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Wednesday, July 30, 2014

Airbus CEO: Commercial Aircraft Buying Cyclicality Has Changed

Woodrow Bellamy III 

[Aviation Today 07-30-2014] Airbus Group CEO Tom Enders does not believe the commercial aircraft manufacturing industry is reaching the end of a multi-billion dollar buying spree. 
The Airbus A350 XWB is on schedule to enter service later this year with launch customer Qatar Airways. Photo, courtesy of Airbus.
During a conference call about the company's first and second quarter results, the French chief executive sought to reassure investors that the commercial aircraft market — the company's biggest growth sector — is still strong for the foreseeable future, despite a record showing at the 2014 Farnborough Airshow where customers spent $75.3 billion for orders of 496 Airbus aircraft. 
Some aviation analysts believe that the recent combination of multi-billion dollar purchases by airlines and leasing companies at Farnborough and the Dubai Airshow could signal a downturn in spending on commercial aircraft in the near future. But Enders thinks otherwise. 
"I know we have a lot of nervousness about the market, I mean we can only reiterate that and I can try my best to ensure you that we're not approaching the end of a cycle," said Enders. "Yes we have reached a crisis, we have local airlines going bust, but that is something that globally active companies can cope with and if anything I think we demonstrated that back in the crisis of 2008 or 2009."
Speculation that the commercial aircraft market could be drying up especially has intensified with Airbus receiving a number of recent order cancellations. Airbus has received 225 total order cancelations this year, including the withdrawal of an order for 70 A350s by Emirates Airlines. The Emirates cancellation was the only unforeseen one, according to Enders. Japan's Skymark Airlines also recently cancelled an order for six A380s. 
The chief executive said that most of that cancellations, “roughly 140,” were for single aisle aircraft, and that most of those customers would end up converting orders for legacy single aisle passenger jets to the new re-engined versions of the A320. Enders does not want to be selling A320ceos (current engine options) through 2020. 
With the first A320neo scheduled for delivery in 2015, operators that have ordered the older model are begin encouraged to take the new version instead. Out of the 225 total cancellations, 65 occurred in this way.
"We don’t want to move ceos into, say ’18, ’19, ’20,” Enders stressed. “In these years we want to build neos … It’s quite inevitable that we’ll have cancellations. I call them so-called cancellations that are actually conversions from ceos into neos, and, guess what? That usually gets us a higher price [and] better margins.”
Enders expects the same type of situation to arise for Boeing when it brings its re-engined version of the competitor to the A320neo, the 737 MAX, to the market in 2017. He also advised investors that they can expect to see more Airbus single aisle cancellations through the second half of the year. "I can also sure we are able to handle that, and I have no doubt that also our competitor is able to handle that."

The parent group of Airbus, Airbus Defence and Space and Airbus Helicopters reported revenues of $36.5 billion for the first six months of 2014. Net profit during the first and second quarter was $1.53 billion, compared to $1.01 billion during the same period a year ago. 

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