Air show boost as Airbus and Boeing expected to announce flurry of new orders

It looked like the coronavirus crisis was the end of the superjumbo. Airbus had already announced it was stopping production in 2019 when British Airways, Qantas and other leading airlines said they would park their Airbus A380s in response to the pandemic. But today the world’s largest passenger aircraft has found a new lease of life.

Both BA and Qantas have brought some of their A380s back into service, and rivals are doing the same. The sudden rebound in air travel following the pandemic, coupled with delays in deliveries of new models, have driven demand for the planes, which typically seat more than 500 passengers.

The unexpected, if short-term, revival of the four-engined jet has set an upbeat tone for the Farnborough air show, which kicks off next week. It is the first large gathering of the aerospace and defence industry since the outset of the pandemic, and since Russia’s invasion of Ukraine, which led to pledges by western governments to increase defence budgets.

Despite global headwinds such as inflation, supply chain pressures, and labour constraints, the mood in the industry is one of “cautious optimism,” said Kevin Craven, chief executive of ADS, the UK industry trade body. In terms of visitor and exhibitor numbers, he predicts the show will be “fractionally ahead” of 2018, the last year it was held before the coronavirus struck, as airlines have started spending again.

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Airbus and Boeing are both expected to announce a flurry of new orders at Farnborough, although analysts are not expecting this year’s tally to reach the 1,013 haul of 2018. Boeing could score an early win if America’s Delta Air Lines reaches a deal for 130 of its 737 Max jets.

In addition, industry executives will be watching for a return of Asian carriers to the fray. The region has been the last to recover from the pandemic. Any pick-up in demand for widebody aircraft, the larger jets typically used on long-haul flights that has lagged the narrow-body revival, will also be welcome.

So far there are some positive signals with Rolls-Royce, the UK aero-engine group whose engines power a large part of the world’s wide-body fleet, reporting early signs of a recovery in these jets as sales campaigns for them have restarted.

Airbus, meanwhile, has continued to dominate in the single-aisle segment of the market. Even before the pandemic struck, the European manufacturer had grabbed market share over US rival Boeing with its popular family of A320 aircraft.

The European group clinched a $37bn deal with a handful of Chinese state airlines at the start of this month for close to 200 of its A321neo jets. The order marked the first from China since the start of the pandemic, with Covid-19 travel restrictions holding back the pace of recovery in the country, a key market for both Boeing and Airbus.

“The next big inflection is when China reopens its international borders . . . this will be another huge injection of momentum into the industry,” said Andy Cronin, chief financial officer at Avolon, one of the world’s three largest aircraft leasing companies.

“An awful lot of large widebody aircraft and older narrow-body [planes] were taken out of service permanently or semi-permanently during Covid. This, coupled with high fuel prices and production delays, is creating a scarcity of aircraft.”

The industry is also under pressure to reduce harmful carbon emissions, which along with high oil prices is creating more demand for fuel-efficient jets.

Airbus this week said it expected carriers to order more fuel efficient planes over the coming two decades as energy costs rise, while at the same time increasing its 20-year market outlook for global jet deliveries to 39,490.

The aviation industry has achieved a 5.9 per cent reduction in emissions per seat miles — which are calculated by multiplying the number of miles flown by an aircraft by the number of seats available on the flight — since January 2018, according to consultancy IBA. This is because airlines have accelerated the retirement of older aircraft.

However, as air traffic volumes have risen again, emission levels have rebounded. IBA forecasts carbon emissions for 2022 will be 800mn tonnes (CO₂) — 36 per cent higher than 2021.

Sustainability will be a key theme at the show. A large presence is also expected from electric air taxi start-ups such as Vertical Aerospace, Lilium and Joby Aviation. Boeing’s air taxi joint venture Wisk Aero will showcase the prototype for its autonomous aircraft Cora at the show.

In the near-term, the aerospace industry’s challenge will be to deliver on promised production increases. Airbus has set an aggressive target to raise monthly production of its A320 jets by 50 per cent to 75 by 2025, and move to a rate of 65 by next summer.

The company will also need to ramp up deliveries over the coming months if it is to meet its guidance of 720 aircraft by the end of this year; it had delivered 297 planes at the end of June. Airbus “needs to deliver a 35 per cent year-on-year increase over the remainder of the year to reach its guidance”, analysts at Jefferies pointed out.

Rob Morris, head of consultancy at Ascend by Cirium, said 2022 is set to be a “relatively bumper year for airlines”, certainly when viewed through the lens of the pandemic hit 2020/2021 period, but warned the outlook for 2023 “remains uncertain”. 

“The impact of high inflation and slowing economic growth on passenger demand is hard to estimate right now, but there will inevitably be some slowing of the growth in passenger demand in 2023 as the fundamental negative drivers begin to outweigh the release of pent-up demand we are seeing this year,” he said.

Inflationary pressures and labour shortages could also hold back efforts to scale up production of some weapons to meet demand by the US and EU governments that have renewed spending following the Ukraine war, the most striking of which is Germany’s €100bn military fund and pledge to take defence expenditure to 2 per cent of gross domestic product.

There are already concerns that government stockpiles of certain weapons sent to Ukraine are running low.

Separately, the UK government is expected to unveil further plans for British-led efforts to build the next generation of combat aircraft under the Tempest programme. Involving Rolls-Royce, weapons group MBDA, the UK arm of Italy’s Leonardo and Sweden’s Saab, as well as dozens of smaller suppliers, the project is the centrepiece of Britain’s future combat air strategy.

Charles Woodburn, chief executive of BAE Systems, Britain’s biggest defence contractor, said the repercussions from the Ukraine conflict and increased spending pledges will be profound, but cautioned against expectations of an immediate rush in orders.

“People shouldn’t expect there to be a big increase in sales in the short-term, although the orders will come. Most of the kit is coming out of government inventories. But equally, there’s been a significant shift that will have a pretty big impact over the longer-term.”