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Friday, April 28, 2017
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Global aerospace boom is over, but likely no bust ahead

An A380 flying past a Boeing flag.Demand for jetliners made by Boeing and Airbus is in decline but no big bust for the industry lies ahead, a leading analyst said on Wednesday, noting that military aircraft sales should rise.

"The great boom is over," Richard Aboulafia, analyst at Teal Group, said at an industry conference near Seattle on Wednesday. "But I don't see a bust cycle" unless there's a trade war, he added.

An industry slowdown has implications for investors and suppliers trying to anticipate the flow of orders as a guide the capacity they will need to meet changes in aircraft production.

Multi-year backlogs of jetliner orders at both big plane makers will cushion the downturn, along with rising sales of military aircraft, especially spy and fighter planes as defense spending is expected to rise at least initially under U.S. President Donald Trump, he added.

Higher interest rates and a possible border tax on imports could hurt the U.S. aerospace industry, however, by causing the dollar to strengthen further, Aboulafia said. Also, the risk of a major trade dispute is as high as at any time since World War II, he added.

A U.S. trade dispute with China would likely benefit European plane maker Airbus since China could easily retaliate against the U.S. by curbing orders of Boeing planes, Aboulafia said.

In the commercial aircraft market, a planned ramp up in output of single-aisle Boeing 737 and Airbus A320 aircraft is likely to continue. The two plane makers plan to increase output by more than 30 percent through the end of the decade and need the income from these high-volume assembly lines to hit their financial targets.

"This is the part of the market where you're going to see continued growth," he said.

But twin-aisle aircraft face a much tougher future because there are more models competing while demand is declining. "Everyone wants too much from this market," he said, adding that orders are "plateauing."