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February 26, 2024
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One of the ME3, Etihad is likely to shrink.  Reports indicate that this shrink is going to disrupt Airbus and Boeing’s skyline and order books.  What do we know about Etihad’s fleet?  At the end of 2017, the carrier had 125 aircraft in service and 165 on order.  Today, 112 aircraft are in service, a reduction of 13 aircraft in the last few months.

At the beginning of the year, the fleet averaged under seven years.   Etihad had huge ambitions, with 132% of its current fleet on order. Instead, we see the fleet today has shrunk somewhat.  But given the news of the airline’s likely fleet plans taking a new direction, what might happen next?

The cancellation of some aircraft orders makes sense for Etihad.  Their strategy of buying into failing carriers to attempt to turn them around has not worked, and cost the company with a $2 billion loss from those units, including the now out of business Air Berlin.  Since some aircraft on order would have likely been for those failing carriers, or for connections for Etihad to and from their hubs, it now makes sense to cancel some of the orders since the initial rationale no longer exists.  Even the carriers that remain, such as Alitalia, are in poor financial shape and also facing bankruptcy.

Which OEM will see deals collapse?  We expect Etihad to attempt to maintain a close relationship with both OEMs and believe that any cancellation will include a portion of the orders from each OEM. While Etihad would likely prefer to defer deliveries, the overall number of orders is too large to absorb in the near term.  At the same time, both OEMs know the airline will come back and do not want to burn any bridges.

Which models are likely to get pushed back?

Airbus: The 2018 deliveries are too late to push back.  It’s likely the airline and Airbus work around focusing on the A350-900 and A321neo deliveries to go through, but more slowly than planned.  Both these models are popular and perform well and represent a low risk for both sides.  The A350-1000 order is likely to be pushed back further, if not canceled outright.

Boeing: Given the good demand for the 787-10, Boeing might be agreeable to switch to -9s instead as the airline already has these and Boeing can use the -10 slots. The airline is likely to try to sell its 777LRs if possible – but that is a highly specialized aircraft with few buyers. (Delta perhaps, for the right price?) We also expect to see the 777X move as far as possible to the right, like the A350-1000.

Etihad will want to be able to serve existing markets with the lowest costs and minimal interruptions.  New routes are out.  Many existing routes are being cut back.  To serve its remaining network the airline will want aircraft that can be abused and the 787-9 is very capable of this.  So is the A321neo.  Can the airline slip out of its A350 obligations? It may be too late – but they can try to slow down deliveries.

Even with the airline’s ambitions being clipped, the Abu Dhabi leader Sheikh Khalifa bin Zayed Al Nahyan has an image to maintain.  As we can see from this picture, that image comes with requisite PR tools.  We think the Sheikh will find the resources to get the brand back to a growth curve.  It might just take some time to get matters squared away.  Which is why we expect to see Airbus and Boeing work with the airline to carefully navigate the current challenges.

Absent the ME3 airlines and their breakneck growth, few in the west might have known what the Gulf carriers are.  The ME3 nations will protect their airline brands as these perform very important work as brand ambassadors.

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Co-Founder AirInsight. My previous life includes stints at Shell South Africa, CIC Research, and PA Consulting. Got bitten by the aviation bug and ended up an Avgeek. Then the data bug got me, making me a curious Avgeek seeking data-driven logic. Also, I appreciate conversations with smart people from whom I learn so much. Summary: I am very fortunate to work with and converse with great people.

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