Podcast: What's Behind The Widebody Order Buzz?

Airlines are on the verge of placing hundreds of orders for widebody jets. Listen in as Aviation Week Network editors and analysts discuss what’s behind the impending order boom.

• Read Jens' article here: Multiple Airlines Prepare Large Widebody Orders

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Transcript

Joe Anselmo:

Welcome to this week's edition of the Check 6 podcast. I'm Joe Anselmo, Aviation Week's Editorial Director and Editor-in-Chief of Aviation Week & Space Technology Magazine.

After being decimated by the COVID crisis, demand for widebody airliners come roaring back. Multiple airlines are in negotiations with Airbus and Boeing for long-haul aircraft and in some cases the pending deals exceed 100 jets. But the oncoming order boom is raising a new question, will this surge in orders result in too many airplanes chasing too few passengers, particularly in the Middle East?

Here to break this all down are three panelists. Jens Flottau is Aviation Week's Executive Editor for Commercial Aviation. He joins us from Frankfurt. The numbers guy, Daniel Williams, is manager of Civil Fleet Flight and Forecast Data for the Aviation Week Intelligence Network. He's in the United Kingdom. And here with me in Washington D.C. is Lori Ranson, Senior Analyst for the Americas for Aviation Week's CAPA.

Jens, let's start with you. What's underpinning all of this interest in wide-bodies and are you expecting some big announcements at next month's Farnborough Air Show?

Jens Flottau:

I would say there are two main factors. One is obviously the new and growing business models in the Middle East and in the Asia-Pacific. And we can just mention Riyadh Air, we can mention Saudia, which is looking at new wide-bodies and the incumbents that are reacting. Qatar Airways has talked about an order for 200 aircraft. Then there's carriers like Royal Air Maroc who are trying to finalize a deal for 200 aircraft, about a third of which is going to be widebodies.

So the Middle East is driving a lot of this and I would say that that is the region where you can ask the question whether there is too many aircraft for all the same passengers. And I think while the actors in the Middle East would deny that that is the case, I think that is a valid question. The growth plans are enormous, but you have to ask whether they are realistic.

Another interesting aspect in this whole development is fear of being left behind. The backlog is growing faster than expected and to an extent that you already have to wait, for example, for an A-350 until 2030. So if you don't get into the queue right now, it may not be even 2030, it may be even later. And there are many airlines that need to replace, fleets want to grow, and if you don't get direct orders from the manufacturers, then there are a few good options left, and those that are left, leasing, are expensive options.

Joe Anselmo:

Dan, you're the guy that keeps a daily watch on the fleets. Does it seem to you that there's pent-up demand as Jens is saying?

Dan Williams:

It's very interesting. I've been fortunate to be on the Check 6 podcast for the past few years now, and we talked a lot about narrowbodies, narrowbodies, narrowbodies. And I even mentioned I think that narrowbody is king previously on a Check 6. And it still is, however, we’re get into the point and Jens is quite right, this fear of missing out, this FOMO of missing the opportunity to put your place in a queue for something in 10 years’ time, because we're getting close to those kinds of numbers.

It's also been really tricky because operators are going to start to struggle to get A321s. So what do they do? Do they start looking, ‘Hey, take a 787 because it's a bit bigger.’ Yes, but because the A321 is so big, a 787, it is a stretch, but it's not quite as big a stretch as maybe it could be. So there is that FOMO. With this potential of A330neo orders coming in the near future, and I think people are looking at the neo, because it's a more than capable aircraft, but they're not going to have to wait until 2030 like they would an A350. The 787-9 is the flavor of the month to have. There's nearly 600 aircraft on back order That's a huge backlog in terms of time. When you look at Boeing currently, they're producing, if I'm being generous, three per month. Yes, they do want to raise that, but that's still a long way to go. Even if they rate it to 5, 8, 10 per month, well, that's still five years’ worth of back order if they were at rate 10 today.

So there's a long way to go with the widebodies. There's nuances. The 777X is making all of this even crazier because the certification date for that, we're almost getting to the point of who knows right now, because Boeing are trying to fight all their other fires currently. And we know that there's plenty of those built and waiting delivery. So I think Jens is right, there's FOMO, there's lots of large operators, yes, specifically Middle East that are going after the same traffic and there is a lot of fleet replacement that's going to come up. If you're ordering aircraft now that are going to take 5, 6, 7, 8 years to come and you've got an aircraft that is today is older than about 12, you need to be ordering those aircraft now to replace them, just one for one. So we are at a point where I think widebody orders, I don't think they're going to be racing, but they are ticking up and especially with the element of missing out, for sure.

Joe Anselmo:

Lori, North America isn't seen as a huge growth market, but it is the world's largest airline market. What is the situation there in terms of widebody orders?

