Paris Air Show to spotlight aircraft order rush, emissions targets and rising defence budgets

After a four-year hiatus, the world’s biggest international aerospace gathering, the Paris Air Show, opens next week, with industry executives expecting a spate of multibillion-dollar aircraft deals. 

It will be the first time the industry has gathered in Paris since the Covid-19 pandemic and Russia’s full-scale invasion of Ukraine. Organisers expect close to 2,500 exhibitors from 47 countries to attend the show amid a global rebound driven by resurgent passenger demand for air travel. 

The recovery is underpinning a buying spree from across the globe, from low-cost European airlines as well as Asian and Middle Eastern carriers. Order books at Boeing and Airbus are so full that carriers are having to wait until the end of the decade to receive the most popular single-aisle aircraft.

Meanwhile, defence executives will be meeting with a renewed sense of purpose. Russia’s invasion of Ukraine has triggered a global race to re-arm, as western governments have pledged to increase defence spending after years of shrinking budgets. 

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At the same time, headwinds, including soaring inflation, shortages of components as well as labour constraints, have continued to make an impact on aerospace and defence supply chains.

Civil aerospace recovery: can the industry keep pace with demand?

“It’s hard to recall a time when we’ve had the level of demand for aircraft that we have today,” said John Plueger, chief executive of Air Lease, one of the world’s biggest aircraft lessors.

The level of demand is reflected in the rate of lease extensions by airlines, which is high. Historically, 75 per cent of first-run leases would be extended with the current airline, Plueger told the Financial Times. Today, the percentage is “in the mid-90s”. 

Yet, the industry has continued to struggle with persistent supply chain constraints and parts shortages that have limited the production capacity of the aircraft manufacturers and led to delivery delays.

Willie Walsh, director-general of the International Air Transport Association (Iata), said the situation is unprecedented and its members are calling for the organisation to intervene with aircraft manufacturers to find solutions and identify where the pinch points are.

“I have never heard so many people complain about an issue in all of my career. It’s coming from everyone, not being able to access spare parts or the delays in accessing spare parts.”

Delivery rates of Airbus and Boeing will be in the spotlight as the year progresses as evidence that their production is on track. Airbus delivered 63 aircraft in May, significantly up from 20 delivered in January and 46 in February. 

Sash Tusa, analyst at Agency Partners, said the levels were still below the average Airbus needs to be at to show that the production “ramp” is really working. 

Boeing, meanwhile, shipped 50 jets in May. It recently reported a new flaw in the production of its 787 Dreamliner, which could slow deliveries. 

“Our worry is that the upcycle ends before the OEMs have got their houses in order,” Tusa said. “To be fair, there is always a degree of over ordering . . . but the supply situation is certainly getting a bit worse.”

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Net zero target: can the industry keep growing and still meet climate promises? 

Sustainability will be the big buzzword at the show. The aviation industry has committed to achieving net zero carbon emissions by 2050 through a mix of new fuel technologies, including the use of sustainable aviation fuels and hydrogen, as well as more efficient aircraft, engines and air traffic management. 

Executives will be at pains to stress that there is a credible path to net zero that will enable the industry to keep growing. 

Environmental groups argue the two do not go hand in hand. “If you want to solve a problem, start by not making it worse,” said Carlos Lopez de la Osa, aviation manager at NGO Transport & Environment.

“If the sector keeps growing, sustainable flying will remain a pipe dream. It’s simple maths: more planes in the sky means more SAF required.”

Iata estimates that a cumulative $5tn will be needed for aviation to achieve net zero by 2050, although executives say policy drivers will be critical to boost production of SAFs and hydrogen.

They insist the industry will continue to grow, if at different rates in differing markets. Airbus this week raised its 20-year forecast for new aeroplane deliveries to 40,850 but trimmed its predictions for growth in the global fleet as airlines focus on replacing older, less fuel-efficient jets. About 80 per cent of the projected deliveries will be single-aisle aircraft such as the Airbus A320neo or Boeing 737 Max.

In Europe, airlines are facing an increased cost for their carbon emissions. The EU is also negotiating rules to enforce the uptake of SAFs as well as potential increased taxes on kerosene. 

According to Iata’s Walsh, the EU has an “anti-aviation leaning”.

“[In] Europe in particular, the view is that you can retain all the economic and social benefits that you have derived from aviation at the same time as you are suppressing it. I disagree with that.”

Rush to increase defence budgets after invasion of Ukraine

The war in Ukraine and how to keep supplying and upgrading the military capabilities of its armed forces will be a central topic at the show. 

Western defence stockpiles of everything from ammunition to rocket launchers have been significantly run down over the past year. The shift to a war footing has created a supply chain crisis as companies have ramped up production to replenish inventories while maintaining supplies to Ukraine. 

Global military spending reached an all-time high last year of $2.1tn, according to a report by AlixPartners that warns that the sector will “likely continue to suffer from an unavailability of qualified labour, a fragmented supplier base and challenging financing”. 

In Europe, the war has galvanised efforts to make good on previous promises to turn the bloc into a cohesive military power. There are proposals for greater collaboration and the streamlining of weapons manufacturing. But success is not guaranteed.

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Countries such as Germany turned to US manufacturers for their latest fighter jet orders, with Lockheed Martin’s F35s, disappointing France’s Dassault Aviation, makers of the rival Rafale. The French group has also noted that European countries considering sending jets to Ukraine have been considering US-made models such as the F16. 

“In the Ukraine conflict, . . . European countries are turning more easily to US models than European models, be it the Rafale, [the Swedish-made Gripen] or the [Airbus/BAE Systems] Typhoon, which is a bit sad for us Europeans,” Dassault chief executive Éric Trappier said earlier this month. 

Jan Pie, secretary-general of ASD, the European industry’s trade association, said countries need to change the ratio of their defence budget “in favour of more European spendings”. 

Today, just 40 per cent of individual European countries’ defence procurement spend with industry ends up in Europe with domestic companies. “If we wish to reach industrial sovereignty a good starting point would be to switch those numbers to 60/40 in favour of Europe,” said Pie.

Institutional investors also need to be persuaded to back the sector. Before the war, some socially conscious investors had started to cut their ties to the industry. 

Although the conflict has led to some investors adapting their investment policies, there was a need for formal clarifications from the EU that allocating capital to the defence industry did not in any way contradict the block’s ESG criteria. “As long as this formal clarification is missing, the major trends will not shift,” he said.