Global Aerospace: 2016 Outlook

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Global aerospace: 2016 outlook George Ferguson, Ian McFarlane Bloomberg Intelligence analysts

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Aircraft sales slow as production, revenue rise

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Production rates, revenue and profit pose little risk to the aerospace industry in 2016 as backlogs are full. Rather, planemakers ponder the risk and reward of spending money to raise future production rates. Twin-engine wide-body and narrow-body aircraft have the longest backlogs, though there are risks of some production-rate cuts. Slowing emerging markets may trim growth in air travel. Long backlogs, low fuel prices and higher interest rates likely hurt sales, leaving book-to-bill rates below 1x.

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Boeing, Airbus orders fall on low fuel, growth

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Aircraft orders will likely fall in 2016 on large backlogs, lower fuel prices, rising interest rates and slowing economic growth. Large backlogs, especially for narrow-body aircraft, mean it takes more than five years for delivery. Airlines that need planes sooner must buy on the secondary market or lease. Interest rates and fuel prices boost the cost of new aircraft and decrease the benefit of lower fuel burn, making used planes more desirable. Slowing emerging markets likely trim growth in demand for air travel.

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Airplane lines hum on backlogs, drive earnings

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Large backlogs are likely to keep aircraft assembly lines moving in 2016, though wide-body lines could be slowed on weaker sales to prevent production gaps between current and refreshed versions. Revenue will rise on increased throughput, though profit will be challenged by rising production of low-margin, new aircraft such as the Airbus A350, Boeing 787 and Bombardier C Series. The supplier base benefits from increased throughput as well, although risks increase as narrow-body rates approach 50 a month.

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Boeing, Airbus deferrals rise, wide-body risks

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Slowing growth and excess capacity in developing markets raises the risk of aircraft deferrals and production-rate cuts in 2016. These factors, especially in Asia, which has a large number of Airbuses and Boeings on backlog, increase the risk that aircraft purchases are deferred to later years. Narrow-body backlogs are large, and deferrals easily managed. Yet wide-body backlogs are smaller, with the Boeing 777 and 747, and Airbus A330 and A380 likely requiring rate cuts with sizeable deferrals or cancellations.

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Light-jet demand rises on currency, commodity rout

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Demand for light jets is making a comeback as improving U.S. and European economies and lower oil prices favor entry-level buyers such as small business owners. Large-jet demand likely suffers as emerging-market incomes fall due to slowing growth from lower commodity demand and energy prices. Demand for large jets was driven in part by sales to oil barons and wealthy entrepreneurs from the developing world. The strong dollar hurts too, as jets -- sold in dollars -- are more expensive in most foreign currencies.

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