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Commercial aircraft backlog analysis

Global commercial aerospace industry

Deloitte’s latest report, "Commercial aircraft backlog analysis," examines what part of the global aircraft backlog—orders that have not yet been fulfilled—could potentially be at risk of cancellation or deferral, and helps to inform industry dialogue on this matter.

Outlook on the aircraft order backlog

Recent industry dialogue regarding the robustness of the commercial aerospace industry has in part focused on the risk of an economic downturn and the potential impact it might have on the historically high backlog of aircraft orders.

One perspective is that some of the backlog is at risk because the industry has experienced boom and bust cycles on average about every eight years, and that the current cycle has run its course. Also some believe that the production cycle and output is unsustainable at current levels because global airlines cannot absorb the output without large increases in passenger demand. An alternative perspective is that the commercial aerospace industry has largely outgrown past boom/bust cycles due to:

  • Sustained growth in travel demand
  • Airline capacity discipline
  • Industry consolidation
  • Backlog concentration in fast-growing economies
  • Improved airline financial performance
  • Aircraft affordability

According to the Commercial aircraft backlog analysis study, there is minimal risk of erosion in aircraft production backlog due to a potential economic downturn. The study found that between 7.2 and 11.6 percent of the backlog value may be subject to deferral or cancellation in the event of a severe recession. By contrast, during the 2008 recession, there was only a 5.4 percent decrease in the backlog. If such an unlikely event were to recur, it could result in a backlog reduction to 8.4 years, a record high first achieved only in 2013. Furthermore, only 5.3 percent of the backlog has been ordered by airlines with a BB or lower credit rating, pointing to a more financially healthy customer base compared to previous years.

Aircraft orders and production

The global commercial aerospace industry’s operating profits and margins have increased recently and are expected to improve further in 2016. This provides for higher affordability by airlines to purchase new aircraft, due to:

  • Increased revenue passenger kilometers (demand) and capacity utilization
  • Improved airline operating cost structure, including significantly lower fuel prices

The recent up-cycle of aircraft orders and production has resulted in a backlog increase from 6,913 units in 2009 to 13,467 units in 2015, or 9.6 years of aircraft production backlog at current production rates. The commercial aircraft backlog is at an all-time high, driven by:

  • Increasing growth in passenger traffic
  • Replacement of technologically obsolete aircraft

Viewed historically, the aircraft order backlog appears to have stabilized at a “new norm” of six to ten years, compared to average backlogs of three to five years in the last cycle. Aircraft additions to the global fleet—net of retirements—generally match the growth in air transportation travel demand.

“The analysis of the data illustrates that new aircraft are needed to service long-term growth in passenger travel demand as well as to replace obsolete equipment,” said Tom Captain, global aerospace and defense Leader for Deloitte LLP. “The industry does not appear to be overproducing aircraft, as supply and demand seem to be in balance, especially when considering increasing load factors and oversold flight occurrences.”

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