Boeing Expects Limited Russian Returns

Implications: The current record aerospace industry order cycle will not be sustained by strong growth from Russia and Eastern Europe, no matter what the Russians themselves might say. Potential, yes, practicality, not yet...

Analysis: One of the key factors about the current commercial-aircraft order glut is the international flavor of the market upturn. Strong economic growth and the resultant increase in demand for air travel from such diverse geographical regions as Asia & the Far East, Australasia, China, the Middle East and, to a lesser extent, Europe has since 2005 resulted in record aircraft orders for Airbus and Boeing.

Last year's totals are unlikely to be passed in 2008 nor will this year's figure be as low as Airbus is already suggesting, but whatever the final outcome, one thing is certain -- the domestic Russian market will not keep the overall uptick going. A Boeing-Airbus combined total in 2008 of 1,800-2,000 orders could set the new baseline for the next decade.

There are no 'sleeping giants' in the air transport industry today and no self-perpetuating order stimuli either. US and European markets are mature (in fact the US aircraft market is entering its dotage such is the need for re-equipment), the Far East is developing steadily on the back of strong economic growth but from an already-established position of eminence after the development spurt of the mid-1990s and the Middle East is very much the area of greatest change today).
 
Emirates, the world's most powerful airline, now has something like 54,000 seats on order -- about 145 times the capacity of the first 374-seat Boeing 747s delivered to Pan Am in 1969/70... That's market presence and strength (especially when it's concentrated across only two aircraft types, the Airbus A380 and A350). No-one else anywhere can match this.

Russia and the CIS just don't compare, they didn't last year and they won't this year either. In 2006, Airbus highlighted China and India as the regions with the highest % growth potential over the next 20 years. This won't change anytime soon either and certainly not in favor of Russia and the CIS.

The order cycle is entering an elongated-plateau phase, as airlines over the next four-five years absorb the new orders placed in the past 36 months while Boeing and Airbus will not introduce new narrowbody aircraft until 2014/2015 in the US case and probably 2017/2018 for Airbus. The next big industry-wide increase could kick in around 2012/2013 if Airbus can stimulate demand then with its A350XWB.

The old boom-bust order cycle is pretty-much history and the new long-term trend is upwards, with no avoidable catastrophic downsides. India remains a major mid-term order hope, but Russia is still Russia and won't skew the markets for the foreseeable, no matter how fast president Putin and his Party's apparatchiks spin the story.