Commercial aircraft delivery: outlook intact despite order slowdown


Fitch Rating’s large commercial aircraft delivery outlook for 2016 and 2017 remains intact despite some weakness in parts of the widebody aircraft market, delivery deferrals across most regions of the airline industry, and a likely decline in new orders in 2016 compared to 2015.

Although Fitch is more cautious than at the beginning of the year, the record order backlog along with other indicators of aircraft demand tends to support the credit rating agency’s delivery expectations for the next two years. However, there could be some changes to forecasts beyond 2017, particularly for some widebody models. But Fitch expects total deliveries would still rise after 2017, as production changes would likely be adjustments to planned increases rather than cuts from existing production levels. Fitch expects large commercial aircraft deliveries from Airbus and Boeing to rise to approximately 1,420 (up 2%) and 1,545 (up 9%) aircraft in 2016 and 2017, respectively.

Production will exceed deliveries in 2016 as Boeing builds inventory for the 737MAX series and the 767 Tanker programmes ahead of certification and delivery in 2017. Fitch details the fact that current order backlogs (worth approximately $900bn) guarantee 8 years of production, and that manufacturers need to focus on production ramp up and new aircraft development programs rather than on new orders. And according to the firm, there is still the possibility that orders could match or exceed deliveries in 2016, backed by a supportive aircraft finance market. Except for the A380, 747 and 777’s production rate cuts, other widebody delivery rates have positive trends. However, Aviation Week magazine has revealed an internal Boeing document, in which the firm plans to deliver 535 aircraft rather than the 740 initially envisaged (To date, the company has booked 335 orders, of which 297 are for the 737.) According to Fitch, capacity has grown slightly faster than traffic in H1 2016, contributing to the revenue pressures, along with rising order deferrals and macroeconomic setbacks.

Latin America is notably concerned by disappointing airline results. The firm also mentioned impact of terrorism and fuel prices as potential long-term concerns for the air travel industry. However, the IATA still forecasts global airline profits to rise from $35.3bn in 2015 to a record $39.4bn in 2016, backed by low fuel prices and global air passenger traffic growth.

Written by ADIT – The Bulletin and republished with permission.