Lori Ranson:

It's pretty interesting and just to build on this point of fear of missing out, I think some carriers are going to have to make a decision over the next couple of years in terms of what they need for widebody lift. So of the large North American global network carriers, United has about 165 widebodies on order that's not including what I like to call the orphan A350 order that's been on its order books for I don't know how many years. Delta is less than 100, probably less than 50. Air Canada, 18, 19. American, probably 30. And all of these carriers also have aging fleets. Delta still operates a lot of 767s. United has older 777s and American has older 777s. So they need to make decisions if they want to get in this queue that's steadily building up. There have only been a trickle of widebody orders I'd say over the last couple of years. Delta recently ordered 20 A350s, Air Canada ordered 18 787-10s. So I think that we need to hear more about what their widebody plans are, particularly given that most of these carriers are making an international push, especially United and Air Canada.

Joe Anselmo:

Jens, along the lines of what Lori just talked about, let's name some names. Who are some of the carriers that are interested in widebodies? And you have said some of these orders could exceed 100 airplanes.

Jens Flottau:

Yeah, I mentioned a few of them already. Royal Air Maroc. Qatar for 200 allegedly, that is probably the biggest single order. But if you look into Asia, there are several campaigns ongoing there. All Nippon Airways wants to refresh its fleet, Korean Air. The most interesting from my point of view is actually China. China has this huge A330ceo fleet, which is flying a lot of regional routes, a lot of domestic routes. If you fly Shanghai to Beijing, you have a good chance of ending up on a 330 rather than a 320 or 321.

But the problem for Airbus was so far that the in-service fleet was relatively young. It is still very young, but now they are talking about placing a big A330neo order. So that could be the next big thing for the A330neo, which is compared to the A350 hasn't really sold as well so far. Not because it's a bad aircraft, simply because the A330 fleet was still too young.

Joe Anselmo:

Dan, you mentioned constrained supply. Jens, Lori, and I were all at the recent IATA AGM, the annual gathering of the world's airlines, in Dubai, and Emirates CEO, Tim Clark was pretty irritated. He told our sister publication, Arabian Aerospace, he could increase the size of his airline by 50% if just the airplanes were available.

Dan Williams:

Yeah, I think this is not just the widebody that's an issue. You go and speak to Mr. O'Leary and Ryanair and he'll say the same about the narrowbody market. This is just something that's impacting our whole industry right now. Emirates are desperate for the 777X because that's their model. They work brilliantly with really big aircraft. They basically single-handedly made the A380 work. They wanted a re-engined version, but the problem is it was only them that wanted it.

In slot-constrained airports, those types of operators will want more of these bigger aircraft. BA loved the big aircraft because Heathrow is slot constrained. Let's rewind, I don't know, six months when Schiphol were going to bring in the movements. All that was going to happen with those movement restrictions is that every aircraft that was going to pile into Schiphol would just become bigger. They would have more people coming through, or at least there's many people coming through. But instead of the aircraft being a small Embraer jet, the minimum aircraft size will be an A320, an A321, or a Max, and then there'd just be more bigger aircraft.

So the supply chain is impacting everybody right now. And as I say, the 777X, that's not supply chain related, but that's something that's desperate. You look at the backlog of orders and the 787-8 is almost done. There's 32 left on order, you can forget that. And the A330-800, yes it's the neo, but it's the smaller neo. You can forget that. There's very few in order. They should just kill it off already. Likewise, when you look at the A220-100 order book that's just come out, that's reduced. There's going to come a point where Airbus will kill the 220 in terms of an narrowbody, the 100 that is. So this is applying across the whole sector, the 787-9, the A330neos, and the A350s are the biggest backlogs that are currently in production. But there's still plenty. There's nearly 400-plus 777X's on order, but there's no sign of a delivery start date.

Jens Flottau:

I want to just mention the lessors here, and that's an interesting twist to the story. If you looked at the orders last year, the orders this year so far, and what we know of going into Farnborough, the lessors have largely been absent from this wave. They haven't really ordered. And it's interesting to explore why. My explanation is again, it is about the long lead times. If you order now, you get the aircraft in 2030 or even on the widebodies now, Boeing maybe a little bit sooner, but the problem for lessors is there's price escalation clauses so they will be a lot more expensive in a few years compared to today. But at the same time, the lessors don't know today what lease rates they can charge the airlines in five years.

So the longer the delivery lead time is, the bigger the risk is for them, the uncertainty about whether they can charge the lease rates that they need to get to their expected margins. So lessors are notably absent from this demand wave. And that is actually a problem for the OEMs. The lessors have sustained demand in crisis years significantly. They've been a great help. They've helped airlines in financing during the pandemic. At some point, you could argue their share in the backlog was too high, but if this continues and they're not ordering, then their share might soon be too low for OEMs. I just talked to Benoit de Saint-Exupery, the new head of sales at Airbus, and he said it used to be 30% of the backlog. If the trend continues, it's 20%. Ideally it's 25%. So that's a watch item for the industry.

Dan Williams:

Just jumping in on lessors, you raise a very good point, lessors have sat waiting and maybe the lesser market will come not through ordering, but from sale leaseback on delivery. And then that way they may end up paying more for the aircraft, but they're not taking the initial risk. They're letting the operator, the airline, take that initial risk, place the orders. And there's been some really interesting orders. EVA ordering A350s. It's not a huge order, but it's the fact that it's Airbus widebodies, not Boeing widebodies is what made it interesting. But you get people like EVA will buy the aircraft, guarantee the slot, guarantee the price, obviously with some escalation, that's fine. But then the lessors have probably sat back right now and going, do you know what, we will happily pay more for that aircraft in 2030 than we would if we ordered it now? However, we will understand what's happening with the market nearer 2030, and let's involve ourselves in sale leaseback transactions then.

