Trickle-Up Fuel Price Fallout

Analysts estimate that 25-30% of the commercial aircraft backlog at Boeing Co. and Airbus could be at risk as high fuel prices continue to batter airlines according to an Aviation Week article by Joseph C. Anselmo. What? You don’t subscribe to Aviation Week you say? You can read it online at Analyst: 25% Of Aircraft Orders At Risk and in Aviation Week & Space Technology’s June 23 issue.

Many under funded startups in Asia and Europe have overly aggressive and optimistic growth plans that could cause the airlines to cancel or defer orders. For example, Robert Stallard, a director at Macquarie Capital, questions whether SpiceJet has a strong enough balance sheet to secure credit for the 16 Boeing 737-800s it has ordered and says it might not even qualify for a sale/leaseback. “The question that has yet to be answered is not whether there will be a downturn, but how bad it will be,” says Stallard in the AVIATION WEEK article.

Anselmo offers two outcomes: the optimistic view that “Boeing and Airbus can afford to lose orders and still make it to the industry’s next up-cycle with minimal pain;” and the more negative answer “that a steep change in global energy demand has created a permanent era of high prices and sent the airline industry into uncharted territory.”

The article confirms that this is a GLOBAL problem.

No region is immune to the pain. Fuel now makes up 65% of Air New Zealand’s operating costs on long-haul routes. “There could be a significant downturn ahead for carriers in the Asia-Pacific region,” predicts Stallard. “The only way that airlines can react is to raise prices, which will further dent demand.”