The Singapore Air Show begins in just a few hours and it is highly likely that the show will be dominated by military rather than civil orders. Again we will have the global press heaping doubt on the prospects of the manufacturers as another air show passes without 500+ aircraft ordered. That is all a bit silly of course as the real story of the moment is whether the aircraft currently on order for delivery prior to 2020 will actually be required/wanted by airlines?
Given the current state of play in the global markets, it is becoming apparent that we are once again standing before the can which we all collectively kicked down the road in 2008/9, and as such it requires another stern boot down the road before the banks feel too much more pain that will filter down to the rest of us before too long.
So the real question is this: Can the manufacturers take airlines delaying aircraft delivery at this time? All would be damaged by such moves but we have to focus on the manufacturer in the weakest position today, Bombardier. Just before the weekend it became apparent that WestJet Airlines is in talks with Bombardier to delay Q400 deliveries as the airline seeks to deal with a weakening marketplace. WestJet has also approached Boeing to defer the delivery of three 737s. WestJet will also return nine leased aircraft this year, which will give lessors a real headache and may well provide a little blip in lease rates later in this year for the 737NGs as they are moved on at speed (we hope).
It is unlikely that Bombardier will budge on the delivery schedule for WestJet without significant reparation and that in turn means we have to keep a close eye on WestJet and how it manages its fleet. These are testing times indeed for Canadian aviation.
The Bombardier results are due out this week and it is likely that it will make for difficult reading. The market has already priced the downside in, but now all are watching the WestJet moves since, with aircraft deliveries declining year on year, the WestJet 10 Q400s scheduled for delivery this year and the two in 2017 are absolutely vital to Bombardier and a delay in delivery of the 2016 pipeline will be a huge blow, thus this is big news.
WestJet shares are currently down 24% year to date, which on paper shows extreme value given the strong earnings of the airline to date, but management have heard the message and are acting to cut capacity fast. It is highly likely that other airlines will follow in their footsteps in H1 2016 and for that reason this story over all others is perhaps the most telling when we consider where we are and what may be coming around the corner.