What are possible cancellations?

I see a lot of order speculation but very little cancellation speculation. It seems to me that in 2009 cancellations will play a prominent role in the order picture.

I'm no expert and wonder what the cognoscenti think about:
- potential US bankruptcies (e.g. Frontier cancellations)
- southeast Asian LCC's (e.g. Lion Air) (does the model work?)
- expansion of Ryan Air, easyJet et al v. troubled carriers like the new Alitalia (will something give?)
- Middle East expansion (does the model work?)
- the freighter companies (can they afford it? / can they afford not to?)
- leasing companies with spec orders
- the Russians



There are many other questions. But it seems to me the whole picture is very different. Many companies looked at five year backlogs and placed orders they cannot now afford, if they ever could. What's going to blow up as the markets contract and weak players can't afford new planes? I find the focus on orders like Lufthansa'a 748 order odd. I would think there are dozens and dozens of orders more at risk. Could we have 1,000 planes cancelled?

My money is on Kingfisher canceling their A380 order, I give this cancellation the biggest chance of happening.

If they cancel their A380s, will they also cancel their A350-800s?

They did cancel their A340-500HGWs because they couldn't make money on BLR-LHR. Have they launched BLR-SFO yet? Do they still have the three A340-500s they were using for BLR-LHR?

Add China Southern to that list as well.

Doubt it, at least in the foreseeable future. I'd expect them to keep their A350s on order, mainly due to them being as large as the A380 nor the A345 and thus being easier to fill. Of course, you never know, in 2-3 time, IT might not even be around as a separate airline anymore.

SEATTLE, Feb 6 (Reuters) - The world's most important plane buyer has no plans to cancel aircraft orders despite the steep decline in demand for travel this year.

"The downturn is pretty severe," said Steven Udvar-Hazy, chief executive of International Lease Finance Corp, the world's largest plane-leasing firm by fleet value. "(But) we're not canceling or deferring any orders."

Both Boeing Co (BA.N) and rival Airbus have taken more cancellations than new orders this year as cash-strapped airlines scale back or delay purchases to ride out the global recession.

But Udvar-Hazy's ILFC, a unit of insurer American International Group Inc (AIG.N), may even move into purchasing mode.

"My philosophy is to buy when nobody else is," said Udvar-Hazy to Reuters at a plane handover ceremony at Boeing in Seattle. "This could be a year where the number of cancellations and deferrals by far exceeds the number of new orders."

That was the situation at the end of January, with Boeing reporting a net loss of 13 aircraft orders for the year so far, and Airbus, a unit of Europe's EADS (EAD.PA), reporting a net loss of eight.

The cancellations come after an unprecedented 3-year bubble in plane sales, which burst last year as financial turmoil and loss of access to financing hit airlines hard.

Udvar-Hazy, generally considered the most powerful figure in aviation due to his massive plane purchases, refused to be drawn on the future of ILFC, which is up for sale by parent AIG as part of the insurer's plans to pay off a government loan which ensured its survival last year.

Sources say several private equity firms and sovereign wealth funds are bidding for ILFC, including Kohlberg Kravis Roberts & Co [KKR.UL], Temasek Holdings Pte Ltd [TEM.UL], Istithmar World, Kuwait Investment Authority and China Investment Corp.

A second round of bids is expected in the third week of February, with a price tag of up to $8 billion expected by industry analysts.

"I can't talk about the timeframe or the details," said Udvar-Hazy, shaking off questions on the deal. He joked that the value of the deal could be anywhere between zero and $100 billion.

He added that Boeing's new 787 Dreamliner, which is now about two years late due to production holdups, will cost Boeing dear.

"It (the 787) is going to be a good airplane, but very costly," he said. "The challenge is greater than Boeing anticipated."

ILFC is the biggest customer for the 787, with 74 of the planes on order, worth about $12 billion at list prices. (Reporting by Laura Myers, writing by Bill Rigby; editing by Richard Chang)

"The challenge is greater than Boeing anticipated."
That is a comment that is intriguing is it not?
Everyone knows Boeing have an albatross around their neck in the way of penalties, but the SUH comment in my view suggests technical issues. After all in any contract there is a SNAFU factor built in, so hardly an unknown issue.

Anyone have any comments regarding this?

