Air­bus, Boe­ing count on China as Asia slows down

The Pak Banker - - COMPANIES/BOSS -

Asia's big­gest air­show kicks off in Sin­ga­pore this week amid a rout in the global fi­nan­cial mar­kets. You can't tell any of that look­ing at plane or­ders for Air­bus Group SE and Boe­ing Co.

The hey­days of multi-bil­lion or­ders from In­dia and na­tions in South­east Asia is giv­ing way to con­cerns about air­lines in the re­gion de­lay­ing de­liv­ery of planes. The lone bright spot -- China.

China South­ern Air­lines Co., Air China Ltd. and other car­ri­ers in the na­tion will re­quire about 6,330 new planes worth $950 bil­lion in the next two decades, ac­cord­ing to Chicago-based Boe­ing. That's about 17 per­cent of the global to­tal. Dur­ing last year alone, Chi­nese air­lines and leas­ing com­pa­nies an­nounced or­ders for some 780 planes val­ued at about $102 bil­lion.

"China's avi­a­tion out­look is not just bright, but ar­guably the strong­est it has been in its his­tory," said Will Hor­ton, a Hong Kong-based an­a­lyst at CAPA Cen­tre for Avi­a­tion. "Chi­nese air­lines are wak­ing up to their po­ten­tial."

As China re-bal­ances its econ­omy to­ward con­sumer spend­ing af­ter its slow­est an­nual growth rate in 25 years, the govern­ment is try­ing to en­cour­age more air travel by build­ing 66 air­ports as part of its cur­rent five-year plan. That good news for the aero­space and air­line in­dus­tries con­trasts with over­ca­pac­ity and losses among air­lines in South­east Asia and In­dia.

From Brazil's Em­braer SA to Bom­bardier Inc. of Canada, aero­space man­u­fac­tur­ers will chase hard to come by or­ders dur­ing the Sin­ga­pore Air­show, which starts Tues­day. United Tech­nolo­gies Corp.'s en­gine­maker Pratt & Whit­ney will open its en­gine fan-blade man­u­fac­tur­ing fa­cil­ity in the city state this week. While no ma­jor air­line ex­ec­u­tives from China are sched­uled to ad­dress the gath­er­ing, the coun­try's fu­ture as the world's big­gest travel and air­craft mar­ket -and a grad­ual shift in mo­men­tum to­ward Asia -- are among themes aero­space man­u­fac­tur­ers and air­lines will dis­cuss.

Air­bus's and Boe­ing's 20year out­looks are de­pen­dent on Asia Pa­cific for new fleet sales, with es­ti­mates that 39 per­cent of their to­tal de­liv­er­ies will be to that re­gion through 2034. China is poised to dis­place the U.S. as the world's big­gest air­craft and travel mar­ket in two decades, ac­cord­ing to Boe­ing. The Chicago-based com­pany an­nounced its largest in­dus­trial in­vest­ment in China and re­ceived $38 bil­lion in or­ders from its car­ri­ers and lessors when Pres­i­dent Xi Jin­ping vis­ited Boe­ing's Seat­tle fac­tory in Septem­ber. Air­bus al­ready has a fi­nal jet as­sem­bly fa­cil­ity near Bei­jing.

"The over­all Chi­nese econ­omy has slowed down," Tony Tyler, head of the In­ter­na­tional Air Trans­port As­so­ci­a­tion, said in Sin­ga­pore Sun­day. "How­ever, air travel in China has re­mained quite ro­bust." It's a dif­fer­ent story in South­east Asia and In­dia, two other re­gions that saw a surge in air travel and air­craft or­ders. Many car­ri­ers are mired in losses, some have shut shop and a few have al­ready de­layed de­liv­ery of new planes. In­dia is home to a fare war and the in­dus­try has long re­mained un­prof­itable.

Pre­lim­i­nary re­sults for 2015 show av­er­age earn­ings be­fore in­ter­est and tax mar­gins for South­east Asian car­ri­ers is at 0.3 per­cent, the low­est among all re­gions ex­cept Africa, Tyler said Mon­day. In com­par­i­son, car­ri­ers in the Middle East av­er­age at 10.8 per­cent, Europe at 5.9 per­cent and North Amer­ica at 13.8 per­cent, Tyler said.

Air­lines in this re­gion have over-or­dered air­craft, ac­cord­ing to Shukor Yu­sof, founder of En­dau An­a­lyt­ics in Malaysia. Given Air­bus's big­ger ex­po­sure to bud­get air­lines in South­east Asia, the Euro­pean plane­maker has a higher risk of hav­ing to con­front de­fer­rals or cancellations, Shukor said.

Air­bus has the great­est Asia Pa­cific con­cen­tra­tion in its nar­row-body back­log at 30 per­cent, 15 per­cent­age points higher than Boe­ing's, Bloomberg In­tel­li­gence an­a­lysts Ge­orge Fer­gu­son and Ian McFarlane wrote in a re­port this month.

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