Multiple Airlines Prepare Large Widebody Orders

The International Air Transport Association Annual General Meeting serves two main purposes. It is the forum where the industry group can drive its own agenda, be it internal or vis-a-vis other stakeholders. And it is the sector’s best venue for deal-making. After all, almost everyone is there to discuss whatever agreements need to be sealed.

At the top of this year’s agenda for business meetings: widebody orders. Multiple airlines are in negotiations with the two aircraft manufacturers about commitments for additional long-haul aircraft. In several cases, the sizes of the potential orders exceed 100 aircraft. Many of the deals could be announced at the upcoming Farnborough International Airshow in July, as usual; some substantial transactions could also slip into the fall. But many airlines are in a rush to lock in delivery slots.

• Supply chain and production issues hold back rate expansion
• Experts warn of geopolitical risks

Somewhat surprisingly, the strong demand comes amid levels of geopolitical risks not seen in recent memory. Two wars in Ukraine and Gaza are ongoing, another in Taiwan cannot be ruled out, and a trade conflict between the U.S. and China could soon escalate. And half of the world is voting this year, which could have a massive impact on trade and aviation—the U.S. elections in particular.

“The two largest trade blocks—[the U.S. and China]—have largely given up on globalization,” Simon Evenett, professor of trade and economic development at the University of St. Gallen in Switzerland, said at the Dubai event. Globalization is, of course, a major driver of long-haul travel. Evenett described a “regionalization of the global economy” and warned: “If [Donald] Trump gets elected [as the next U.S. President], Europe will abandon North America. A Trump reelection is a global risk for aviation for the simple reason that the transatlantic alliance will fragment.”

“The things that we think are fixed are not as fixed as they seem,” Control Risks CEO Nick Allan said. “That is probably the biggest challenge.”

The current conflicts are already creating winners and losers, Allan noted. Chinese and Middle Eastern airlines continue to fly through Russian airspace, a massive advantage over Western competitors for whom flight times are sometimes extended by several hours for the same city pair because the direct routes are off-limits for them.

Evenett pointed to AirBaltic, which lost a major part of its network overnight when the Ukraine war started. Moreover, “Lithuania is next,” he predicted. “It is unfinished business for the Russians. They want to show that NATO expansion was inappropriate.” An invasion of Lithuania could happen in 2026, he said.

Allan urged airlines to “understand the exposure to secondary sanctions enforcement,” which could make them victims of political disputes and trade wars. That is already happening, argued Amrita Sen, founder and director of research at Energy Aspects: “I don’t see how passenger traffic between the U.S. and China will recover.”

Sen is a specialist in oil markets, which face substantial uncertainty even beyond the huge task of transforming the industry to net-zero carbon emissions by 2050. Among them: “What is [Trump] going to do to international [oil] suppliers like Iran and Venezuela?” she asked. Then there are potential direct consequences of Russia’s war in Ukraine: “If [Ukrainian forces] take out a big Russian port, that is a big issue for oil markets.”

Even so, International Air Transport Association (IATA) Chief Economist Marie Owens Thomsen cited underlying trends that could support future airline growth. The world economy is largely driven by services, and “services drive longer business cycle expansion, which is good for everyone,” she said. As a consequence—if confirmed—the airline industry can hope that future downturns will be shorter. “It is more important to avoid a recession than to maximize growth,” Owens Thomsen added.

Airline CEOs at the annual general meeting largely echoed her views. “I think the industry has some healthy years ahead,” Lufthansa Group CEO Carsten Spohr said. “There will be a shortage of aircraft for years; the supply-demand balance should be fine.” IndiGo CEO Pieter Elbers noted that the fast growth of the middle class in India should allow the airline to continue its expansion course.

The numbers seem to support their optimism. According to IATA, airline demand is expected to grow by 11% this year, way above the historical average of around 4-5% and an extension of the rapid passenger return to flying after the pandemic. International travel remains the primary driving force behind the current surge in demand. Many markets experiencing the most significant expansion, such as the Asia-Pacific region, often involve long-haul flights. Following the tough pandemic years, airlines have begun to reduce their debt burdens and feel more comfortable investing again.