Udvar-Hazy is saying that both OEM's could experience cuts of up to one third of their backlogs.


http://www.bloomberg.com/apps/news?pid=206...hs&refer=us

No, that's not what the article says. Udvar-Hazy says that Airbus and Boeing may be forced to cut production by 30 to 35 percent within the next 18 to 24 months. Not the same thing.

It's not a surprise that ILFC hasn't been approached about deferrals in the short-term as, well, there aren't that many ILFC-owned planes due for delivery in the near-term. While they have 97 Boeing planes on order, 74 are 787s due, er, not that soon. The rest are 3 777-300ER due this year plus 10 737-800 and 10 737-700. On the Airbus side, it's 13 A319, 1 A320, 6 A321 and 2 A332 plus 20 A350 and 10 A380.

Indeed, while SUH and ILFC's contracts for leasing appear relatively secure, the future ownership of the company looks decidely "in doubt". Imagine a worst-case scenario where ILFC were to be broken up or sold off. Would all of it's current lease-obligations be transferred with it's ownership .. or be taken to competing lessors ?

That's one worrying element we don't yet know. It may well be difficult for certain carriers to cancel ILFC leases voluntarily .. but if the opportunity arises for those carriers to walk away, due to ILFC's sale or liquidation, there might be a lot of carrier "re-thinking" about their current lease plans.

Fortunately the individual that started the leasing company is in final negotiations to buy the leasing company.

Leasiing will again be an attractive alernative soon. New deductability and depreciation designed to create demand for high-ticket items will make leasing attractive to companies and individuals, and the leasing busines a lucrative business again.

Are any of the A380's been accounted for? I thought a few might be going to EK.

2 of them to be precise. Those that should've been freighters initially but will now be additional pax jets.

Ok..thanks..

I thought a couple were being leased out. How about the other 8? Doesn't seem to be any takers yet..

With the bleak news coming out of Japan today that the recession is getting worse there I would not be surprised to see some deferrals for some the Japanese airlines. Boeing would be the most exposed to any of the Japanese airlines differing any of their birds as they have a lions share of the aviation market there.

With the 783 looking a very unlikely bird, I dont see the Japanese carriers cancelling when they can sit on their hands and wait for Boeing to make the first move.
They will make more money that way!

So on another forum there is a rumor floating that DL has canceled NW's order for the 787-8, which means ZA003 and ZA004 will have new owners at delivery. If true, then that effectively means more 777-200LRs and maybe the start of a 777-300ER order to replace the oldest NW 747-400s.

On what forum did you see this info?

Then, he'd better be quick !

ILFC's parent company AIG shares sank to record all-time lows on Friday .. and it is looking increasingly likely that de-listing, divestment / bankruptcy will probably arise for the parent company.

I don't believe it is allowed to be named (this board's software physically prevents it). But I believe it is the world's largest aviation forum, so that should be enough of a clue.

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From Market Watch

Well AIG lost $60 billion last quarter, but they were just handed another $30 billion from TARP to make up for it.

Another person on airliners.net said that maybe it is QF starting to cancel their 787 orders, but QF is on record saying Boeing's delivery dates are now so late they are contractually allowed to walk without penalty so I can't see them canceling until their birds are actually about to enter production and they need to start making progress payments on them.

They can walk away without penalty for the first 15 or so frames-those are the ones which will be late.

I agree completely with Jacobin777's post.

In fact, a few months ago, I suggested exactly the same point as a rumination. As I pointed out at the time, the first 15 B787-8's due on QF's order(s) are due to be delivered not to Qantas mainline, but instead to Jetstar International.

Given the importance of Jetstar's international expansion to the Qantas Group plans, allied with the issue of late delivery of these birds .. it would not surprise me to see Qantas allocate further A330's to Jetstar, in order to facilitate this expansion.

That alone, would have to put a 'cloud' over the B787-8's at Jetstar. The original management plan was to introduce the 15 B787-8's to Jetstar International, keep them in the fleet for a few years while B787-9's began to be delivered to Qantas, transfer the JQ B787-8's to QF for domestic / regional use .. while replacing the JQ B787-8's with B787-9's as demand grows.

By transferring further larger A330's to JQ, there is a possible 'delay' factor that could be built into the JQ strategy, which could see the B787-8 become an 'endagered' species at JQ.

