JSA Predicts 21 Percent, US$12 Billion Drop In Jet Sales For 2002

World Airline News, Sept 28, 2001

Airline Cutbacks Translate Into Headaches For Manufacturers

The following represents excerpts from an extensive and detailed report conducted by JSA Research Inc. on the future of global commercial aircraft production. Authored by Paul Nisbet and Peter Arment, the study was completed Sept. 25. It analyzes a thoughtful how the Sept. 11 terrorist attacks will impact Boeing and Airbus orders. JSA also carried out more detailed studies on future narrow-body and wide-body production. These reports will be summarized in future issues of World Airline News.

We forecast that total airliner deliveries from Boeing and Airbus Industrie in 2001 will be 818, down 11 percent from our previous expectation. This compares with 814 airliner deliveries in 2000. For 2002, we now believe that deliveries will decline 22 percent to 641 aircraft and another 5 percent in 2003 to 607, before commencing a recovery. We estimate that the 257 aircraft decline in 2002 represents about a US$12 billion drop in revenues for the industry.

Airliner orders will be more adversely affected. For 2001, we now believe that only 655 aircraft will be ordered, down 28 percent from our prior expectation. Our current expectation for 2001 is for 35 percent fewer orders than in 2000. For 2002, we now believe that orders will drop another 43 percent to 373 aircraft, before turning up in 2003.

The slumping world economy, exacerbated considerably by the tragic events of Sept. 11, is heavily impacting world air traffic. The International Air Transport Association (IATA) member airlines experienced a 20 percent decline in net profits in 2000 to $1.9 billion. Traffic increased 8.2 percent while capacity increase only 5.8 percent, but yields declined 3.1 percent. Cargo traffic rose 10 percent. Operating revenues of the world's scheduled airlines increased 7.6 percent in 2000 to $329 billion. Operating expenses, however, increased by 8.4 percent, causing operating profits to fall from $12.2 billion to $10.8 billion.

An estimated 33 percent of the world's airlines were temporarily grounded because of the attacks on New York and Washington, D.C. The scope of the terrorists' acts will almost certainly deter pleasure travel for at least the next several months. Business travel, which already was down significantly because of the weak economy, will become weaker. Numerous businesses have curtailed business travel. EDS, for instance,has banned all employee travel, and Citigroup has banned all non-essential travel.

The airlines are thus incurring huge losses. In Asia, where flights to and from the United States make up 10-20 percent of revenues, airlines lost nearly $4 billion in two days. The Air Transport Association (ATA) has just revised its estimate of airline losses from international scheduled services during 2001 to $10 billion from $2.5 billion, a level twice that of the record $4.9 billion loss set in 1992.

This economic slowdown is reverberating throughout the world. Europe's growth this year had been expected to be 2.4 percent. Growth in Japan could be barely 0.5 percent. The sustenance of high oil prices prior to Sept. 11 had boded well for the Middle East economies, but now that is in question. The forecasts for the economies of Latin America have remained fairly static, but future slippages seem very likely. China and India, with their relatively closed economies, have avoided major downturns.

Airlines in the Swiss Air Group - Air Liberte, AOM, and Sabena - have been among the hardest hit so far. It is now likely that orders placed by these airlines will be cancelled. American is likely canceling the contract with Airbus inherited from TWA for 45 A-318/A-319 aircraft, most of which Airbus is hoping can be transferred to GATX Leasing.

Another casualty has been Midway Airlines, which has declared bankruptcy. Midway had been a prospective purchaser of a quantity of Boeing 717s.

The banning of all civil air flights over the continental U.S. by the FAA was the first and only such action in U.S. aviation history. U.S. airlines, conducting 36- 40,000 flights daily, lost about $360 million per day during the ban.

Now with a resumption of only about 80 percent of the flights - and those at 40-50 percent load factors - the carnage continues. We expect that it will be year-end before load factors will reach a near breakeven of 60-65 percent. Normal operation may be 18-24 months away. Full absorption of the airliner overcapacity and resumption of normal demand for new airliners could be four or five years away.

The impact has been most severe on U.S. airlines. Although the U.S. majors had a $2.5 billion net profit in 2000, they lost $80 million in the fourth quarter of 2000, another $747 million in the first quarter of 2001 (versus $70 million in earnings in same quarter the previous year), and had a disastrous second quarter in 2001, normally their best quarter of the year. Results in the second quarter of 2001 fell to a loss of $788 million from a profit of $1.7 billion a year ago - the worst decline in the history of the industry.