Chris Kjelgaard looks at the mini order frenzy taking place in the run up to this year's Farnborough Airshow.
The proclivity of Airbus and Boeing to store up orders for sizeable numbers of new aircraft for several months so the companies and their customers can announce them at big trade air shows is well-known.
For one thing, this practice gives the manufacturers something positive to talk about on most trade days of big shows such as Paris (held in odd-numbered years), Farnborough (held in even-numbered years), Singapore (held in even-numbered years) and Dubai (held in odd-numbered years).
Heaven forfend that Airbus might not be able at an air show to counter rapidly with an order announcement if Boeing creates a publicity splash earlier in the day by announcing a big deal.
Boeing seems to take the order-numbers game slightly less seriously than does John Leahy at Airbus, but nevertheless the US manufacturer is usually keen to respond rapidly in kind to any Airbus deal announcement at an air show.
What Boeing tends to do is to record immediately on its books deals which are concluded months before the next big air show, but it reports such deals as being for unannounced customers. Boeing then reveals customer names – and specifies exactly how many aircraft of which type each customer has ordered – at the air show.
Another reason several commercial-aircraft manufacturers, including the two largest ones, choose not to publicise some new orders until months after deals are agreed – to the point where all negotiation is completed, except signing the purchase contracts – is because this lets customers benefit from the substantial public exposure their orders receive at air shows.
This allows airlines such as Qatar Airways to dominate the headlines at major shows such as the Paris Air Salon. At air shows, this airline’s CEO, who is notorious for seemingly changing his mind on already-signed aircraft orders without actually doing so, can issue threat after threat to try to wrest additional concessions from manufacturers at the last minute.
One day, a brave manufacturer might call his bluff, let him cancel an order and then let him pay the monopoly price the competitor might demand.
At trade air shows, Embraer and ATR think as Airbus and Boeing do. These manufacturers like to have plenty of aircraft orders in hand, negotiated but not signed, so that they can appear highly successful on every trade day of every important show.
However, Bombardier is rather hamstrung in this regard. Canadian financial-securities laws require Bombardier to announce publicly within one business day – or, at weekends, on the next business day – any event which might materially affect its share price.
To a degree Bombardier can quietly agree with customers in advance to conclude their order agreements at air shows, where signings of purchase-agreement documents officially signal the successful completion of aircraft-order negotiations.
Bombardier does do this to an extent. But it is always aware that if it delays the signing of any big order it runs the very real risk of one of its larger competitors stepping in with a last-minute final bid at a lower unit price than Bombardier can offer.
The Canadian manufacturer has recently lost big competitions to both Airbus and (more lately) Boeing in this manner. United Airlines is widely reported to have decided to purchase 65 new 737-700s instead of the Bombardier CS100s it was contemplating ordering because Boeing offered United an unbeatable discount price of just $22 million-$24 million per aircraft.
Hence Bombardier’s rapidity on April 28 in announcing publicly that Delta Air Lines had agreed to purchase 75 CS100 jets and option 75 more, in a deal in which Delta’s foresight in going for a brand-new aircraft type rather than an old one is to be commended.
Not only will Delta receive aircraft which are environmentally much friendlier and far quieter than the 20-year-old Boeing 737-700. Also, Delta’s passengers probably will notice that the CS100’s cabin – in which each economy seat row is arranged in 2-3 seat configuration – is roomier, more comfortable and has much bigger overhead baggage bins than the 737’s cabin.
While Delta has the right to convert some of its CS100 delivery positions at a later date to specify CS300s instead, the order gives Bombardier the sales impetus – and the fourth major network-carrier customer – it needs to go on and sell hundreds more C Series aircraft to potential customers which have sat on the fence waiting to see how the wind blows for the C Series.
But while Bombardier had its own competitive reasons for rushing out its Delta order announcement, the Canadian company’s haste to do so is symptomatic of a wider trend now apparent in the aircraft-ordering game.
This trend might be short-lived, or may last into the longer term. For now, however, it is clear that Boeing, Airbus, Embraer, Bombardier and ATR are all keen to announce each new order even as the ink is drying on the purchase contract.
In Boeing’s case, this is because it wants to find customers – in some cases whatever price discount the deal takes – to fill all the remaining delivery slots for 737NGs and Boeing 777-300ERs before it switches over completely to production of the 737 MAX and 777X families.
Boeing wants to do so without having to slow down production on its existing assembly lines, so every additional 737NG and 777-300ER order is a source of strong celebration for the company.
This is one reason why Boeing cut its highly discounted 737-700 deals with United (in two separate orders, for 40 and 25 aircraft). Subsequent 737-800 deals with XiamenAir (on April 26) and Pegasus Airlines must have been attractively priced for those customers.
On the widebody side, an order for 15 Boeing 787-9s from China Eastern Airlines on April 28 was a big bonus for the US manufacturer: 787 sales are going from strength to strength.
For Airbus, similar delivery slot-filling reasoning applies, but at present the big European manufacturer faces even more sales pressure than does Boeing. This is because the first quarter of 2016 was disastrous for Airbus in sales terms. During the three months, Airbus very nearly saw more aircraft orders being cancelled than it added. The company booked orders for a net total of just 10 additional aircraft during the quarter.
Hence Airbus’ glee in being able to announce on April 19 an order from Garuda Indonesia for 14 A330-900neos and on April 28 an order from Air Côte D’Ivoire for two A320neos and two A320s. Small though this order was, it was significant in giving Airbus its first African airline customer for the A320neo.
Embraer expects its E-Jet E2 family to sell well and orders started out encouragingly. However, a worry for the Brazilian manufacturer is that the Embraer 175-E2’s maximum gross take-off weight appears to exceed the 85,000lb limit at which the scope-clause provisions of the major US airlines’ pilot labour contracts kick in. This may mean US regional airlines won’t be able to operate Embraer 175-E2s on behalf of major US network carriers.
However, the first-generation, 76-seat Embraer 175 continues to be the preferred choice of almost every US regional airline and Embraer delights in being able to announce each new deal. The latest is an April 12 order for up to 63 aircraft for Alaska Airlines’ sister carrier Horizon Air.
Although Bombardier’s CRJ900 is being outsold by the competing Embraer 175, the manufacturer continues to win orders for the type. Over just two days, April 25 and 26, Bombardier booked follow-on orders for up to 14 more CRJ900s, four more for previously unidentified customer Trident Jet and up to 10 more for Chorus Aviation, the parent of Air Canada Express franchisee Jazz Aviation.
Meanwhile, ATR moves along swimmingly, its 70-seat ATR 72-600 turboprop substantially outselling Bombardier’s more sophisticated and much faster Q400 because the European company’s aircraft is a great deal cheaper to buy. ATR also picks up sales here and there for the 50-seat ATR 42-600.
However, when speed and capacity matter – Bombardier is now offering a 90-seat version of the Q400 – the Canadian aircraft often wins out. As with the jet market, stiff competition makes the turboprop manufacturers ever keen to announce their turboprop order wins.