As oil prices soar, people travel less – this is an immutable truth. Hence, it logically follows that makers of transport also suffer because of the downturn in passenger traffic. After all major automakers announced declining sales in this current oil-charged climate, now it's the turn of the airplane manufacturers.
Latest news indicates that Boeing, one of the big two with Airbus, is showing signs of its orders slipping after three continuous years of growth.
The airplane manufacturers enjoyed record sales in recent years as more markets opened up to aviation throughout the world. In 2007 alone, Boeing and Airbus combined for over 2,700 sales, thanks largely to massive orders from emerging markets in Asia, and the Middle East. Even the older carriers were upgrading their fleets by replacing their ageing planes with newer models.
However, with crude hovering around $140 a barrel, there has been a dramatic shift in fortunes and realignment of priorities. New airlines that had ordered aircraft enthusiastically are now asking for deferred deliveries. Older ones that were looking at fleet upgradations have decided to ground older aircraft instead of replacing them, in an effort to cut costs by slashing capacities. Several airlines have even gone bankrupt. (See: Qantas to trim Asian operations / United Airlines to slash capacity by 14 per cent, cut up to 1,600 jobs / British Airways weighs flight cuts as oil prices bite / Silverjet turns in its wings)
Although Boeing still has around $271 billion of orders on its books, a slowdown is inevitable, feel analysts. "Although the Boeing backlog is currently huge, we expect declining orders and delivery deferrals to result in a flattening off in production from 2010," said Macquarie Capital's Rob Stallard in a research note on Thursday.
If May orders are considered, Boeing received 67 proposals as compared to 92 in the same month a year ago. Out of these, 61 were its bread-and-butter 737s, while the other six were 777 minijumbos. It took no orders for its new 787 Dreamliner, which is now at least 15 months behind schedule and not set to fly until later this year. (See: Boeing's 787 Dreamliner faces another delay: report)
Even though the 414 orders so far this year are not far behind last year's 417 till May, the pace of orders has slowed from a brisk start in the first three months of the year, and few are expecting that Britain's Farnborough International Airshow in July - where airlines like to unveil big orders - will be as productive as 2007.
Boeing's main rival Airbus, a unit of European aerospace group, has not yet felt a decline. According to the latest available figures, it had 397 net new orders for the year at the end of April, higher than the same time last year. (See: Gulf Air places $5 billion order for 35 Airbus aircraft)