Aircraft Makers Brace for Major Slowdown
The dire outlook for the airline industry in the aftermath of last week’s terrorist attacks represents another major setback for Boeing Co. and other commercial aircraft makers that already were bracing for a slowdown in orders not seen since the early 1990s.
As skittish passengers slowly began boarding planes again, two investment banks Friday issued reports predicting that deliveries of Boeing-made aircraft will fall sharply next year as airlines curtail orders.
As such, analysts said, Boeing shares are likely to get battered today, when trading on Wall Street is scheduled to resume for the first time since the attacks Tuesday. Chicago-based Boeing is the world’s largest commercial aircraft maker.
“All the [commercial aircraft maker] stocks are going to get hit pretty hard,” said Paul H. Nisbet, an analyst with JSA Research Inc., a Newport, R.I., aerospace research firm for institutional investors.
In what some analysts said was a prelude to the potential sell-off, the stock of Canadian regional jet maker Bombardier Inc. fell sharply Friday in trading overseas. At the same time, another regional jet maker, Brazilian Embraer, saw its shares plunge nearly 9% on Friday. Since the attack, Embraer’s shares are down 30%.
And Boeing’s main rival, Toulouse, France-based Airbus Industrie, said Thursday it might cut production goals in 2002 and 2003, citing the terrorist attacks. Both Boeing and Airbus are scheduled to release their revised forecasts next month.
But even before terrorists hijacked the four airplanes and caused widespread wariness about flying, Boeing and other aerospace stocks already were getting hammered on Wall Street.
Boeing’s stock had tumbled to a 12-month low a few days before the attack as investors who had been driving up aerospace stocks earlier in the year were getting increasingly worried about a chorus of bad news from airlines hurt by a slowdown in business travel.
Analysts said the terrorist attacks could lead to a prolonged wariness by travelers. They predicted that at least for a while travelers will seek alternative modes of transportation.
Amtrak said Friday that ridership surged 60% since the attacks. And analysts said train travel, particularly between nearby cities, will remain high, as increased security measures at airports make air travel more time-consuming and onerous.
With prospects of declining air traffic, airlines are not likely to order new airplanes and might even seek to cancel orders.
Investment bank Deutsche Banc Alex. Brown said Boeing could see 2002 deliveries drop to 390 aircraft or lower from the company’s forecast of 470.
Merrill Lynch & Co.’s report was not as pessimistic, but the New York firm still predicted that deliveries would fall to 456 airplanes.
A Boeing spokesman said that it was too early to assess the impact of the terrorist attacks. She noted that in the last major airline downturn, brought on by the Persian Gulf War a decade ago, the impact was temporary.
“We’re trying to assess what all this means and we’re talking to our customers,” Boeing spokeswoman Susan Bradley said. “If you look at the history of such events, there had been some short-term impact; but they weren’t so dramatic in the long run. It remains to be seen how the events of Sept. 11 will depart from past experience.”
But Byron K. Callan, an aerospace analyst with Merrill Lynch, said that though the latest downturn may resemble the last one in early 1990, the impetus for the decline is far different.
“This cyclical downturn may begin to look more like the last downturn, which was partly induced by the war with Iraq in 1990-91,” Callan said. “However, unlike the 1990-91 period, when Iraq was swiftly defeated in a conventional war, the unconventional war against small cells of terrorists is likely to go for some time.”
Therefore, Callan said, “the Sept. 11 attack on the United States may fundamentally change the investment outlook for commercial aerospace.”
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Reuters was used in compiling this report.
