By Hassan Ali for est – In its recent announcement, Airbus Group SE (OTCMKTS:EADSY) has told industry experts that it expects to win roughly 700 orders this year only. The announcement comes at a time when airline companies are racing to increase routes, destinations, and improve their fleets.
Although no official statement has been made, the sudden, significant drop in orders is quite alarming considering the fact that last year, the airplane manufacturer had a total net orders of 1,080 planes (valued at $141.6 billion). According to Airbus’ latest official guidance for 2016, the airplane manufacturer expects its orders for the year to exceed its delivery target of 650 planes.
Unimpressive Start to the Year
Airbus hasn’t been off to a good start this year, as the plane manufacture has had a significantly tough time in getting orders and keeping them. In its first quarter, it managed to book only 10 net orders (after 22 cancellations) as compared to 102 orders it won last year during the same period. In addition, in the last quarter of 2015, the plane manufacturer managed to book more than 256 orders, and may even find it difficult to meet its 700 order target.
On the other hand, arch rival Boeing Co (NYSE:BA) has had a far better first quarter. Boeing has managed to bag 122 net orders this quarter which is also more than the 116 orders it had in the same period last year. Boeing seems to have surpassed Airbus as the more popular airplane manufacturer.
Furthermore, Airbus has managed to secure no new orders for its A321 aircraft, even though its competitors including Boeing offer no direct alternative to this plane. Even though according to historical data, Airbus does receive fewer orders in the first half of the year, the weak total of 10 orders is very alarming as it comes after a prolonged period of strong orders.
Airline Carriers Choosing Others Over Airbus
Airbus’ neo planes in particular have been encountering engine issues lately, which may have caused customers to delay or stall their orders until all problems are sorted out. The A320 neo has faced most problems, as its engines have been taking more time to cool down, increasing the fuel consumption of the planes. Airbus has also had problems with its A350 and A321 neo aircraft.
In addition, competitor planes have proven to be significantly cheaper than what Airbus has been offering. Boeing has been offering its planes at highly competitive rates as it tries to get rid of older aircraft to move into its newer planes.
Boeing is currently going through a transitionary period, trying to make room for its 737 planes with the 737 Max and 777 planes. According to a recent Bloomberg report, Boeing has reportedly offered United Continental Holdings Inc. (NYSE:UAL) two of its 737 aircraft for $22 million each, when the 737 has a minimum list price of $80.6 million, whereas the cheapest Airbus A318 has a list price of $75.1 million.
Similarly, Bombardier Inc. (OTCMKTS:BDRBF) has also been offering its struggling C-Series planes at a highly competitive price. Delta Air Lines is looking to finalize a deal for 120 planes with Bombardier for nearly $5.2 billion.
Furthermore, because of lower fuel cost, numerous airline carriers have been considering leasing older aircraft as well. With many airlines coming to the end of their leasing period, many older aircraft are up for re-leasing after refurbishments.
Delta Air Lines, Inc.’s (NYSE:DAL) CEO Richard Anderson stated that he had come across a Boeing 777 aircraft last year that would cost $10 million. Likewise, a recent research report by Canaccord put the cost of a leased plane after refurbishment costs at approximately $30 million, still significantly lower than a new Airbus A318 .
Nonetheless, Airbus still has a strong backlog of 6,716 planes, which is yet to be delivered. In addition to this, the airplane manufacturer historically receives and records most of its orders toward the second half of the year. Furthermore, Airbus also has a deal for 118 planes with Air Iran which includes at least a dozen superjumbo A380 planes. This deal is yet to be recorded in the company’s order books.
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