Would / will QF cancel these 15 B787-8's ? The option is certainly there ~ however, I would be honestly surprised to see this happen. Reason : irrespective of the JQ strategy, QF domestic still needs the B787-8 as a replacement for the aging B767-300ER's in it's fleet. Not to mention that QF would be loathe to abandon early 'delivery' slots for the B787-8, when it ultimately begins to emerge.

Further, however 'late' the B787-8's may be, delivering them direct to Qantas domestic (as opposed to JQ) would remove the eventual 'refit' cost to QF domestic that would occur. And why not sit on all those healthy 'delivery delay compensation' payment from Boeing, which ultimately serve to discount the original purchase price of these frames ?

Apart from a somewhat bloodied nose, a QANTAS walk away would save Boeing quite a lot of money, particularly if, as suggested they will have a performace shortfall on weight and range.

Maybe with the economy in free fall its a win-win situation

QF could always just order more 767-300ERs. A number of operators around the world have been doing so.

Geez Stitch, you forgot the "old technology" tag that QF / Dixon hung on the B777. More B767-300ER's ? I think not. LOL

While the B767 has served QF very well over the years .. hell, QF would be more likely to:

1. See hell freeze over and / or witness a 30 day month of Sundays,
2. add additional A330's before they even thought of B767-300ER's or B767-400's.

I'd think that, while QF considered them appropriate in the 1980's, that any future B767's (of whatever model persuasion / variation) .. would have to come with a big, fat "Free / Gift" tag on them from Boeing .. along with a complimentary oilfield or two. And we all know that's not gonna happen.

Qantas did not get to be a world-class profitable airline by choosing retrograde, obsolote products in a forward-looking environment.

The A330 is more efficient than the B763/B764 on many routes and is more versatile-hence why carriers decided to go for more A330's. That doesn't however mean the B763 is an inefficient aircraft.

QF might be smart to get a good leasing deals for B767's like SQ has with the A330's...

LOL ...

Qantas effectively set the 'goal-posts' for efficient B767-300ER 'lease-costs' several years ago, by cheaply leasing seven additional excess birds from British Airways (still in the QF fleet, by the way) which BA has subsequently written off .. and where Qantas will eventually scrap / sale them. The frames have cost QF virtually nothing - apart from in-cabin refurbishment cost .. and that's about the best deal you can get.

I agree that the B767-300ER is not an 'inefficient' aircraft ~ but it is certainly no longer the most efficient proposition in it's class. Important, when you are seeking to cut seat/mile costs on predominantly long-haul domestic and limited regional international .. which is precisely where QF is using them. Remember that JQ's seat / mile cost acts as a major incentive for the QF mainline costing model .. and this is also heavily re-inforced by DJ's costs also. In order to maintain a 2 brand strategy, the QF group needs to persue an effective seat / mile costing model, which sees only a small differential between JQ and QF mainline. And on long-haul international (ie: SYD-HNL-SYD as an example), QF is already competing with it's own JQ by offering an older QF B767-300ER product against a far newer and more comfortable JQ A330 product.

As it stands, I believe QF still has a small number of A330's on order with Airbus.

Add DL to the list..



http://www.aviationweek.com/publicat...+Re...%2d8+Deliveries

(subscription required)


This will actually help both DL and Boeing, as it will allow Boeing to get B787 deliveries to other carriers quicker (less penalties, etc) and DL, which doesn't need the extra capacity right now.

Also, it seems as if DL is going to add more B777's instead.

DL was quoted in that article saying they still maintained their order quantity and options so for at least the moment it's a deferment and not a true cancellation.

Which is even better. In a weird way, both have been helped.

Now lets see some more B77L/B77W DL orders...

FG.com and The Hindustan Times are reporting that AI is negotiating with Boeing to cancel the remaining six 777-300ERs that have yet to be built/delivered because their passenger traffic is too low. They also are filing a claim for $710 million in penalties for delayed delivery of their 787s.

They will take delivery of their final 777-200LR and two 777-300ERs scheduled for this year.

^
Boeing in return could always just scale back the amount of IT and engineering work it is sending over to India currently and what it plans to send over in the near future, but that is highly doubtfull.

Guggenheim has reduced their 747-8F order from four to two, probably due to being able to secure 747-400 freighters earlier from desert storage.

