Higher oil prices to spur Farnborough jet orders: IBA

PARIS (Reuters) - Global planemakers could reap 900 orders and commitments at next week’s Farnborough Airshow, down only slightly from last year’s comparable event, as strong oil prices prompt airlines to add to their bulging order books, aviation consultancy IBA Group said.

FILE PHOTO: An Airbus A350 aircraft flies in formation with Britain's Red Arrows flying display team at the Farnborough International Airshow in Farnborough, Britain July 15, 2016. REUTERS/Peter Nicholls/File Photo

Several industry analysts are predicting a quieter summer air show this year as the industry digests a record order backlog of more than 15,000 aircraft, spread across all types.

But higher oil prices could prompt several airlines and lessors to top up orders for fuel-efficient narrowbody models using the cash from industry restructuring, said IBA, one of a handful of companies which also carry out aircraft valuations.

“Airlines have historically placed orders when times are good and cash is strong, much like today,” Stuart Hatcher, Chief Operating Officer of UK-based IBA Group, said in a report.

A copy was provided to Reuters ahead of publication.

It is the first detailed order forecast ahead of the July 16-22 event, held every other year in alternation with Paris.

On average, the summer jamborees account for 30 percent of annual commercial business, according to IBA. At the 2017 Paris show, planemakers bagged around 900 firm or provisional orders.

Airlines are benefiting from rising traffic and higher passenger load factors, meaning more people are on average traveling in more crowded planes.

However, there are some negatives for airline managements, with capacity beginning to outstrip traffic growth and labor pressures, interest rates and oil prices all rising.

Since the financial crisis, the correlation between oil prices and jet orders has been “uncannily strong,” despite the negative impact of oil on airline profits, Hatcher said.

“In all, the order tally (firm and provisional) could top 900 again ... but increasing costs for the airlines may prevent the orderbook rising by too much.”

This includes a combined total of 600 Airbus A320neo and Boeing 737 MAX - the latest narrowbody models with new engines - and a tentative forecast of 100 wide-body jets. Small models and turboprops could also get a boost from rising oil prices.

The number of immediate firm orders is expected to be much lower as provisional deals take weeks or months to finalize.

Leasing companies could again be buyers this year due to weakness in the sale-and-leaseback market - their alternative source of new aircraft, in which they buy freshly delivered planes from airlines and rent them back out.

They are expected to place 40 percent of new orders at Farnborough, IBA said.

An obstacle to significant new orders is the long waiting list of eight years, following an extended industry upcycle.

Reporting by Tim Hepher; Editing by Mark Potter