I am still on alert for a larger pullback in the market. The larger picture suggests the SPX will li...
Big orders for Boeing aren't good for airlines, but do indicate continued recovery in financial markets
07/20/2010 11:53 am EST
Between them Boeing and competitor Airbus the orders topped 200 planes.
What’s good news for Boeing, though, isn’t necessarily good news for airlines themselves. Aircraft purchases make Wall Street analysts nervous since they’re a sign that airlines are likely to add capacity. More capacity means more unfilled seats and lower ticket prices as airlines cut fares to fill those seats. In yesterday’s (July 19) conference call Wall Street analysts repeatedly pressed Delta Air Lines (DAL) executives about the company’s plans to buy new planes and to honor the orders placed by Northwest before Delta acquired that company. Delta management went out of its way to say that it had no plans to buy new plans and was, in fact, planning to continue to reduce capacity. (The company said “No comment at this time” on the Northwest orders.)
Either investors didn’t believe the company or they fear that other airlines won’t be as disciplined: Despite beating Wall Street earnings forecasts Delta shares fell by 3% on the day.
I think the most important development out of Farnborough isn’t number of orders that Boeing and Airbus received but the return of aircraft leasing companies to the market.
These companies, which buy aircraft and then lease them to airlines, depend on the availability of cheap money in the financial markets. As you might imagine, that financing pretty much dried up during the global financial crisis. The fact that older players such as GE Capital Aviation and new leasing companies such as Air Lease, run by the former head of American International Group’s huge aircraft leasing unit, are back says good things about the gradual return to normal operation of the financial markets.
Of course, all those air craft available for lease because the financial markets are lending to leasing companies again aren’t exactly good news for an airline industry trying to maintain the current tight—and profitable—capacity.
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