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Planemakers look to Asia but credit crisis looms

A lack of major orders at the Singapore Airshow could point to a deeper than predicted cyclical downturn for planemakers already smarting from delivery delays on new aircraft.

Manufacturers expect fewer orders in 2008, as the industry comes off a record year for sales and enters a period of ramped up production. Airbus said on Wednesday that its orders will halve to around 700 from a record 1,341 orders last year. Boeing does not give forecasts, but said it expects orders to exceed the 475-480 planes it is targeting to deliver to customers this year. But demand for new aircraft could be hit more than the Europe-based Airbus and US rival Boeing expect, as a growing global credit crisis curbs airlines’ ability to finance purchases, and causes a drop in premium and business travel. “Just like in the home mortgage sector, airlines need to put more equity into financing aircrafts. This will have a cash strain on the airline industry,” International lease finance Corp CEO Steven Udvar-Hazy said in Singapore. That might make airlines more cautious on increasing capacity by ordering new planes, said Udvar-Hazy, who runs the world’s top plane leasing firm.

China, India absence
Airlines ordered slightly over $10 billion worth of planes at the Singapore Airshow, a far cry from the $100 billion in orders booked at the Dubai air show last year. Analysts had earlier expected $15-20 billion in orders, including major contracts placed by airlines from India and China, as they boost their fleets to meet booming domestic travel. Air traffic growth in India and China is expected to grow at more than 11% a year for the next three years, nearly three times the rate in the US and double Europe. Top aircraft maker Boeing expects total plane orders from the Asia Pacific to reach 8,350 in the next 20 years, out of the 28,600 planes needed worldwide. Of these, nearly 2,000 will go to Southeast Asia and more than 1,000 to Southwest Asia -- mainly to India, Boeing senior vice president for sales Dinesh Keskar said in a presentation at the airshow.

The lack of orders from Indian airlines in Singapore surprised some analysts and industry watchers. “We expected some orders from the India carriers. But we’re probably seeing a lull in activity as doubts over the wider world economy make airlines pause,” said Aviation International News senior editor Charles Alcock. Airbus chief salesman John Leahy said the company was hoping to sell at least 10 A380 superjumbo to Air India and an additional 15 of the world’s largest passenger jet to Singapore Airlines. Chinese buyers were also noticeably quiet in Singapore amid uncertainty about how consolidation between heavyweights including China Eastern and Air China will shake out. Airbus announced an order of five A330 cargo planes to BOC Aviation, the aircraft leasing unit of the Bank of China, but none of the major passenger airlines confirmed orders.

Profit threat
Asian airlines already have a swag of news planes arriving and the spike in capacity is likely to slash profitability this year. The International Air Transport Association (IATA), which represents 240 airlines, said this week that airlines are likely to see a further profit cut this year as the global credit crisis deepens, while fuel costs stay near record highs. “Asian capacity is set to expand 8.8% in 2008, and demand is expected to grow by only 6.4%. This is not a recipe for long-term health,” said IATA Director General Giovanni Bisignani. Boeing, however, remained bullish about the region. “If you think about the situation in Asia, clearly this is a market that in terms of its economy is much larger, more diverse and more sustainable than when we saw past recessions in the US,” said Randy Tinseth, Boeing Vice President of Marketing for Boeing Commercial Airplanes. Boeing has so far this year received 130 orders, a large chunk of it from Indonesian budget carrier Lion Air’s order of 56 units of the 737 at the Singapore event.

US hopes
With the Asian market quieter than expected, analysts say planemakers could look to the major carriers in the US, which are undergoing a period of consolidation which is expected to improve their balance sheet. Delta and Northwest airlines are expected to announce a merger soon, while United and Continental airlines are likely to follow suit. The formerly loss-making carriers are seen to be in dire need of fleet renewal. “If we see a merger in the US in the next month or so, we should see some orders coming out of there,” said Peter Harbison, executive chairman of the Sydney-based Center for Asia Pacific Aviation consultancy. (Reuters)