Airbus SE and Boeing Co. reportedly are scurrying to cash in on the soaring demand by airlines for new planes, driven by record numbers of passengers taking to the sky.
Both companies are speeding up production at their factories to chip away at the large backlog of orders for new jetliners, created over the past few years as airlines want new, fuel-efficient planes to cope with a surge in demand for air travel.
Global economic growth is lifting passenger numbers amid lower air-travel costs literally fueled by an abundance of budget airlines around the world, The Wall Street Journal reported.
The surge represents the “most rapid expansion at a global level that we’ve ever seen,” John Plueger, chief executive of plane leasing firm Air Lease Corp., told the Journal.
Passenger growth last year soared to 7.5%, topping the 5.9% forecast by the International Air Transport Association, WSJ.com explained.
Traffic growth is expected to average 6% for the near future, WSJ.com cited Bernstein Research as predicting.
“Coinciding with all that new demand, airlines have benefited from several years of relatively low fuel prices due to cheaper oil, boosting returns and giving them the financial flexibility to refresh their fleets. Overall industry profits for 2018 are projected to rise around 11% over last year,” WSJ.com cited the IATA as predicting.
Boeing, the world’s biggest planemaker, said late last month it aims to ship between 810 and 815 commercial aircraft in 2018, as much as 6.8 percent more than the industry-record 763 jets it delivered in 2017, putting it ahead of European rival Airbus for the sixth year in a row, Reuters reported.
Airbus, which is based in Toulouse, France, delivered 718 jetliners last year. Airbus has said it is raising output to around 800 airliners this year.
By raising production while holding down costs, Boeing and Airbus generate more profit and cash. Despite the rising output, their order backlogs have kept growing. Boeing said its total backlog, which includes military aircraft and other products, rose to $488 billion at year-end, compared with $474 billion at the end of the third quarter.
Meanwhile, a push by Airbus and Boeing to capture more of the $77 billion global commercial aircraft maintenance, repair and overhaul (MRO) market is leading incumbents to seek partnerships and explore new business lines to stay competitive.
Airframe and engine manufacturers are stepping up sales of packages that supply customers with maintenance, engineering and parts. That poses a direct challenge to independent MRO companies like U.S.-based AAR Corp., Singapore’s ST Aerospace and SIA Engineering Company Ltd, and Germany’s Lufthansa Technik, Reuters explained.
Billions of dollars worth of business is at stake. Consulting firm Oliver Wynam estimates that MRO spending will rise to $114.7 billion a year over the next decade as the global jet fleet grows.
Boeing, which earned about half of its $14.6 billion in services revenue in 2017 from commercial jets and the remainder from defense, is aiming to more than triple that number in as little as five years. It signed nearly $1 billion worth of services contracts during the Singapore Airshow this week.
Airbus reported an 18 percent jump in commercial services revenue to about $3 billion in 2016, with the 2017 numbers yet to be released, said Laurent Martinez, head of Services by Airbus.
Martinez said that as Airbus grows its services business, less-efficient independent MRO companies might find themselves left in the cold.
“That is the nature of competition,” he said, citing contract victories like a deal covering the Hong Kong Airlines A350 fleet announced during the airshow. “There was strong competition, and we led the pack and were selected.”
Meanwhile, another economic guru is pushing the envelope even further in the friendly skies.
To be sure, billionaire Richard Branson predicts supersonic jetliner travel, which ended more than a decade ago with the Concorde, will make a comeback and transform the aviation industry in coming years.
“The next big thing, hopefully in my lifetime, will be supersonic travel coming back and people traveling around the world in next to no time,” Branson told Bloomberg Television in an interview. “And hopefully in a relatively environmentally friendly way.”
Branson’s Virgin Galactic is already working with Boom Technology Inc. on its supersonic jet, and Japan Airlines Co. in December took an option to buy as many as 20 of the aircraft from the Colorado startup.
(Newsmax wire services contributed to this report).
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