An influx of orders for new jet airliners may signal a shift from a buyers' to a sellers' market favoring the world's three big airliner manufacturers, aerospace industry analysts say. Boeing Company, Airbus Industrie, and McDonnell Douglas Corporation have for years been locked in a costly tooth-and-nail struggle to sell fuel-efficient, state-of-the-art aircraft to airlines that couldn't care less. Cutthroat competition occupied airlines' attention - and claimed their cash.
The battle to sell aircraft will continue, but a confluence of forces has changed the dynamics of the market and may make it a little easier to make money building and selling big jets, analysts say. Demand is up, while supply is dragging. Airlines that had become accustomed to picking up a few new aircraft whenever they needed them are now hustling to get their orders in first.
``Airplanes are no longer available at the drop of a hat,'' says Christopher Demisch, an aerospace analyst at First Boston, a New York brokerage. ``Two, three, or four years ago you could buy any airplane you wanted and get it anytime.''
After languishing for nearly a decade, sales of Boeing's fuel-efficient twin-engine 757 have shot up.
American Airlines last week ordered 50 of the 757s, with options for 50 more today - and United Airlines the next day ordered 30 of the 757s, with options for 30 more. In two days, Boeing was deluged with orders for 80 airliners, with options for 80 more. Value: more than $6 billion.
Early in May, International Lease Finance Corporation, an aircraft leasing company in Beverly Hills, Calif., ordered 100 airliners with options for 20 more. Most of the aircraft ordered were 737s, but nine were 757s. The value of the deal was pegged at $4.6 billion. Such mega-contracts followed on the heels of many smaller deals announced nearly weekly in recent months.
In the first five months of the year, Boeing already has orders for 356 aircraft valued at more than $15 billion. That compares very favorably indeed with last year's record total of 366 aircraft ordered, at a value of $19.89 billion.
Airlines were lulled into a false sense of security, says Mr. Demisch, by being in the driver's seat for too long. ``It was a buyer's market,'' he says. ``But with noise and congestion at many airports, it has become clear you need certain types of airplanes.''
Many forces have pushed airlines to produce the boom in airliner sales. Noisy older jets and airport congestion have been a problem for years. But now, tough noise restrictions (such as those at National Airport in Washington) have given some airlines a competitive advantage. Quieter, new-generation jets like the 757 or the British Aerospace BAE 146 are the only type of aircraft permitted to fly in and out of National during certain hours at night, because of noise restrictions.
Airlines are also only recently able to pay more attention to upgrading their aging fleets as competition has lessened, profits have increased, and the number of passengers continues to soar, says Robert Joedicke, an airline analyst with Shearson Lehman Hutton, a New York brokerage.
The carriers had put off replacing their older aircraft, because passenger traffic kept increasing during deregulation of the industry, a period in which fuel prices fell, Joedicke says. The combination of heavy competition, more passengers, and less costly fuel meant the airlines hung onto gas guzzlers that carried fewer people than new-generation planes like the 757.
Many airlines that have kept the 727 workhorse despite high fuel, maintenance, and crew costs are now thinking twice about it. The 727 requires three pilots and has three engines.
``You're getting congestion at airports, so you have got to have bigger planes,'' Mr. Joedicke says. ``The 757 has only two engines to burn fuel, and it only takes two pilots to fly it.'' The 757 burns about 25 percent less fuel than the 727.
There are only so many aircraft that airlines can fly out of an airport during the all-important rush hours, Joedicke says. Airlines lose money when they have to tell potential customers that a popular flight is sold out - sending passengers to the competition. In airline parlance it's called ``passenger spill.''
Boeing currently has an advantage over McDonnell and Airbus when it comes to passenger spill. Neither McDonnell Douglas or Airbus has an aircraft in the size range of Boeing's 757. McDonnell's MD-80 and the Airbus A320 are about the same size as a 727. But the 757 carries about 200 people compared to 118 for 727s.
While McDonnell is working on several models to fill in the gaps, it doesn't have anything to compete directly with the 757. Boeing continues to complain that European nations are unfairly subsidizing the Airbus group.
Then there is the safety issue.
``I think the safety issue is a factor in these sales, even though it isn't as tangible as noise or other factors,'' Demisch says. Though no airline manager would ever admit it, he believes the structural failure of an older Boeing 737 owned by Aloha Airlines has other airlines ``wondering about the life span of the airframe.''