Lori Ranson:

It sounds like the headline there is lessors don't have any fear of missing out if I'm listening to both you correctly.

Jens Flottau:

Yes, that's true. But they have the big advantage of not having to do network and fleet planning. Their market is global, they can place their aircraft wherever or buy into the market through sale and leasebacks as Dan rightly says.

Joe Anselmo:

Jens, at the beginning of the podcast, I teased the idea, could there be too many aircraft chasing the same passengers? And specifically, it's in the Middle East, right? Saudi Arabia is trying to stand up a big airline industry and taking on the incumbents, Emirates, Qatar, Etihad. That's really where the pressure point will be, isn't it?

Jens Flottau:

Yeah, I think so. It's probably a little soon to say how serious the problem really is. We've always said there's too many hub carriers in the Middle East when it was just Etihad, Qatar, and Emirates. We'll see. A lot depends on the Saudi economic development plans, the Vision 2030, and the kind of growth they are actually going to achieve in tourism and trade and so on. And if that really happens, then there is going to be a lot of demand for air travel. If that is slower than expected, if they can't build the airports quickly enough, if they don't get the MRO infrastructure in place quickly enough, then yes, they have these aircraft and also have a huge logistical problem. It's a watch item. I wouldn't say right now that I'm convinced that we have this huge over-ordering, but if I was Airbus or Boeing, I would monitor that situation closely and I'm sure they are doing that.

Joe Anselmo:

And speaking of the Middle East, Jens and I were a lot younger when we were at the 2013 Dubai Air Show when Emirates launched the Boeing 777X, a derivative. Boeing’s CEO at the time was Jim McNerney. We're going to be three new CEOs on before Emirates gets its first airplane. It's looking now like 2026. Why does it take so long to develop a derivative?

Dan Williams:

Well, their may be another CEO by then. 2026 is still a long time away in the world of Boeing C-Suite series people. It takes so long in part -- the pandemic hasn't helped this because the 777X, I remember, I think it was this kind of time in 2020, Jens and I were on a call and we're like, look, the 777X is a great aircraft, it's just not great right now because there was no need for an aircraft that size. And we're still not fully there of a need for an aircraft that size, we're getting there. For the first time, international flights in May 2024 for the first time were higher than the equivalent month in 2019.

So we're getting close. The reason it's just taking so long is that ultimately this is down to FAA oversight. This is a knock-on effect in part due to the Max issue. Boeing are more under the spotlight now than they've ever been, and sometimes that seems to be growing every day. Grandfather rights that was employed kind of from the NG to the Max clearly didn't work. So, it's almost a clean sheet design in terms of how are the FAA going to treat this aircraft. And there's some clever aspects to it. The folding wingtips are great, It's just taking time and Boeing with all the other fires that they're still trying to put out. It's just probably not quite as high on their agenda right now. And especially with supply chain labor issues that the industry's suffering as a whole as well. It's not necessarily one thing, it's the millions of straws that are on this camel's back that are beginning to break it.

Joe Anselmo:

Okay, we are running short on time, but I wanted to give Lori the final word.

Lori Ranson:

Yeah, it's interesting to build on Emirates because as you know and Jens, you can chime in, they've been very vocal about the delays and their frustration with Boeing. And they're taking a big economic hit. They're spending $3 billion to refurbish their aircraft because of these delays. And I don't know if this is half joking, half serious, but Sir Tim is always pushing for Airbus to build a new A380, which won't happen. But I think that sort of just illustrates the position that Emirates is in. It's a unique position. Dubai is their world hub, but to me, it's really interesting that... and it's not just Emirates, a lot of airlines are spending money to refurbish their aircraft because of these delays. So I think that's something to watch going forward.

Jens Flottau:

He's not joking for sure, he's serious. Airbus also always tells him politely, no thank you. But he does have a point. In terms of the sustainability debate, right? When we talk about new aircraft programs these days, it's always narrowbodies and that's it. But if you look at emissions, the emissions program, where is aviation generating most emissions? It's in long-haul travel, it's in widebodies. And there are zero projects on the horizon, neither on the Airbus side nor on the Boeing side. So if you take sustainability serious, they should be looking at this, too. I get it that there's other priorities now and it's step-by-step, and Boeing has other issues, and so on and so forth. But really he has a point.

Joe Anselmo:

And we will have to wrap things up on that point. But I wanted to thank you, Jens, thank you Lori, and thank you Dan for taking the time to share your insights with our listeners. That is a wrap for this week's Check 6. A special thanks to our podcast producer in London, Guy Ferneyhough. A final note, don't forget to follow us in your podcast app of choice. We've also put a link in the notes to Jens's report from Dubai. It's an article we've made free to Check 6listeners for the next few weeks. And one last request. If you're listening to us on Apple Podcasts and want to support this podcast, please leave us a star rating or a review. Have a great week and thank you for your time.