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Covid-19 is ending a 16-year boom for Boeing and Airbus
BOEING Co and Airbus SE, which until recently couldn't make planes fast enough to satisfy airlines, are suddenly contending with the opposite risk: churning out jets with no buyers.
Demand for new aircraft is drying up as customers wary of the novel coronavirus shun air travel, ending the longest boom in aviation history. That 16-year surge began as airlines emerged from another infectious disease crisis, the one related to Severe Acute Respiratory Syndrome, or Sars. Now, the new virus points to leaner times.
In less than a month, the tumult has clipped about US$175 billion in market value from the US aerospace industry, a critical source of American exports. And the future looks just as grim.
Passenger revenues could drop as much as US$113 billion this year if the virus spreads extensively, according to the International Air Transport Association, the largest global airline trade group.
Boeing and Airbus, which were rolling in cash while airlines went on a US$1.15 trillion buying binge stretching back to 2008, are now intently focused on preserving capital and avoiding making "white tails". That's the industry term for buyer-less aircraft. Even well-heeled carriers such as Delta Air Lines Inc and United Airlines Holdings Inc are carefully assessing plans to add new jetliners.
Travel restrictions related to the pandemic are preventing airline representatives from China, the biggest international market for new airplanes, from even visiting Boeing's delivery centre in Seattle or Airbus's in France to test-fly and sign ownership papers for new jets.
Cathay Pacific Airways said on Wednesday that it's in talks with manufacturers to defer handovers, while Malaysia's AirAsia X has said it will hold off on deliveries of Airbus A330neo aircraft.
Transatlantic discounter Norwegian Air Shuttle ASA is seeking to postpone receipt of four Boeing 787 Dreamliners, according to a person familiar with the matter.
Chicago-based Boeing was already contending with a drop in advance payments from customers of its 737 Max aircraft, grounded after two crashes. Now that plane is nearing a return to service at a time when few airlines want new aircraft.
Gulf discounter Flydubai, the second-largest customer for the single-aisle jet, is seeking concessions from Boeing on price and delivery schedules for the 251-plane order, according to a person familiar with the matter. The talks are wrapped into compensation negotiations that have yielded around US$250 million for Flydubai through February, the person said, asking not to be identified discussing private deliberations. The Max order has a list value of about US$30 billion before customary industry discounts.
The collapse in long-range flying threatens another critical source of cash for Boeing: deliveries of its 787 Dreamliners, which can carry passengers from Sydney to Chicago without refuelling.
To keep wide-body handovers to Asian carriers on track, Boeing is in discussions with some customers to defer pre-delivery payments, according to a person familiar with the matter.
Boeing said it is closely monitoring the market and customer needs. The company has already drawn down US$7.5 billion of the US$13.8 billion it borrowed in January to help bolster cash until the Max is back in the market.
"Managing our liquidity and balance sheet are key focus areas," a spokesman said, adding that it will "assess all levers to help provide adequate liquidity as we navigate the current challenges". BLOOMBERG