How Will Rising Fuel Prices Impact Demand for Aircraft? -- Boeing Comments

Here are Boeing's (BA) comments, from its conference call, on the impact of high fuel prices on its business and the aircraft parts and airline industries:

Despite minimal impact on our business so far, we are concerned about the impact of energy prices on our customers, and we do expect that we could have more deferrals and some cancellations as our customers continue to wrestle with the new energy reality. In light of that, it is important to explain how we manage our commercial delivery schedules for Sky Line. Deferrals and cancellations are a normal part of the airplane manufacturing business. In our production and delivery planning, we assume we'll see a certain amount of both based on historical data and our judgment about each of the customers in our backlog and the potential impact of things like today's energy prices. We use these factors to determine our production rate in a disciplined manner and to balance our sales plan with delivery position availability.

Right now the demand for fuel-efficient new aircraft is still higher than what we can supply from our production plan. This gives us the ability, to a greater degree than in the past, to reallocate deferred or cancelled delivery positions to other customers who have been waiting for delivery slot to come available.

In addition we continue to have unprecedented diversity in our commercial backlog, which now includes only 10% from U.S. airlines. If we see more deferrals or cancellation, the geographic mix should protect us from a significant downturn in any one region. With the BCA backlog representing almost eight years of production, we also have opportunities for customers to pull deliveries forward.

Therefore, based on our current view of the environment and strong backlog position, we remain confident we will deliver the commercial airplanes in our guidance for 2008 and 2009, and that deliveries will be higher in 2010 due to 787 production ramping up.

The quotes are taken from the Boeing transcript which was published on Seeking Alpha a few hours after the call ended.

Comments

[PastTense]

It doesn't matter if only 10% of sales are from the US; high fuel prices impact airplanes throughout the world. While Boeing sales will hold up for the next couple years because of the order book, after that I expect a substantial decline--the airlines just won't be ordering new aircraft when they don't need the aircraft (because their traffic will be way done) and because they are too broke to pay for them.

[notmyrealname]

More people fly today (even with the high cost of fuel) than they did even 5 years ago. To stay competative they have got to be more efficeint. That means fewer planes, but new bigger, more fuel efficient planes. Air traffic in recent years has been a limiting factor. When air travel picks back up, and it will in the next couple of years (contrary to your prediction past tense). Those that made the investment in larger more fuel efficient aircraft will be able to fill their alloted takeoffs with more butts in the seats, be more effiecient and be better off for it. Expect demand for larger, more fuel effiecent planes to be in high demand for years to come. Yes, even in tough economic times. Airlines know they have to keep up with the efficencies of the competition or die due to short sighted cost cutting.

[kmanm]

Just because high oil price is not good for US, it doesn't mean it is not good for oil producing countries. What we are seeing right now is wealth transfer from the west to the east. Middle east is booming. Russia is booming. The people in these countries and becoming rich and powerful. Their demand for new planes will grow.

[cal48koho]

Good comments. Larger more fuel efficient planes.....hmmmm. That implies only long haul routes will be serviced which is probably likely. Fuel efficient jet planes is an oxymoron. I think the wave of the future even long haul are MUCH SLOWER fuel efficient aircraft, maybe even a return to prop aircraft at least for less affluent travelers. Big aircraft also need big airports. Say goodbye to jet service in small to medium towns. Say good bye to new airport construction. Perhaps new train service could use the empty degrading air terminals but likely not. Most are too far from city centers to have any value.If Boeing is betting its future on big jet aircarft as its only business model, your logical purchase of BOEING stock is a short. They may be able to sell aircraft to KSA, Dubai and the Gulf states for a while, and then what?