Global Aircraft Orders Skyrocket

Revenue growth may have reached its peak, though, as existing production capacity is set to limit future delivery gains. Thus, deliveries of commercial aircraft by Airbus and Boeing are expected to grow by 8.0% this year, compared with the 25.0% jump last year. Airbus has also announced it would deliver around 500 aircraft units per year by 2009, up from 450 planned in 2007, which is equivalent to a 5.4% compound annual growth rate. Together with delays in delivery at Airbus and more recently at Boeing, these figures show that production lines are already at their full speed and will not generate significant growth, despite thick order books.

A significant boost to prices could be the most logical answer to this situation. The aircraft market remains quite concentrated and, in the context of robust demand, Airbus and Boeing could afford raising list prices without significantly affecting future orders. Thus, Boeing recently announced a 5.5% increase in its commercial aircraft list prices. This should help the company to maintain solid revenue growth. Moreover, aircraft manufacturers need to mitigate the surge of input costs, stemming from soaring energy and key materials prices, if they want to improve their operating margins, which remain quite low compared to other high-tech industries.

Nevertheless, this strategy should be pursued cautiously by aircraft manufacturers, since medium-term risks have emerged on the demand side. World economic growth is decelerating, which is likely to affect transport industries. In addition, recent large aircraft orders in Asia and Eastern Europe were made by untested, low-cost carrier start-ups, many of which may not survive. Furthermore, although the demand for Asian exports will drive air freight growth for some time, increases in energy prices continue to convince some clients to use generally cheaper ground and water shipping. In the medium term, though, bigger and more energy-efficient planes are set to gain popularity.

Another option for aircraft manufacturers to maintain strong revenue growth would be to ramp up production and deliveries by investing massively in new assembly lines. It remains to be seen, though, whether manufacturers are ready to take that risk; medium-term delivery plans by Airbus and Boeing do not seem to suggest this strategy. Boeing, in particular, still has bad memories of the oversupply problems in the 1990s, which led to a drop in prices.