The Department of Commerce's latest data show new orders for commercial aircraft are down 36.7% from last year. Is that a worry for Wichita? Not yet. The month to month data are very volatile and new orders are down from a very high level last year. The level of new orders was high enough that unfilled orders are still up and I estimate the backlog now represents a healthy 35.4 months of shipments. The new planes, particularly the more fuel efficient planes built of composite, are made to order for today's rapidly rising fuel prices.
But Will it last?
J. Lynn Lundsford and Susan Carey warn in today's Wall Street Journal that "As rising oil prices cause even the strongest airlines to struggle, Airbus and Boeing Co. face the possibility that as many as a third of their orders for new jets could be postponed or canceled." One very savvy observer is Steven Udvar-Hazy, the chairman and founder of aircraft-leasing giant International Lease Finance Corp. which buys many of the planes airlines lease. He "predicts that 25% to 30% of the two makers' order books ... could be subject to what he called the 'flake-out factor' if oil prices continue their unprecedented rise."
This reminds us of a fundamental truth. Orders for aircraft are ultimately tied to the demand for airlines and their profitability. Rising fuel costs make the new generation of aircraft attractive, but they rob airlines of their ability to pay for the newer planes. Financially, U.S. airlines are far from healthy. Christopher Hinton of Market Watch tells us that airlines are cutting back on capacity and laying off workers:
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