The association anticipates a $30.5 billion net profit for industry this year, up from its December 2023 forecast of $25.7 billion and 2023 result of $27.4 billion. The expected 2024 profit, if reached, would amount to a 3.1% profit margin for industry, up from 2.7% last year. Though small, the improvement would be driven by higher absolute profitability of airlines in Europe, Asia-Pacific, the Middle East and Latin America. North American carriers are expected to stagnate at a $14.8 billion net profit and, as revenues grow, their profit margin to decline to 4.5% from 4.7%

Even when growth is not the main target, many airlines feel that they have to order again—if only to replace aging widebody fleets that they have kept flying longer than planned due to lack of money and to ensure they have sufficient capacity.

The supply chain crisis makes things even more complicated: IATA sees a substantial shortfall of aircraft deliveries for 2024. The association says that manufacturers will deliver 1,583 aircraft this year, 11% less than was forecast only six months earlier. Airlines are partly compensating for the shortage by deploying larger aircraft where possible and by delaying retirements.

Importantly, however, one of the main order drivers is the fear of being left behind, along the lines of: “If everyone else is ordering, we had better buy, too. Otherwise, production will be sold out into the early 2030s, just like it already is for narrowbodies, and the only way to access capacity earlier would be expensive leasing deals.” As Flyadeal CEO Steven Greenway put it: “2024 is the last year before the door closes.”

The risk, of course, is that airlines are ordering all these aircraft for the same traffic—or that any of what Allan and Evenett described becomes even more a feature of reality.

The extent of the order rush has come as a surprise even to the manufacturers, industry sources say. Both Airbus and Boeing not too long ago decided to up production rates—the Airbus A350 to 12 per month in 2028, the A330neo to four this year and the Boeing 787 to 10 per month in 2025—and are now facing the question, sooner than they expected, of whether those rates suffice to meet customer demand. Given the order momentum, the answer is likely no, but Boeing continues to be held back by quality issues on the 787 and the delayed certification of the 777X. Meanwhile, both manufacturers are dealing with major supply chain constraints.

So far this year, firm long-haul aircraft deals are still at relatively low numbers. Airlines have ordered 72 A350s and three A330neos. Boeing has collected deals for 40 widebodies, among them 31 777s. These come on top of 433 Boeing and 342 Airbus widebody orders in all of 2023. But make no mistake: More is coming, and soon.

Flyadeal, a low-cost carrier based in Jeddah, Saudi-Arabia, is only looking at a relatively small order of widebodies to complement its narrowbody-focused fleet. But others in the region are planning for much greater numbers. Qatar Airways, not having ordered widebodies for many years, is possibly in the market for up to 200, in particular the A350 and the 777X. Turkish Airlines still has to determine the Boeing part of a 500-unit order, the Airbus share being already decided. Royal Air Maroc is also considering investing in up to 200 aircraft, one-third of which could be widebodies to help build another substantial hub operation.

Needless to say, Riyadh Air is not done ordering aircraft following its initial commitment for 40 787s. To meet its stated ambitions, the carrier will need larger long-haul jets, and could take A350s or 777Xs in addition to the smaller units. Saudia, having just ordered 105 narrowbodies along with sister airline Flyadeal, is also considering next steps for widebodies.

Many Asian carriers are also preparing deals. All Nippon Airways is considering buying more widebodies, as is Korean Air. Japan Airlines is done with that segment for the time being, and the company is instead looking at new narrowbodies and regional aircraft.

Interestingly for Airbus, China is understood to be negotiating a deal for up to 100 A330neos, a commitment that would strengthen the manufacturer’s second and smaller widebody model. At the end of April, Airbus showed an A330neo backlog of 170 aircraft. The agreement would also come at a time in which Boeing deliveries to China are still paused.

China is a significant market for the A330. According to Aviation Week Network’s Fleet Discovery database, the country’s in-service, parked and stored fleet of the type totals 219 aircraft. However, the Chinese A330 fleet is still young. The three oldest in-service aircraft, operated by Air China, are 18 years old. Put differently: Unlike others, China can afford to wait.

On the other hand, the A330 completion center in Tianjin could use a greater workload, now that there are virtually no pending deliveries of the type to China.