While the rest of Wall Street has thrashed around the last few months trying to recover from the throes of the Asian flu, the airline sector, generally, continued to fly at a comfortable cruising altitude. But that doesn't mean the airlines are immune. We are now beginning to see some warning signs of things to come -- especially on the production side.
As many of you are aware, the two major airline manufacturers,
, posted a record number of aircraft orders this past year, and both companies are stretched to the limit trying to meet current production demands.
But if you look at the orders that are stacked up on both manufacturers' waiting-to-be-built list, guess what? Yep. A good percentage of those brand-new 777s and 747s were ordered by carriers that are based in the Asia-Pacific region. It may take more than low oil prices to keep those shipments coming.
The first major shoe fell to the floor this week, when
that they were in discussions with Boeing regarding the cancellation of their order for four 747-400s currently on order from the company.
Boeing officials issued a statement Wednesday stating that PAL had not yet canceled the orders. But I think they will be canceled, or at the very least delayed. The carrier is concerned, and I think rightfully so, that --considering the Philippine peso's decline as well as declining passenger volume -- the new aircraft may be something they just can't afford.
The Philippine's financial woes were present before the latest downturn in the Asian economy, however, as we had previously discussed in terms of
last fall. The carrier missed lease payments to World last summer and was forced to negotiate a swap out of their contract with World.
It was also reported this week that Indonesian airline
has defaulted on two installment payments that were due in December on planes from Airbus -- which are scheduled for delivery in December.
And in a related move,
announced this week that they were shutting down their Philippine operations this month. The carrier flies passengers between Manila and San Francisco, and also flies cargo routes out of Manila.
While such heavyweights as
have not indicated any desire to formally cancel orders from either manufacturer, a spokesperson for Boeing did indicate the company was watching the Asian order situation "closely." Well, while no cancellations have been publicly announced, it is our understanding that there is scrambling around behind the scenes -- carriers are requesting delayed deliveries, or are expressing a willingness to swap for a later delivery date. In addition, in terms of particular aircraft, the aircraft leasing market has suddenly become very quiet.
An interesting upside to potential Asian carrier cancellations or delays, however, is the fact that this may open up slots for U.S. carriers to obtain wide-bodied aircraft sooner than would have been possible otherwise.
One carrier that could benefit is
. It is my understanding that Boeing and TWA have discussed a scenario where TWA could obtain two or three 777s fairly quickly, because of requested delays in 777 deliveries from other carriers that are based in the Pacific region.
TWA needs larger aircraft. The carrier is on the verge of obtaining a direct route to Japan from St. Louis as part of the U.S.-Japan aviation agreement, and has no wide-bodied aircraft underfoot to fly the route, as the last of their 747s is about to be retired.
So maybe, in at least this case, that baloney about making lemonade from lemons is not that far off.
Holly Hegeman, based in Dallas, pilots the Wing Tips column every Thursday for TheStreet.com. She is long Herb, err, Southwest Airlines. This is a special "extra" column. You can usually find Holly, publisher of PlaneBusiness Banter, buzzing around her airline industry Web site at www.planebusiness.com. Holly welcomes your feedback at