Investigating the Durable Goods Ripple Effects of a Slowdown in Aircraft, Autos, Housing
Yesterday, I noted Undercurrents of Worry on aircraft orders. Today, the New York Times reports After Surge in Orders, Airlines Now Balk at Wide-Bodies.
As one of the longest upswings in sales in aviation history falters, Boeing has been forced to cut production of its giant 777 and 747-8 jets. And questions are mounting about how much longer Airbus will be able to keep building its mammoth A380, a double-deck plane that carries more than 500 people and often includes bars and showers for the highest-paying customers.
High production rates created a glut of large jets, and the drop in oil prices has reduced business travel to and from the Middle East, where carriers like Emirates Airlines, Etihad Airways and Qatar Airways have been among the biggest buyers of 777s and A380s. President Trump’s proposal for a travel ban focused on Muslim countries, new security rules banning laptops on flights from the Middle East and the tensions between Qatar and its neighbors have all added to the problems.
Boeing makes only six 747s a year, and it sells most of them as cargo freighters rather than as passenger jets. The company is also cutting deliveries of the existing 777, its most profitable plane, to just over 40 in 2018 from 99 in 2016.
But “when you get into the 2021-2022 time frame, you really start to see another replacement wave coming,” Mr. Tinseth said. “You’re going to see a bunch of wide-bodies start to hit 25 years of service, and I think that will help spur production when we get into the next decade.”
So much of the jousting between the two rivals is shifting to the future of the A380, the giant four-engine Airbus that costs about $210 million each.
Emirates Airlines has been by far the largest customer for the A380, buying 20 of the 28 planes that Airbus delivered in 2016. Airbus announced last July that it would cut production to 20 A380s in 2017 and 12 a year after that. The program took another hit in December when Emirates said it would delay six of the purchases it had planned for this year and six more next year.
Mr. Tinseth said Boeing believed that it would be very hard for Airbus to actually sell roughly four dozen A380s that other airlines have ordered.
John Leahy, the marketing chief at Airbus, responded that “if A380 sales are soft, which is true, you’d have to admit 747-8 sales are nonexistent.”
Mr. Leahy said Airbus expected renewed interest in the A380 as airports become more congested in the 2020s. The company’s goal, he said, is to keep building one plane a month — “or maybe even lower if we had to” — and wait for the turnaround in the market.Article Continues Below
The total number of airline miles flown by paying passengers “has doubled every 15 years since the dawn of the jet age,” he said. “My competitor out there in Seattle says, ‘Oh, we’ll just have more flights.’”
But many airports in the United States, Europe and Asia can’t handle more flights, he said, “so we have to move to bigger aircraft.”
Investigating the Ripple Effects
In addition to a slowdown in Aircraft, the Auto sector is also on the skids and housing is questionable at best.
Lets’ dive into the latest durable goods report on Manufacturers’ Shipments, Inventories, & Orders to study the possible repercussions.
Transportation directly accounts for 33% of durable goods shipments. Motor vehicles and parts provide 23% of total shipments and about 70% of transportation shipments.