Gloomy skies for the Farnborough world air show

As the barons of civil and military aviation converge not far from here for their weeklong Farnborough air show, the $60 billion civil aviation industry is looking more troubled than ever.
"This is the most uncertain time I've known in the industry for 29 years," said Doug McVitie, the founder and chief consultant at Arran Aerospace in Dinan, France. "The whole stability of the business has been upset by the oil price."
Air shows are usually an opportunity to crow about new orders and talk about the latest aviation technology for civil and military uses.
But two questions will preoccupy representatives of 1,500 companies from 35 countries attending aviation's annual showcase event, which alternates between here and Paris: How much worse can the oil crisis get, and how long can it last?
Soaring oil prices have hammered home the urgency for airlines to squeeze out greater fuel efficiency from their fleets. That means carriers need more economical aircraft as they battle to hold down fuel bills that have now become their single biggest operating cost - particularly in the United States, where some airlines are still flying two-decade-old MD-80s and first-generation 737s.
But efforts to modernize fleets are hitting a double bind. The big manufacturers themselves have struck production delays for their next-generation jets, like the superjumbo Airbus A380 and the midsize 787 Dreamliner from Boeing.
Behind the scenes at Farnborough, manufacturers and airlines will be juggling delivery slots as airlines seek to fit incoming capacity from new jets to their projections for passenger numbers.
Already, U.S. airlines like Northwest, Delta Air Lines, JetBlue and Southwest, and smaller Asian carriers like Kingfisher of India, are weighing postponing receipt of new aircraft. On Thursday, Denver-based Frontier, one of the biggest regional airlines in the United States, got permission from a U.S. bankruptcy court to postpone the purchase of seven single-aisle Airbus planes, with a list price of $400 million, for two years.
For the manufacturers - not just Boeing and Airbus, but also smaller competitors like Bombardier of Canada and Embraer of Brazil - financial pressure on the airlines is likely to translate into a falloff in new orders as the plane makers reach the end of a business cycle whose customary six-year expansion has been compacted into three record years. Airlines, which typically pay 85 percent to 90 percent of a new plane's cost on final delivery, now have much more power in their relationships with the manufacturers, with contracts that allow them to postpone taking possession of ordered planes.
Already airlines are starting to rethink, postpone and cancel their orders, and that looks set to continue as long as oil prices stay stubbornly high.
11/07/08 Caroline Brothers/International Herald Tribune

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Categories: Farnborough Air Show 2008