Airbus Delivery Rate For 2010 Questionable

2010 is poised to be a make-or-break year on many fronts. The chances are we’ll see Airbus revise their delivery forecast very quickly as carriers defer orders as the marketplace and financing becomes more of a strain.

Part of that stems from an almost certain decision to cut A320 rates next year (click), possibly as early as January when final orders for 2009 are usually announced.

Just last week, one of the biggest customers for the A320, AirAsia, elected to defer deliveries citing infrastructure constraints. In true low cost carrier spirit, if as the business model suggests, then infrastructure should not be an issue – largely because low cost carriers ensure their airplanes spend more time in the air than on the ground – AirAsia is simply a victim of market oversupply and poor forward bookings and they cannot take on more A320s that will simply drive yield, load factors and margins lower, as I had previously mentioned here.

What better way to prevent all that than by deferring A320s and lower one’s cap-ex at the same time, allowing for a better lead time for traffic recovery. Smart move.

While financing has been somewhat steadily available for the bulk of 2009, next year presents a more challenging environment.

Some analysts had wrongly targeted a $20bn-plus figure for financing this year. 2010 won’t require that much, but a ballpark figure of around $6bn between Airbus and Boeing seems probable. With yield erosion still at the very forefront of every airlines planning, Boeing’s decision to cut 777 rates from next summer and a weak A380 delivery schedule means that carriers will look to put off big acquisitions wherever possible and keep exposure to financing at a minimum.

For low cost carriers, the likes of which have been driving current delivery rates on the 737 and A320, they too will eventually have to examine just how many more airplanes they’ll need if they do not start churning existing older jets. Adding capacity erodes what little margins they have already – while there won’t be widespread deferrals, the pressure in the latter half of 2010 will ultimately pressure and pace the rate at which deliveries for 2011 will be forecast, irrespective of backstop financing issues.

John Leahy is certainly right when he states that traffic will grow next year – but with the flying public opting for cheaper fares at the back of the cabin, full service airlines, dependant on the 777, 787, 747-8, A330, A350 and A380 will all quickly find that increases in volume do not make up losses on revenue.

Just ask Singapore Airlines about their A380 operation(s) to London Heathrow (click).

As I had mentioned before, repeatedly in fact – the premium business model upon which the orders for many widebody jets were placed during the boom years - is dead (click).

To add further strain to this, particularly for Airbus more than Boeing is that it will have to spend billions developing the A350XWB. Boeing has been stung already, and if the 787 flies by the end of the year or early next year, it will be a step closer to certifying the airplane, delivering it and start to earn money from it.

There is a still a big gap in funding for the A350XWB, challenged only by the rework costs of the A380 as well as compensation due on the A400M.

As Airbus CEO Tom Enders previously stated, further cut backs cannot be ruled – his assessment is astute and one that Airbus will without doubt enact sooner rather than later - on the face of it, Leahy’s assessment of maintaining deliveries next year is about as accurate as the initial claims of delivering 18 A380s this year.

And we all know how that has evolved, don’t we?

This author consults with leading institutions through GLG