Etihad engine deal eclipses Airbus, Boeing

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ETIHAD AIRWAYS: Steals show at Paris Air Show. (Getty Images)

An engine deal from Abu Dhabi's Etihad Airways worth more than $5 billion could be the biggest news to come from this week's Paris Air Show, where the global recession has frozen sales of planes from Airbus and Boeing Co.

The show contrasts with the last one two years ago, when the two planemakers were on their way to record annual orders for more than 2,700 airliners versus fewer than 20 between them so far this year.

Airlines faced with falling demand and tight credit are cancelling and deferring orders as fast as planemakers can book new ones.

Airbus sales boss John Leahy put on a brave face on Tuesday, sticking with a target of 300 orders for the year after Vietnam Airlines said it would buy 16 A321 single-aisle jets and signed a tentative deal for two A350s, which would take the deal's value to $1.9 billion.

"Of course, the figure could be less, but I'm keeping this target," Leahy said.

Boeing's commercial planes marketing chief Randy Tinseth told Reuters Television: "It's clearly a very difficult time for our airline customers in the light of the worldwide recession. We're working closely with them to better understand their needs and wants."

Etihad's deal for 123 engines from GE Aviation on Tuesday stemmed from orders for Airbus and Boeing planes it made last year and stole the headlines from the planemakers.

Etihad CEO James Hogan said the deal included 78 engines from GE to power Boeing 787s and 45 engines to go on Airbus A380 superjumbos from the Engine Alliance, a joint venture between GE and United Technologies Corp. unit Pratt & Whitney.

Arab Gulf-based carriers have been the industry's biggest plane buyers in recent years and another bright spot has been the budget sector, with Indonesia's AirAsia on Tuesday ordering 10 of Airbus' next model, the A350 due in 2013.

Airbus Chief Executive Tom Enders said that development of the A350 would cost about 11 billion euros ($15.3 billion), funding which European governments could help the planemaker with under a decision expected this month.

AirAsia founder Tony Fernandes said he had squeezed a good price out of Airbus and joked about the hard times facing the planemaker. "Most of their customers, they send a corporate jet to, but because I got a good deal I had to get the train," he said.

Boeing's Tinseth said the still tight credit markets were not expected to hit its delivery target of 480-485 planes this year but stopped short of forecasting for 2010.

"It doesn't look like we'll have any deliveries delayed or cancelled as a result of airlines not being able to get funding or the price of that funding," Tinseth said, but added there was "a lot of volatility and uncertainty" in the future.

Planemakers enjoyed a huge upswing in aircraft deals that peaked in 2007, swelling their order backlogs and leaving Airbus and Boeing with several years of business to work through.

Airbus CEO Enders said the planemaker did not expect to have to offer buyers more than 1 billion euros in financing this year despite tough credit conditions.

"We will see in 2010 what the depth of the crisis is," Enders said.

Boeing Commercial Airplanes CEO Scott Carson said on Monday the US planemaker expected credit conditions to improve for customers in the second half of 2010.

Boeing said it was starting to see signs of stabilisation in the economy, which should translate into growth in air traffic from mid-2010.

The freight market, a leading indicator of the economy, is "starting to look like it is bouncing along the bottom", Tinseth told Reuters.

Airlines group IATA has forecast losses of $9 billion this year for the industry, which is busy cutting or deferring plane orders and trimming services to reduce costs.

Travel warnings sparked by swine flu have added to the uncertainty over traffic demand caused by the global recession.

The biennial Paris Air Show is the industry's biggest event, and last time saw Airbus and Boeing announce billions of dollars of new business.

Back then, powerful lessor International Lease Finance Corp took its place in the spotlight, but this year it's up for sale as parent American International Group, hard hit by the financial crisis, looks to raise funds after receiving a massive US government bailout.

Yet manufacturers are looking to the longer term, mindful that any new plane takes about five years to develop, long enough for the recession to have run its course.

"The long-term prospects for this industry remain robust, and as global GDP recovers we expect to see a recovery both in air freight and passenger traffic," said Boeing's Carson.

Boeing confirmed that it still expected the first flight of its 787 Dreamliner to take place later this month. The plane features the industry's first all-composite fuselage in a weight-saving move aimed at airlines trying to save on fuel.

Russia is pinning hopes of a return to airliner exports on Sukhoi's new Superjet 100, which made its international air show debut at the Paris event.

"It's now very important that we ramp up production for the start of the recovery," said Sukhoi Director General Mikhail Pogosyan.

The US defence market, the world's largest, is also in focus after the Pentagon last month sent Congress a list of proposed cost cuts on major programs including fighter jets, helicopters and other equipment.

Jean Chamberlin, head of Boeing's C-17 military transport plane program, said the company would continue to lobby Congress for 15 of the planes for fiscal 2010 after congressional negotiators recently backed funding for eight more this year.

"Iran and North Korea show that the world must not disarm indiscriminately," Charles Edelstenne, Chief Executive of French warplane maker Dassault Aviation, told Reuters. "People don't talk about a peace dividend any more, they talk about the fact that the world is less stable." (Reuters)

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