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Aircraft industry is pulling out of tailspin

After one of the worst years for plane makers, airlines and jetliner-leasing firms go on a spending spree at an air show in England. Boeing, Airbus and smaller firms get orders worth about $30 billion.

July 23, 2010|W.J. Hennigan

Acrobatic fighter jets, gangly robotic aircraft and menacing attack helicopters jockeyed for the spotlight at the Farnborough International Airshow in England this week.

But the biggest attention-grabbers at one of the world's largest aerospace showcases were staid businessmen in gray suits ordering billions of dollars worth of passenger jets.

After one of the worst years ever for the aviation industry, airlines and aircraft leasing companies went on a buying spree, announcing orders worth nearly $30 billion, or more than three times last year's tally at the Paris Air Show. The two premier aviation gatherings alternate each year.

The orders reflected the airline industry's renewed confidence that air travel was coming back — albeit gradually — and buoyed prospects for thousands of suppliers in Southern California that make aircraft parts.

That could also be good news for travelers who may eventually see lower airfares as carriers buy new, more fuel-efficient planes that cost less to fly and add more available seats, analysts said.

"It's in the consumers' best interest for airlines to buy new aircraft," said Vaughn Cordle, a retired United Airlines pilot who is managing director of AirlineForecasts, a Virginia market research firm. "Airlines can cut down maintenance costs substantially by keeping their fleets young, which translates into cost savings for the consumer."

European- aircraft maker Airbus sold 133 passenger jets worth $13 billion at Farnborough. Its Chicago rival, Boeing Co., landed 103 orders worth around $10 billion. Makers of smaller commercial jetliners such as Brazil's Embraer and Canada's Bombardier Inc., also struck contracts worth billions of dollars.

"The resurgence of orders indicates an upward trend in the industry," said Michel Merluzeau, managing partner of aerospace consultant G2 Solutions in Kirkland, Wash. "Last year was a very depressed market. It seems we're now entering a growth mode."

The demand is being fueled by an uptick in air travel.

After suffering losses of $9.4 billion in 2009, the airline industry is expecting to bounce back with $2.5 billion in profits this year, its first since 2007, according to a recent forecast by the International Air Transport Assn. Passenger traffic is expected to grow 7% and cargo traffic 18.5% this year.

Many U.S. carriers' posted profits in the second quarter compared with losses in the same period a year earlier.

As a result, airlines are for the first time in years looking to replace their aging fleets, which are hovering around 15 years old, Cordle said.

But many airlines have not recovered enough to buy new planes on their own. Larger, twin-aisle jetliners can cost more than $200 million each.

The biggest buyers at the show were aircraft leasing companies, which buy aircraft and rent them to airlines for a fixed time period. By leasing, airlines can get new planes without a huge investment. Because leasing companies can buy in bulk, they get discounts few airlines can get on their own.

"Airlines don't want to buy anything right now," said Joe Brancatelli, editor of JoeSentMe, a business travel website. "If they could, airlines would try to lease their CEOs' shoes."

Which is all good for Los Angeles billionaire Steven Udvar-Hazy, who recently came out of retirement to start an aircraft leasing firm, Air Lease Corp. in Century City.

"We're getting into the market at the right time," he said in an interview last week. "Demand for aircraft is strong and only going to get stronger."

On Monday, the first day of the show, Udvar-Hazy announced he was purchasing 51 A320-family airliners from Airbus. The next day he struck a deal for 54 of the popular 737 commercial jets from Boeing. The orders were potentially worth $9 billion based on list prices and accounted for a third of all deals at the air show.

The orders bode well for local suppliers such as Simon Menzies, general manager at McStarlite Co. in Harbor City, which makes doughnut-shaped "lipskins" that cover the edges of A320 jet engines.

When the orders start trickling down to McStarlite, it will guarantee that the company will be busy for the next several years, Menzies said.

McStarlite was facing the end of other "legacy" programs, such as Boeing's C-17 cargo plane, which is slated to end in 2012 — the same year the A320 orders will be rolling in.

"More orders for Airbus means more work for us," Menzies said. "I'm happy because it looks like the economy is finally coming back. Let's just hope it stays that way."

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