UK air show faces Brexit turbulence

Britain's Catherine Duchess of Cambridge (left) and Prince George (right) walk in front of British Royal Air Force red arrows aerobatic planes during their visit to the Royal Air Force.
Britain's Catherine Duchess of Cambridge (left) and Prince George (right) walk in front of British Royal Air Force red arrows aerobatic planes during their visit to the Royal Air Force.PHOTO: EPA

FARNBOROUGH (Britain) • The Farnborough air show opens today in the face of turbulence from Britain's shock decision to exit the European Union.

The event held every two years south-west of London traditionally features a battle between US titan Boeing and Europe's Airbus for supremacy on the order books.

Organisers know there is little chance to beat the record US$201 billion (S$270 billion) of business - both firm airplane orders and commitments - clinched in 2014, with the industry beset by major production backlogs. The June 23 vote sent financial markets tanking and sparked worries about global economic fallout that could weigh on demand for airline travel.

Brexit "is likely to have an impact over the medium term" on demand for new planes, aviation analyst John Strickland warned. "Order books are currently full but if demand softens then ultimately this could lead to reduced orders or possibly some cancellations."

However, Argon Consulting analyst Jean-Louis Dropsy forecast Brexit would not affect the sector, arguing it relies more on keen demand from outside Europe - and particularly from emerging markets. "Brexit should have no impact on the global industry, which is driven mainly by air traffic growth, mainly in Asia, India and the Middle East," he said.

Removal from the single European airspace could, however, lead to airlines passing on higher taxes to passengers, in turn curtailing demand for aircraft in the long run.

British Airways owner IAG has already issued a profit warning. And while incidents such as the recent EgyptAir plane crash and the terrorist attacks on Brussels and Istanbul airports have also taken their toll on the sector, ultra- low oil prices have slashed fuel costs for airlines.

The industry is already being dogged by a record backlog for orders of planes, which - alongside weaker demand from airlines - contributed to a 30 per cent fall in aircraft purchases last year.

Kepler Cheuvreux analysts noted that Airbus and Boeing could still deliver surprises. "The consensus is that few new orders are expected at the show," they wrote. "We are nevertheless wary of such a cautious view, arguing that Boeing celebrating its 100th anniversary at the show is likely to make a splash with some key orders. In response, we expect Airbus to have kept a few key orders for announcement at the show."

Orders could feature also for Bombardier's fuel-efficient C Series jetliner as the Canadian firm looks to challenge the dominance of Airbus and Boeing in medium-range, single-aisle aircraft.

US-based Delta Air Lines in April placed an order for 75 CS100 Bombardier aircraft with an option to purchase 50 more in a deal worth US$5.6 billion.

Boeing is leading the order race with Airbus, winning 276 firm orders since the start of the year compared with its European rival's 183.

Whatever the outcome for orders, this week's show will be lit up by the F-35 fighter jet carrying out a flypast over Farnborough, two years after the world's most expensive warplane's appearance was cancelled owing to engine problems.

AGENCE FRANCE-PRESSE

A version of this article appeared in the print edition of The Straits Times on July 11, 2016, with the headline 'UK air show faces Brexit turbulence'. Print Edition | Subscribe