After several years of red-hot sales following the Great Recession, commercial-jet orders have slowed dramatically since 2015. So far, 2017 is shaping up to be the worst year since at least 2010 for aircraft orders.
However, the Paris Air Show, the largest air show of the year, is coming up next week. Historically, aircraft manufacturers have saved up lots of order announcements for this show. This year, it's particularly urgent for Airbus (NASDAQOTH:EADSY) and Embraer (NYSE:ERJ) to bring in some significant orders.
Airbus hits a bump in the road
In recent years, Airbus has built up the largest order backlog in the history of the commercial-aircraft business. From 2011 to 2015, the company received an average of 1,258 net orders per year. However, orders have slowed to a crawl this year.
Through the first five months of 2017, Airbus booked just 73 net orders, and that may actually overstate its order activity, as Airbus has recently suffered some high-profile order deferrals that could eventually turn into cancellations. Most notably, American Airlines and Delta Air Lines both deferred their orders for the Airbus A350 this spring.
Airbus still has massive order backlogs for the A320 and A350 aircraft families, allowing it to weather an order slump easily. By contrast, Airbus was down to 125 orders for the current-generation A330 widebody by the end of May, representing less than two years of production. It also has 210 firm orders for the next-generation A330neo, but some of those orders aren't scheduled to be delivered for a decade. Unless Airbus gets more orders soon, it could have to reduce production as early as 2019.
The situation is even worse for Airbus' A380 jumbo jet. While Emirates still appears to be a fan of the A380, other airlines have lost all interest in Airbus' largest model. Airbus is already reducing its production, but it may have to end the program earlier than planned if it can't find some new customers for the A380.
The chances Airbus will land an A380 deal at the Paris Air Show next week are slim. Getting some A330 or A330neo orders might be more feasible -- and that should be Airbus' main goal for next week.
Embraer needs some orders soon
Embraer has a much smaller backlog than Airbus. Accordingly, it has an even greater need to bring in new orders next week. As of the end of March, the company had 157 firm orders for its current-generation E-Jets, of which more than half are scheduled for delivery by the end of 2017.
Embraer's next-generation jets are set to enter service beginning in early 2018. But while Embraer reports having 275 firm orders for its E2-series jets, 50 of those orders come from a bankrupt Indian airline that has ceased operations. Another 100 orders come from U.S. regional carrier SkyWest, which won't be able to use the new E175-E2s it has ordered unless the legacy carriers are able to renegotiate their pilot agreements, which may be a long shot.
Thus, the arrival of the E2 jets won't immediately solve Embraer's looming order gap. On the company's most recent earnings call, management acknowledged that Embraer will need to reduce its commercial-jet production next year if it doesn't get enough orders during 2017.
Year to date, Embraer has booked just one commercial-jet order: a four-aircraft deal with American Airlines. It's hoping for a much better result on a full-year basis, with good prospects in China -- and to a lesser extent, the U.S.
That said, Embraer has struggled thus far to convince airlines that it makes sense to right-size capacity on lower-traffic routes with smaller planes. If it can't close some major deals in time for the Paris Air Show, investors could reasonably start to worry about significant production cutbacks next year.
An important week
The Paris Air Show is always a big event, but it's particularly important this year, as the big aircraft manufacturers could really use a shot in the arm for several key aircraft programs. Airbus can take comfort in its large backlog, but it still needs more orders for the A330 and A380 families to avoid production cuts. Meanwhile, the recent order drought at Embraer means that it's absolutely critical for the company to finalize some deals next week.
Check back later this week for a look at what U.S. aerospace giant Boeing needs to achieve at the Paris Air Show. And next week, I'll be covering the latest news on order announcements during the air show.