overview
stuck in a serious downturn. India’s civil aircraft demand has also been disappointing. Last year, Boeing delivered a mere three jetliners to the country, down from a peak of 36 in 2007. Meanwhile, Airbus and Boeing jetliner deliveries to China ramped up to 301 aircraft. That’s a record, both in raw numbers and as a percentage of the total market. But again, China GDP numbers ar e dropping to a level not seen in 25 years. Weak energy prices are the second culprit. Inexpensive
fuel reduces the incentive for airlines to replace their older jets, and last year saw a worrying 38% decline in older jetliner retirements. While Airbus and Boeing show no signs of slow- ing down their announced production increases, there are more than ample reasons for caution. It’s quite possible that the long jetliner output ramp—an extraordinary 9.2% CAGR between 2004 and 2015—is disrupted as customers defer. If interest rates rise more than the modest increase anticipated in 2016, the problem will get worse still. Cheap oil and other commodities also reduce demand for
oil fi eld exploration and support helicopters. This segment’s weakness drove civil helicopter deliveries down 5.3% by value last year. The rotorcraft industry may be the most vul- nerable to cheap oil because of the proliferation of new mod- els aimed at the exploration segment, with AgustaWestland’s AW189 and Airbus’s H175 entering service over the past two
years and Bell’s Model 525 slated for arrival in 2017. Also, low oil prices impact business aircraft demand in
resource-rich economies. Again, last year saw damage here, with deliveries of the high-end business jets most popular in these markets falling 8% by value in 2015. What’s most concerning is that we don’t know how low oil will go, and how long prices will stay low. Most guidance points to prices this year averaging around $45/bbl – the same price the market saw for much of last year – with a gradual recovery to the $70–$80 range, but currently oil prices are trending in the low $30s and high $20s. There’s a lot of supply that won’t go offl ine any time soon, and global tensions, even in the Mideast, aren’t having any kind of impact on oil prices. As Iran comes online as a global oil producer, the excess supply problem will worsen. On the positive side, while Mideast regional tensions and military actions are not affecting oil prices, they are hav- ing a strong effect on demand for combat aircraft and other defense equipment. Combat aircraft sales to this region are up markedly, particularly as Mideast countries diversify their strategic relationships by looking for second sources of air- craft and other weaponry. Dassault provides an excellent illustration of almost all the
key international aircraft market trends. The company sold 24 Rafales to Egypt and 24 more to Qatar last year. These
16 — Aerospace & Defense Manufacturing 2016
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