IBA's Chief Economist & Exec. Advisor, Dr. Stuart Hatcher, reveals his insights and predictions for the upcoming Farnborough International Airshow 2024.
Farnborough 2024 OutlookIn last year’s Paris Airshow outlook, my opening paragraph droned on about the issues with supply chains, ESG, rising costs, strengthening airline results, and the upcoming push towards more widebody orders. Well, surprise, surprise – not much change there then!
The main takeaway from last year was the realization of just how bullish operators were on growth within the Indian, Middle Eastern and Turkish markets. Whether that’s real or simply the result of an extreme case of fear of missing out (FOMO) remains unclear for now. Judging by further orders that have materialized since, sentiment remains strong.
Since last year, despite strong demand, margins have steadily declined against rising costs. Delivery delays have further added to that by restricting earnings ahead of a busy summer season. However, the show must go on. With slots pushing out beyond 2030 and tensions building between competitors, FOMO has become very real. Of course, older tech can be used for many years to come, though fuel costs will rise, and reliability will fall, ultimately impacting any competitive edge operators hope to retain.
With that in mind, I remain hopeful that this year’s Farnborough International Airshow will generate a good number of new orders, and IBA forecasts a total of around 1,000 aircraft (see last section – General). Backlogs may be bursting at the seams, but once you combine profits and FOMO, big orders aren’t far behind.
Middle East/East MediterraneanThe bulk of the rumours continue to centre on the Middle East and Eastern part of the Mediterranean from the usual crowd to assert their dominance and get in line to replenish the fleet.
Probably the largest order I expect will come from Turkish Airlines who continue to strive towards an in-service fleet of 810 aircraft by 2033. Last year, they ordered 234 aircraft (mostly in December) and approached lessors for some additional aircraft, however, they held back on any direct Boeing purchase. It’s been 20 years since Turkish Airlines last ordered anything at Farnborough or Paris so a large order for the Boeing element will be very welcome. The current expectation is for 150 MAXs and 75 787s, although the MAX part may take longer to iron out.
EL AL has also been rumoured to be in discussions with Boeing for up to 30 737 MAX aircraft, although they could also probably do with a few widebodies to add to that if backlogs get much longer. Finally, Libya is also likely to firm up its 6 A320/A231neo deal that was announced in June.
Heading into the Gulf, the largest order is expected to come from Qatar, which could be in the market to expand and replenish its widebody fleet. Now Qatar already has a sizeable backlog of A350s, 787s and 777Xs (104) but, given the expansion of its neighbours plus supply chain problems, a further order for A350s and 777Xs is potentially coming. My thoughts are that 100-150 units are close, but that could bump to 200 with options.
We certainly can’t ignore Emirates of course, who are still expected to add a large A350-1000 order (100 units) once Rolls-Royce successfully addresses their reliability concerns. They didn’t do it in Dubai last year, and I suspect Farnborough is also too early still.
From Saudi Arabia, two potential orders will come from Riyadh Air and Flyadeal. The former will be for ~100 narrowbodies, either the MAX or neo, whilst Flyadeal will be for widebodies, ~20 A330neos or 787s. The order for Riyadh Air has apparently already been placed but not yet made public. I suspect like the widebody order last year, it will be a 50/50 split between firm and options.
IndiaI’m not expecting much action from India this year, although nothing would surprise me if one of the smaller operators announced a sizeable order. IndiGo has already made some headlines this year with the recently firmed order for A350s, but with 2,000 aircraft already on the backlog, I fear there isn’t enough tarmac to hold them all!
Far EastMoving further east, there is still plenty of action expected this year. Cebu has already announced an order for 152 A320neos, which may become part of the Farnborough signings if it is yet to go firm.
Further north, Korean Air is rumoured to be in discussions with Boeing to replenish their widebody fleet. This could take the form of 30 787s, with the possible addition of 10 777Xs. In terms of my thoughts on other regional operators that need to consider if their current fleet plans are insufficient to meet their replacement and growth needs, I feel that China needs to place a decent (~100) widebody order.
Similarly, EVA will have a dozen 777s in the 20-23yr range by the end of the decade, and Cathay has a large ageing A330 and 777 fleet that will only be partially covered by the current backlog. Thai Airways may also be worth a mention should it decide to consider a narrow-body expansion plan post-restructuring.
AmericasFor the Americas, there are several possibilities to consider here. On the one hand, large backlogs are already in place, however, the operators have been particularly vocal in venting their frustration on Boeing delays for the MAX 10, and 7 for that matter.
United has already made some changes since the start of the year to react to delays, such as switching some orders from MAX 10 to MAX 9 and taking on A321s. We could see some action there, although I don’t feel many of them would use an airshow as the stage to do that on.
Aside from the delay situation, I do think that Delta could add a top-up order for A330neos (10-20), whilst American may need to consider alternatives to their ageing 777 fleet. Similarly, they are ~100 short on narrow-bodies to replenish their current capacity as we reach the end of the decade.
South of the US border, I expect fewer chances for orders as restructuring occurs across the board. LATAM on the other hand could well place a narrow-body order to keep on top of ageing A320s.
