Global economic wows may hit Airbus and Boeing hard

Both Boeing and Airbus have enjoyed record orders over the last year or so but there is concern that the joy ride is comming to an end and fast. While both airframe producers have record backlogs several missteps and the global meltdown has put many of those orders in jeapordy.

Both delays at Airbus due to product development and Boeings inability to deliver the 787 on target (plus the strike) and not the credit crunch is going to take its toll.

Many airlines that have placed orders may not be able to secure the credit needed to purchase the planes. In addition one of the biggest customers for both companies, ILFC, has a very cloudy future. ILFC is the heavyweight in the LCA realm. However, ILFC is part of AIG so its unclear about its survival at this point.

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They seem to be very unpredictable at this point.. I wonder if they have taken huge losses, waiting so long with the strike, to get back to work on the Dreamliner??

My thought, it Boeing could only survive the longterm if they are able to secure Military contracts. Because, simply, the Gov't seems to be the only one with a never-ending flow of cash, at this point...

Anyone agree, disagree?

Disagree..... I don't think Boeing can survive

Simply put, there is NO never ending money supply, government or otherwise!

Consider that what Britain has put into rescuing banks lately is greater than the GDP of Spain! Just how much do you imagine that the governments (British, US, whoever) will have left over to buy ANYTHING! Unless, of course, you and I are just going to sit back and allow ourselves to be taxed 90 cents in the dollar just to pay for it all (clue - it will never get to that, because before that happens something else inevitably happens - it's called revolution!)

Standby for some spectacular corporate collapses!

It is 'amusing' to see massive American corporations who in the past have pushed the 'free market' bandwagon screaming for the government to save them. Well perhaps the governments have to save them (if they can), otherwise we, the workers, will have no work and no way to support ourselves.

The government being blackmailed by big business, all because big business decided it would be profitable to loan money to people who (it was painfully obvious to everyone but the blindly greedy) could never afford to pay it back. Sure, let the market decide = let the inmates run the asylum !

If General Motors, Ford and Chrysler are in dire trouble, then what prospect for a company like Boeing, who, it appears simply cannot meet any deadline or any budget - sure, I'd invest in that sort of business practice - NOT!

The Winged Wombat

Of course the other alternative is for the government to buy into these companies to capitalize them - but that's called nationalization - and that could never happen the in the US of A - that would be far too socialist! The irony of Capitalism being rescued by Socialism - makes you wonder about the validity of Capitalism, doesn't it. Perhaps Marx was right, it's increasingly looking like Capitalism will destroy itself.

[edit on 15/11/08 by The Winged Wombat]

Afternoon all,

Firstly I must apologise for my increasingly sparse number of contributions of the last few months. I was preoccupied with study and the airline business starts getting very busy at this time of year.

Ok everybody calm down, neither Boeing or Airbus are likely to turn turtle and for several reasons.

1) "It's the cycle stupid!":
Anyone who has worked in or near the airline business knows that it moves through very definite boom & bust cycles. The average cycle period is around 7 years and right about now is when we SHOULD be seeing a downturn anyway. Yes, it has been compounded by the current credit crisis and both manufacturers inability to deliver either on time or more to the point, deliver a realistic cost and development schedule hasn't helped. However this will end up serving as a house clearing exercise and in fact Airbus is already on the way to doing that as a result of the A-380 fiasco.

It's ironic that companies like ILFC who were responsible for manipulating the two manufacturers into trying to deliver the undeliverable are themselves now on shaky ground. There is a basic corporate lesson in this: "DONT-LET-SALESMEN-GET-CONTROL-OF-YOUR- BUSINESS". Idiots like Leahy over at Airbus allowed guys like Udvar-Hazy (ILFC) to dictate terms that were unrealistic in a new design. Sure we all want an airliner that costs 15 bucks to buy, 5 bucks a year to maintain and only burns 20kg's of gas between SYD/LA, but it ain't realistic (yet). Whilst some clients will cancel or defer orders others will see this as an opportunity and jump in to pick up delivery slots. And lets try to remember that cancelled orders aside Boeing has sold something close to 1000 787's before the first has even flown. So in reality there is still plenty of meat and fat on the bone.

2) National pride:
Ok that is pride plural in the case of Airbus but it's the same thing. There is absolutely NO WAY on earth that the US Govt. will allow Boeing to go bust, period. Not only would it be an enormous loss of national pride but it would seriously jeapordise the US's aircraft manufacturing ability both commercial and military and the attendant technology and R&D/manufacturing skills that go with it. The flow on in job losses would also be huge and cause major economic headaches for several key US states like California, Washington, etc. I actually think that some form of aid (if needed) to Boeing is far more likely than to GM or Ford. Put it this way, you can buy cars from anywhere and there are plenty of manufacturers in the world. The same cannot be said of commercial and military aircraft.

Ditto the above for Airbus. The EU partners have invested far to much into Airbus to let it just die after 40 or so years, and they have far to much business potential in developing economies like China to just walk away. Again this goes for Boeing as well if they can get their act together and stitch up a foreign assembly deal.

