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An overview of the 2017 Paris Airshow

Not since 2012 have we seen Boeing take the lead in orders (firm plus Memorandum of Understanding (MoU)) at either Paris or Farnborough. In 2012 the reason was the launch of the B737 Max, which took place only 11 months prior to the show; this time the winner was also the B737 Max 8, but with the added benefit of some launch orders for the B737 Max 10.

Once all the firm orders, MoUs, and options are taken into account, the 2017 show was very successful – with a total of 1,258 units. OEMs may argue that the number is closer to 1,481, but that would include the conversions from existing orders already, so these need to be removed from the equation.

The Max was out front with 573 firm/MoUs, followed by the neo with 277. Boeing led the way with the B787 over the A350 at 5:1 and, as expected, some current generation aircraft also made it on to the list.

The lessors were most bullish with their orders; the recent poor sale leaseback performance looks to be the driver. It will be interesting to see how these speculative orders will be priced closer to delivery. Airlines will always give a steady stream of orders, because there is the added bonus of a new model launch and the launch discounts that come with it.

As expected for Boeing and Airbus given the diminishing returns for the traditional sale and leaseback market, the order tally was dominated by the lessors (484 firm + MoUs) over the airlines (431 firm + MoUs), with 155 coming from undisclosed customers; remarkably reminiscent of the Farnborough 2014 final tally. These figures do not include the 208 conversions to Max 10s from smaller B737 Max aircraft.

Excluding the large GECAS order, as predicted the bulk of orders came from the Chinese-owned lessors, with Avolon, CALC and CDB jumping out, whilst Tibet Financial Leasing made its entry statement with an order for 40 aircraft, split evenly between the neo and Max. Further east, JP Lease Products through JIA made its first direct purchase with the OEMs.

Order overview
1,070 firm orders and Letters of Intent (Lol) /MoUs were placed, along with 188 options. Below is a summarized order overview, followed by a more defined look at orders.

Based on firm and MoUs, as expected the narrowbody aircraft segment dominated the order split, obtaining 84% of share with the likes of Boeing 737 MAX and Airbus A320neo aircraft. This was followed by the widebody segment with B787-8/9s and the A330 and A350 taking 7% of orders.

Embraer’s regional jets scooped 4% of orders, and turboprops from Bombardier and ATR obtained 5% of the share.

Orders are significantly up on 2016, with more orders for narrowbodies, turboprops and widebodies this year. In an overall order metric, Boeing led the order tally with just over 59%, followed by Airbus with 32%. Please note these figures include firm orders and MoUs only.

Orders by aircraft segment



In terms of order distribution, airlines/operators and lessors comprised 86% of firm and MoUs, of which 53% from lessors and 47% from airlines. The graphs below show the increase in orders this year from lessors v last year by % and actuals. Boeing’s Max was the hot spot of the show with 573 orders, followed by the neo at 277 orders.




Below: Order distribution (firm and MoU only)


Orders by manufacturer

Boeing:
Interestingly all 737 Max models got a mention this year in the orders list, including the Max 7 and Max 8 200, with the notable exception of the Max 9 which, ironically, was physically present at the show.

Closer scrutiny of Max 10 orders does highlight some interest from the lessors, although the bulk came from 10 operators led by United and Lion Air, the majority coming from converting previous Max orders.

The launch of the 737 Max 10, Boeing’s attempt at halting the market penetration of the A321neo, does beg the question of whether there is enough space in the market for four body sizes and the high-density Max 8 200. At no point in history have either member of the duopoly managed to sustain market demand for all members of the family at the same time.

Economically, a simple stretch or shrink looks straightforward and good for commonality, but there comes a point when the aircraft becomes too heavy per seat for the shrink to work, or the design must be changed too much for the stretch.

The A318 and 737-600 were casualties for the ceo/NG families, whilst the A319neo, and 737 Max 7 have yet to spark much interest for the neo/MAX generation. But where does the Max 9 fit into the equation now? It already had a dubious backlog compared to the A321neo because only a small number were announced as Max 9s (as opposed to Max family), and this has introduced greater risk to complicate matters further. If the Max 10 lives up to expectation, then the fleet could switch over, leaving the Max 9 relegated to fourth place, or we end up with a 10% spread on both the Max 9 and 10, leaving investors with a choice to make. At least the engine choice will make things simpler.

To add to this, Boeing also continued with the early thoughts of an NMA (New Midsize Airplane) – or possibly the 797! Whilst many have pined for a replacement to the 757, many also believe that the potential market take-up could be limited. However, it is likely to offer mid-200s capacity that can fly 5,000nm+. Boeing predicts a market of 4,000 for it, but how that would eat into the low end of the A330/787 market, or the upper end of the A321/Max 10 market, is yet to be determined.

Pricing will be interesting as this aircraft will essentially be bridging the cost-per-seat between narrow and widebody aircraft – size versus range. Operators will be seeking something that costs around US$65-70m, yet the widebody approach will push it above US$80m. Should Boeing go down this route, what will Airbus do? Possibly squeeze more performance out of the A321, down-gauge the A330/A350, or produce an all-new aircraft. Alternatively, they may feel that the current product line already handles that space, so do nothing other than optimize for certain operations. There has also been plenty of talk surrounding the engine technology. Rolls-Royce has been developing in this space for some time and we may expect to see CFM step up too.

Airbus
Airbus also managed to do well out of Paris with a total of 277 firm and MoUs for the A320neo family, and even a further 49 orders for the ceo! Whether this is simply because of fuel price, last minute last off-the-line slots, or the need for operators to be assured that the GTF engine has got rid of its teething problems is up to the individual, but it does push the last off-the-line effect further to the right.

Airbus also launched the A380plus as a potential option to enhance the seat mile costs with a higher MTOW, larger seat capacity and new winglet. No specific mention of the engine upgrade was made, although we would also expect some form of PIP to make its way from Rolls-Royce to enhance the fuel burn and maintenance cost. Despite the physical presence of the A380 and its new winglet at the show, no further orders were placed at this stage, and it has been four years since an order for the type has been placed at either Paris or Farnborough.

ATR and Bombardier
Both ATR and Bombardier also managed to get in on the action this year with a total of 54 orders (firm and LOI), the Canadian OEM moving ahead with a large LOI from Spicejet for 25 Q400s and further options for another 25; a significantly better performance than last year when only four orders were placed for the Q400.

Bombardier was unable to gain any more traction in the regional jet space as Embraer once again took the lead by being the only OEM to secure any orders in that market segment. Interestingly, eight orders were placed for current generation E1 aircraft, with 30 orders secured for the new E2, along with options for 20 more. No announcements were made by Sukhoi, Comac or MRJ to gain any further market traction in the regional space.

Below: Order breakdown tables











About IBA
IBA is a leading independent aviation consultancy advising a broad mix of lessors, operators, financiers and investors. Operating globally, the company informs decision making and supports operations across the aviation spectrum. From supporting strategic investments and managing aircraft, to advising on expansion and driving efficiency improvements, our mix of intelligence gathering, analysis, proprietary data, technical expertise and decades of aviation experience delivers value across aviation opportunities and challenges.

 

7 July 2017

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