Notwithstanding today's bankruptcy news, it would seem that JAL's 787 order will remain intact. It is likely the 738s will stay and the 767s will go for sure. The 777s are up in the air, so to speak.

On an interesting note from an analyst named Michael Dirshen: A 5 year old 747 currently has a market value of $60 million USD. He suggests that this price point will actually hurt Airbus' 380 program as some operators may defer or cancel delieveries and make the best of the "previously enjoyed" 747 market. On the flip side, he feels that it will acutally help fuel 747-8 sales as he reasons that the more carriers who defer, will cause others to question the viability of the 380 program, and may instead defer to the point where Airbus has to cut the program and the carriers buy 747-8s. He also suggested that within Airbus' 380 contracts there is a clause that if total deliveries do not exceed a certain number by a certain date, some carriers can walk away without penalty. He called this a "saturation" clause, and it is based upon volume economics for carriers. He suggests the same is true for the 787 and 350 too.

I reckon it is one of those things that looks good on paper in a conference room at the top of a Wall Street tower, but if whether pans out in the market is another matter entirely.

Would JL wants to cancel their 767 orders now that there is no 787-3 to replace the ones currently in service as they wear out?

What's a 767 going to be worth in 10-15 years from now, when it'll be a +40 year old airframe design? While they may not want to cancel if there's nothing else that can do the job, they may want to renegotiate the terms and try and get some sort of residual value protection or subsidised fuel..if nothing else.

But JL would be likely to just run them into the ground, as they are effectively doing with their current domestic operation 767s. So residual value probably doesn't matter - they will become 767-300BCFs or sent to the desert to be broken up for spare parts.

You're absolutely right, but the residuals and the depreciation level have a big impact on the balance sheet, and that is what is paramount NOW, so my orginal point stands.

Even if the 767 is a 40-year old airframe design, it's still a pretty efficient plane. Besides, as far as pricing goes, considering a) that Boeing had to offer those 767s cheap because of the whole 787 delay, and b) Boeing's never dying, perhaps even desperate, desire to keep the 767 line open until the whole tanker story is over, it is probably certain that JL already got a very favorable deal those 767s (say, at least 50% off list price, per my speculation). Not to mention, since JL primarily wants these as short-haul/domestic planes, they will end up with a high number of cycles as well, so they are well aware that after their life in service at JL they will be pretty much worthless.

...something of interest:



http://www.flightglobal.com/articles/2010/...y-one-year.html

...doesn't really sound to optimistic...if things don't pick up quickly, I expect ILFC to cancel the order...

I doubt if things will "pick up quickly" enough to bail out this order. How many has ILFC placed with customers? Then again, why lease when the OEM will offer the whalejet at knockdown prices, after which the airline can do a sale-leaseback?

I have to wonder what SUH paid in deposits when he ordered these things? Wasn't it 10 years or so ago? Who thinks they'll all find a home by Dec 31 this year?

I agree...not to mention, Whale's are available for about $210 million today.

Its going to take a miracle to get those Whales a new home......but one never knows, stranger things have happened.

I give it an 80% chance of cancellation....

I don't see how VS or IT (KF) will be taking their Whales either.....

As long as ILFC is not required to make any payments (and might have had their initial deposits returned or applied to other aircraft actually delivered), I expect they'll just keep the order on the books, deferring it indefinitely.

But eventually, EVEN Airbus would have to yield to standard accounting practices, and if there is no deposit, no delivery, and no binding agreement to take delivery, at a certain point in the not-too-distant-future, the "order" would be stricken from the books.

An order is a contractual agreement between two or more parties where one party provides a product or service to the other party, at a given time, price, and specification, and the other party agrees to take said delivery and pay for it at the time of its delivery or soon thereafter. In essence, the ILFC 380 order is barely an order by any measure, and Airbus is trying to put the pain in future years instead of dealing with it now. I doubt even under these circumstances that it could even be considered a 10 frame option.

What you say makes sense in theory. But look at how Airbus have dealt with the Jat Airways contract for 8x A319 from 1998. Not a penny of PDPs have been paid since July '99, no delivery posiitons exist, yet the thing is still on their books.

Sounds much like their former Iraqi Airways A310 order or Boeing's original 777 order from Garuda. In other words, it is certainly nothing new.