No, my money is on both companies spending the next 12-24 months getting their respective acts together and actually coming out the other side leaner, stronger and more realistically focused on delivering a workable product rather than a "pie in the sky", salesman's wish list. There will be lost jobs on the way, some third party suppliers may get the axe, a number of orders cancelled and there may be a few flat years. But life will go on people, because if one thing is certain even during the middle of the great depression people still travelled and they still are, more than ever actually. And when people travel aircraft get used, they wear out, and need to be eventually replaced. It's a simple, inevitable, (7 year) cycle.

LEE.

LEE,

I hope you're right, but the way things are happening, it seems that it doesn't really matter what the governments do (and the US Government doesn't seem quite sure what it wants to do with its rescue package - seems to me that buying up toxic debt was a pretty good idea, but that seems to have gone) the stock market continues to drop and there is no confidence in lending.

Perfectly sound companies that rely on debt to continue operating (such as our Centro shopping centre company for instance) are going out of business simply because nobody is prepared to roll over their debt, in spite of the fact that it is quite sound in the way it does business - it services its debt very efficiently.

While you are confident that everyone will continue to travel, it appears that others here in Australia don't agree, with Canberra's Airport redevelopment put on hold and Melbourne Airport terminal expansion cancelled. Many other projects have gone the same way including Gunn's Tassie Pulp mill - nobody will finance it, so it ain't gonna happen.

It appears to me that the G20 has just agreed to further talk fests and that they have achieved little else - but that's politics for you.

Now correct me if I'm wrong, but I rather thought that General Motors was the largest company in the world (or perhaps I'm confusing that with Ford being the largest private company - not sure), and I heard something recently that some quite extraordinary number of people in the US are either directly or indirectly employed by the US automotive industry. If this is so then the impending collapse of GM may well be more important than the future of any aircraft company (although of less national security importance). But America does put a huge importance on maintaining a 'free-market economy' - a point Bush reiterated at the G20 meeting.

Further, here in Australia virtually every position on a car yard is financed - that is the car yard (both new and used) buys its stock using finance from such companies as GE credit (and a number of others). Now it appears that due to the credit crisis GE credit (and I believe others) are getting out of that business and that the supply of such finance is only guaranteed up until the end of the year..... interesting times if the car yards are to empty out.

The other factor that has me deeply concerned is the change in the US rescue package, with the most recent information saying that the change of emphasis would be towards companies providing lending for credit card, student loan and car loan finance (American Express is screaming for US government help at the moment - remember the credit card companies don't use their own money to pay the merchants either)...... so if this sector goes down the gurgle then people will have lost their homes followed by their jobs, their cars and have to pay up on their credit card debt.

Now back to aviation. IF aircraft manufacturers, regardless of their order books, efficiency, or business practices use loans to finance their production (and I'm not sure they do - I've asked this question a number of times here without a response) then the fact is that when those loans come up for roll-over, there is nobody out there that will be willing to loan that money. Remember, this crisis has absolutely nothing to do with any normal cycle within ANY industry, but any downward trend within an industry will naturally make the situation worse for that industry.

Furthermore, a large order book has no bearing on the continued existence of your company - especially an aircraft company - in fact a full order book with an inability to fund the building of the aircraft has been the driving force behind many aviation companies merging (including McDonnell with Douglas) and the demise of such companies as Handley Page.

The only airlines that would be able to step up and order more aircraft or take over other airline's orders would be airlines that use their own money to buy aircraft - is there any outside the ME? - because the big lenders are not lending money - not to anyone for any purpose!

The irony is that banks don't make any money unless they lend money, so inevitably if they won't lend (the current situation) then ultimately they will go bust. It really starts to make you wonder if there is more money loaned from one company to another than actually exists!

So to say that this company or that industry won't go bust is a very brave statement indeed, because we are in unknown territory at the moment. This financial situation has never existed before and it is becoming increasingly obvious that nobody seems to know exactly how to fix the problem.

And finally nothing that ILFC has, or hasn't done is to blame for their predicament - it is simply the situation that its parent company (AIG) finds itself in - and has absolutely nothing to do with aviation in the slightest. ILFC could be the strongest company on earth, but if its parent company goes down then so does ILFC - unless it's sold off, but who would buy a company at the moment that relies on borrowed money to buy aircraft?

The Winged Wombat

Just as an aside - how much debt does Qantas carry on aircraft purchases and when is it due for renewal?


[edit on 16/11/08 by The Winged Wombat]

The current economic climate will undoubtabley affect both companies hugley, but I fear the real victims will be the tier two manufacturers who are only just breaking into the mainstream airliner market, such as Bombardier and Embraer. When it comes down to it, in uncertain times you are more likely to order a product from a company with greater longevity and some how I fear that planes like the Bombardier CSeries will not see the light of day.

Jensy

*WOES

Second line.