Jet financiers see production cuts coming through 2011

PHOENIX — Airplane makers Airbus and Boeing remain bullish about 2009 jet-production rates. But their views are starkly at odds with the outlook of many financiers of the airplane business.

At a major aviation-industry conference here, Airbus joined Boeing in insisting upon a forecast that at least in the short term is rosy, saying commercial-airliner production can hold steady this year.

But the audience — people who buy, sell or lease jet aircraft and the bankers who finance them — was mostly not persuaded.

Many at the annual conference of the International Society of Transport Aircraft Traders (ISTAT) were skeptical the money can be found to pay for the roughly 965 jets Boeing and Airbus have scheduled for delivery in 2009.

Bertrand Grabowski, a managing director of Germany's DVB Bank, a major European financier of airplanes, said that with the airlines facing rapidly falling demand, the only question is how much and how soon both Airbus and Boeing will cut production for 2009 through 2011.

"They will have to do it. It's a matter of fact," said Grabowski in an interview.

"How would you like to see your client bleeding by taking delivery of aircraft they don't need?"

He expects production cuts starting later this year, and worse to come in 2010 and 2011.

That assessment, in line with those of other analysts who asked not to be named, contrasted with the presentation by Mark Pearman-Wright, head of leasing and investor marketing at Airbus.

Pearman-Wright insisted funding for this year's Airbus deliveries is secure and that the plane maker will flatten rather than cut production in 2010 and 2011.

"We don't see a problem in funding the deliveries until the end of the year," he said, echoing the message of Boeing Commercial Airplanes Chief Executive Scott Carson to a Wall Street audience last week.

"I've noticed the manufacturer mindset is more bullish," said Pearman-Wright.

"It's not so much Airbus versus Boeing. It's the manufacturers versus the financiers."

In a sobering assessment to kick off the conference Monday morning, respected industry economist Adam Pilarski, of Avitas, at least agreed with the manufacturers that this year's deliveries are relatively safe.

But Pilarski went on to forecast that production will "fall off a cliff" in 2011.

"The crash has to happen and it will be severe," said Pilarski.

His prediction of combined Airbus and Boeing production for that year is an ominous 666 airplanes, a 30 percent drop from today.

Pearman-Wright protested: "We don't see that at all."

Yet across the conference, the complaint is that credit is frozen and money is not available.

Leasing companies in recent years have had ready access to debt to finance the bulk of their purchases of new airplanes.

They have sold either older airplanes or stock to raise the cash for the roughly 20 percent equity they must put up with such purchases. Now, they have access to neither cash nor credit.

"Raising equity and debt has become more than a challenge," said ISTAT President Mike Platt, chief investment officer with jet-leasing company Aircastle.

Pilarski ended his presentation grasping for optimism.

He agreed that eventually air traffic will return to its historic upward climb and the industry will recover.

"The long-term future of aviation is still solid," said Pilarski.

But as DVB Bank's Grabowski put it: "The problem is 2009, 2010 and 2011."

Dominic Gates: 206-464-2963 or dgates@seattletimes.com