Europe Circling back on Europe, I have seen fewer rumours in general, although there are some definite candidates based on their current fleet mix and age. Some reaction is expected following recent large orders from Ryanair, Turkish Airlines, Lufthansa, easyJet, Wizz Air, and Air France-KLM.
First off, I expect some activity from Virgin Atlantic this year, albeit it may become part of a lesser order instead. Virgin certainly have a close connection with ALC that could spark the placement of a 20 A330neo order to eventually replace the 787s at the back end of the decade and push Virgin towards being an all-Airbus operator.
IAG, particularly British Airways and Iberia, certainly need to consider more narrowbody orders to bolster the ageing A320ceos. Similarly, Iberia will need to add more A330neos to replace the ageing A330ceos in the fleet as they come due.
Finally, for Europe, it is customary for me to point out that Air France must also consider orders to replenish their A320ceo fleet. They currently have 78 A320ceos, with an average age of 18 years, and no A320neos on the backlog. Whilst the A220 fleet is taking hold there, and despite several large orders coming from the group to head to The Netherlands, Air France itself must consider a re-fleeting program or risk losing market share.
A220 Orders You have probably noticed that I haven’t made much reference to the A220 within the forecast, largely because the activity we have seen has predominantly been for larger narrow-bodies and widebodies. However, as an asset that bridges the gap between regional jets and narrowbodies (although we class it as a narrow-body), I expect there to be some A220 action at the airshow from several quarters.
In the Americas specifically, despite a huge number of orders from US carriers over recent years, only Delta, JetBlue, Breeze and Air Canada have firmly committed to the type, with speculative action from lessors such as ALC, Macquarie, Azorra and ACG.
Given the dominance of regional jet activity within the region, I feel that the A220 has a much larger role to play there than the stats would suggest. American Airlines recently ordered a large order of A321neos, MAX 10s and E175s, but as the battle ensues for better margins, surely the A220 will be better than their 133 A319s. Especially when you consider their average age is greater than 20. The same goes for United Airlines who have 83 A319s with an even greater average age.
In Europe, Swiss, AirBaltic, Lufthansa and Air France have most committed to the type to serve a mixture of trunk and lean routes. Surely IAG would be a contender.
ATR & Embraer Now, let's turn to the regional jets and turboprops. As in most years, we should expect to see some action from ATR and Embraer.
For ATR, we typically see anywhere between 20-50 total orders being placed at either Farnborough or Paris which enables ATR to maintain a steady backlog of 200 units +/-30. Today, we are currently at 192 units. As it stands, they are producing a little over 30 aircraft per year, less than half of the pre-pandemic number, which is difficult to quantify when you consider the immediate fuel burn benefits versus a similar-sized RJ.
However, analysis of the utilisation of the current fleet within IBA Insight shows operators getting 30% more daily utilization per aircraft despite the reduced capacity within the system. With the current storage level (23%) now back to 2019 levels, operational changes may well impact the historical intensity of orders in general, however, replacement and growth still require some ordering activity to persist.
For the E-jet, orders normally come in the form of E175-E1s and E195-E2s due to scope limitations, with some E190-E2s added in. It’s been six years since we last saw any big Embraer orders being placed at one of the airshows, and more typically in the range of 30-70 instead as Embraer maintain a backlog of ~300 +/- 30. Unlike for the ATR, daily utilization per asset is largely back to where it was in 2019, although overall capacity remains down as 27% of the fleet remains inactive (versus 20% in 2019).
Ordering activity remains up though with 110 firm orders already this year (American - 90, Mexicana - 20), and well on its way to equalling the 2018 total of 204 by year-end. Given the high age profile of the regional market in general, more orders are inevitable at this year’s show (50+) from any of the existing operators.
Lessors Whilst I’m not expecting many (if any) speculative orders from the lessors this year given the long lead times and high escalation rates, there will undoubtedly be some activity related to sale-leaseback positions from those announced at the show. For instance, should Virgin announce A330neo orders, I wouldn’t be surprised to see a similar ALC press release - likewise, announcements from the regional asset lessors for any ATR and Embraer orders.
General Overall, I expect an order tally this year of ~1,000 units +/- 20%. A caveat for this number will come from those orders related to Boeing or Pratt & Whitney’s recent performance which I haven’t gone into here.
I think public announcements could be affected by that leading to some delay in the firming up of some of the orders, or even some postponing until the end of year December panic. My number includes firm, MoU, LOI and options, but not conversion orders or sale-leaseback announcements not related to a fresh order.
If I go into bullish mode and everything comes in as noted, then orders will reach 1,500, however, that would indicate FOMO had reached a fever pitch.
In terms of how the week will turn out from an aircraft family and OEM perspective, analysis would suggest Airbus shining through with the A330neo and A320neo families leading the way.
I would expect Qatar, Turkish, Korean, EVA, Cathay and EL AL to keep to the Boeing 777/787 camp principally, but the A330neo/A350 combo will make their mark within that group too. In terms of the 737 MAX, Turkish and Riyadh Air are about the only takers I have on the list.
In my opinion, it's less about capability but more about availability and price. Similarly, we may see more caution than normal surrounding engine selection with GE/CFM leading the pack. This estimate largely keeps activity in line with prior year activity over the past 10 years.
