We expect a major order for ATR to be announced from an unlikely customer.

With a strong market in Asia, we expect some additional orders for both growth and replacement of earlier ATR models.   In high fuel cost environments, turboprops thrive, and we expect new orders and continued momentum for ATR.

Others

The Sukhoi Superjet has been gaining momentum, but still has a majority of its customer base in Eastern Europe, which needs to change.  With the help of Alenia in marketing and strong western content, this aircraft is much more appealing than older Russian models, but still faces a skeptical audience among western airlines.

Irkut, building the MS-21 trunkliner, has selected the PW GTF and numerous western vendors to create an aircraft that should be quite competitive with the 737 and A320 families.   While it is still too early to expect orders, Irkut could build some interest at Paris with its design.

COMAC will bring the fuselage mockup of its C919 to Paris and tout the C919 aircraft, which is primarily aimed at the Chinese market.  While we expect the aircraft to sell well in China, we don’t yet see a level of confidence in the market that China can itself build a competitive aircraft.  There may, however, be some orders from Chinese allies in Africa, effectively trading natural resources for aircraft.

But there are always a few interesting surprises, so stay tuned.

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