Special Report On Global Market Outlook For Wide-Body Aircraft

World Airline News, Oct 12, 2001

The following is a summary of a JSA Research report on the 10-year outlook on the wide-body aircraft market, which was authored by Paul Nisbet and Peter Arment. The report examines the prospects for Airbus and Boeing aircraft in light of the slumping aviation market. JSA predicts that the market for jumbos will slump even further, but that the "big twin" will be fairly robust. The JSA report on the narrow-body market outlook was summarized in the Oct. 5 issue of WAN.

The world economic slowdown and the events of Sept. 11 have weakened the market for passenger versions of wide-body aircraft. We believe, however, that this will be partially offset by an increasing demand for cargo aircraft, led by what are likely to be higher levels of military shipments over the next few years.

We believe that despite the current malaise regarding airlines and the aircraft market, on average more than 200 wide-body aircraft will be delivered annually over the next 10 years.

Deliveries over the past five years have averaged 195. We expect wide- body airliner deliveries

past 2001 to increase for both Boeing and Airbus. Our forecast is for 2,029 wide-body airliners (down 18 percent from our prior forecast) to be delivered over the 2001-2010 period. Of this total, 61 percent will be Boeing aircraft.

Airliner demand over the last few years has favored narrow-body aircraft. However, the market for narrow-body aircraft has dropped dramatically because of the Sept. 11 events (WAN, Oct. 5), and even before that because of the economic slump in the Far East in the late 1990s.

Although we are also anticipating lower wide-body market demand, the wide-body market will look like a boom market compared to the narrow-body market. We anticipate that as the world economy recovers, a shift in airline priorities will result in a more rapid recovery in the market for wide-body aircraft.

Skewing demand upward this year, as measured by orders, have been Airbus' launch of the A380-800, a 550-passenger jumbo aircraft, and the order by United Parcel Service for 58 Airbus A300-600Fs. We project that in 2001, Airbus will have received about 75 percent of the total orders for wide-body aircraft. Had it not been for these not-to-be-repeated events, orders this year would likely be well below the 155 level of 2000, favoring Boeing by a significant margin.

Through August, Boeing this year has accounted for exactly 67 percent of the total wide-body deliveries (90 of 135). It is thus obvious that Airbus' backlog has been growing in relationship to Boeing's. It is also clear, however, that this backlog is more spread out than Boeing's. Two factors account for the growing spread between Airbus' and Boeing's wide-body airliner backlog?

* More than half of the A340 backlog is for the new -500 and -600 models, none of which are to be delivered before the third quarter of 2002. Until recently, all orders for Boeing aircraft have been for models currently in production. Now that the long-range 777s have been launched, backlog for out-year deliveries are beginning to accelerate. If Boeing should launch the Sonic Cruiser, the spread of deliveries over time between the two firms would become more homogenous - perhaps even spreading out Boeing's backlog more than Airbus'. After a surge of Airbus orders in 2001 with the launch of the A380 and the UPS freighter order, we expect Boeing to dominate the wide-body order picture.?

* Damage had been done to Boeing's wide-body aircraft business in China by the bombing of the Chinese Embassy in Yugoslavia, which probably resulted directly in the $2.3 billion order to Airbus for 28 aircraft in October 1999. We believe, however, that the political animosity between China and the U.S. has faded now that the U.S. has not blocked selection of Beijing as the site for the 2008 Olympics nor its entry into the World Trade Organization. The Bush Administration's war on terrorism could pose further problems, given China's current sales of military technology to countries harboring terrorists. We expect, however, that Boeing will regain at least a portion of what has been its excellent position in the important Chinese market as time progresses.

Launch Of The Sonic Cruiser - Probably Not Until 2003

The events of Sept. 11 almost certainly will settle a major question concerning the Sonic Cruiser program. Will this be an aircraft rushed out by 2006 to meet demand by utilizing derivatives of current engines and essentially current aerostructures technology, or will Boeing decide to go for all new engines and for utilization of next-generation technology throughout and delay delivery of the first operational aircraft to 2008?

We believe with little doubt that Boeing will decide to pursue the latter course, at the same time pointing toward launch of the program in 2003 (maybe at the 2003 Paris Air Show?) We believe that this course will provide Boeing the opportunity to develop means of efficiently producing what could be substantially an all-composite airframe Sonic Cruiser, with all-new next- generation technology engines. We believe that launch orders and announcement of the program launch will thus be delayed to 2003, with the first deliveries probably not being scheduled before 2008.