LDN - Business

Planemakers kick off air show with billions of dollars of deals

[July 16, 2018] By Tim Hepher and Sarah Young

FARNBOROUGH, England (Reuters) - Airbus and Boeing announced more than $10 billion of combined deals in the opening hours of the Farnborough Airshow on Monday, suggesting demand for new jets remains in rude health despite worries over trade tensions and Brexit.

Even before the first displays had taken to the skies over a sun-baked southern England, U.S. planemaker Boeing <BA.N> said delivery firm DHL had placed a $4.7 billion order for 14 777 freighters, and purchase rights for seven additional freighters.

It followed that up with a $3.5 billion deal for 30 of its hot-selling single-aisle 30 737 MAX 8 aircraft with U.S. aircraft leasing firm Jackson Square Aviation.

Meanwhile, Airbus <AIR.PA> announced a memorandum of understanding for Taiwanese start-up StarLux Airlines to buy 17 of its A350 wide-body planes worth around $6 billion at list prices.

The order contest is expected to stretch for days of the July 16-22 air show, although analysts will be watching closely to see how many of the deals are new, and how many involve adjusting earlier business or switching models - something not always easy to spot at first.

Higher oil prices and interest rates are seen as a warning sign that the long-running aviation boom may be peaking, while trade tensions between the United States and China and concerns about disruptions to supply chains from Britain's departure from the European Union are also worrying the industry.

WIDE-BODY WORRIES

The week is expected to confirm demand for narrowbody jets from airlines such as Mexico's VivaAerobus, which is shopping for some 40 Airbuses, and lessors like Goshawk, which is interested in jets in the Boeing 737 MAX category. Major lessors Air Lease and Avolon are also in town.

But both Airbus and Boeing are under pressure to increase orders for some of their wide-body jets due to a recent slowdown in that part of the market. One exception is the Boeing 787, after a multi-year effort to end delays and cost overruns.

Speaking after the deal for wide-body A350s with StarLux, Airbus chief commercial officer Eric Schulz said he was confident the market for such planes would pick up.

"What I have said consistently is that I see the wide-body market picking up within 18-24 months. I am quite confident."

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A logo of Airbus is pictured at the entrance of the company's delivery center in Colomiers near Toulouse, France, July 10, 2018. REUTERS/Regis Duvignau

"There are explanations as to why this wave is now coming. We had a very massive wave 4-5 years ago with a lot of orders. I think the market had to pause a little bit until we could deliver consistently and get to ramp up and rate. I think this is behind us now."

The Farnborough Airshow is the industry's biggest event this year. It alternates with the Paris Airshow and collectively they account for over a quarter of industry order intake each year.

British Prime Minister Theresa May will meanwhile seek to reassure aviation bosses that her under-fire Brexit plan won't disrupt their supply chains.

Boeing Chief Executive Dennis Muilenburg said on Sunday the performance of global supply chains was always under watch.

May's words, to be delivered at the air show southwest of London, come at a crunch time as pro-Brexit lawmakers in her party oppose her EU exit strategy.

Britain is also expected to make a major announcement on future combat air strategy, though Europe's fragmented fighter industry is seen as far from ready to unify around one project.

A source familiar with the matter told Reuters on Monday that defense minister Gavin Williamson would unveil a model of the country's proposed new fighter jet at the show, and earmark 2 billion pounds ($2.7 billion) in funding for the project.

The aircraft, to eventually replace the Typhoon fighter jet, would be developed and built by Britain's BAE Systems <BAES.L>, Rolls-Royce <RR.L> and Italy's Leonardo <LDOF.MI>, the source said.

(Reporting by Tim Hepher, Eric M. Johnson, Sarah Young, Mike Stone, Andrea Shalal and Vicki Bryan in Farnborough, and William James in London; Editing by Daniel Wallis and Mark Potter)

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