Spectre of ‘white tails’ haunt Airbus and Boeing

Airlines across the globe are grounding planes, cutting capacity and delaying or even canceling orders for new aircraft as the global economic crisis hits both passenger and cargo air traffic.

Add to this airline mergers like those of Delta-Northwest, Air France-KLM, Lufthansa-BMI, the proposed British Airways-Qantas, leading to industry consolidation, and in the worst cases even going out of business, it is a tense time to for aircraft manufacturers Airbus and Boeing. They are being forced to carefully managing their bulging order books so that delayed or canceled orders from airlines don’t turn into “white tails” — jets built with nowhere to go.

Last month, Air France-KLM said it wouldn’t exercise options to buy up to 15 Boeing 777 wide-body jets to help save euro1.4 billion ($1.78 billion) over the coming years. It has also indefinitely postponed a tender, scheduled for the end of this year, for long-range jets, either the Boeing 787 or the Airbus A350XWB.

Kingfisher Airlines, Iberia SA and Cathay Pacific are among other airlines that also recently announced delays or possible cancellations of their orders for Airbus and Boeing passenger and cargo aircraft, including Airbus’ A380 superjumbo and Boeing’s 777.

Kingfisher even dropped its ambitious plans to connect India’s technology capital, Bangalore, non-stop with New York and San Francisco, which forced Airbus to divert their ordered A340-500 to Arik Air.

Lufthansa has grounded four Airbus A300-600s because of a drop in demand and is looking to do the same with three A340-300s, but so far has no plans to delay or reschedule orders.

The merger talks between British Airways PLC and Australia’s Qantas Airways Ltd. also raise questions over the fate of their own orders for the Airbus A380 super jumbo. British Airways has ordered 12, Qantas has one, two on the way, and expects 17 more. A merged airline would probably manage with fewer aircraft.

Last week, the International Air Transport Association said global air traffic shrank for a second consecutive month in October and warned “the gloom continues and the situation of the industry remains critical.”

When airlines cancel or delay orders for jets that weren’t scheduled to be delivered for several years, the impact on the jet makers is manageable. Jets made for one airline can be sold to another relatively easily, so when one airline asks to postpone delivery of its aircraft, Airbus and Boeing can arrange to speed up delivery to another airline.

With the rapid cooling of the global economies, industry analysts believe that right now only “very gentle adjustments” have been seen, and the worst is still to come.

We can look to recent developments where BOC Aviation, the Singapore-based aircraft leasing arm of the Bank of China, arranged to buy 17 aircraft that had been ordered by U.S. carrier Skybus before it filed for bankruptcy in April.

Boeing claims no significant order deferrals of their 3,700 orders backlog, and were well positioned for the downturn. However, the impact of the recent Delta-Northwest merger, and the capacity cuts by almost all US airlines, will take their toll, sooner, not later.

The bigger worry for both Airbus and Boeing are the dreaded “white tails,” jets that come off the assembly line with no waiting buyers because the airline that ordered them has canceled or gone out of business.

White tails get their name from the fact that aircraft and painted with buyers’ schemes and corporate logos just before delivery.

“When airlines disappear or walk away, then there’s money tied up in airplanes, and that’s not a good negotiating position” for Airbus and Boeing as they try to line up new buyers, Morris said.

Airbus and Boeing both say their order backlogs are comfortably overbooked, with 675 net orders at the end of October for the European jet maker and 640 orders for Boeing as of November 25.

Smaller plane makers are also feeling the heat. ATR, a European maker of regional turboprop aircraft owned by Airbus parent company EADS NV, and Italy’s Alenia Aeronautica, has taken 18 orders so far this year but is noticing some hesitation by customers. While there is demand for these smaller aircraft, the regional carriers, have more pressing demands, than fleet renewal.

With some inputs from AP

About Devesh Agarwal

A electronics and automotive product management, marketing and branding expert, he was awarded a silver medal at the Lockheed Martin innovation competition 2010. He is ranked 6th on Mashable's list of aviation pros on Twitter and in addition to Bangalore Aviation, he has contributed to leading publications like Aviation Week, Conde Nast Traveller India, The Economic Times, and The Mint (a Wall Street Journal content partner). He remains a frequent flier and shares the good, the bad, and the ugly about the Indian aviation industry without fear or favour.

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