What's going on?
At the Dubai Airshow on Wednesday, aerospace companies Airbus and Boeing together closed more than $75 billion worth of deals to build new aircraft for carriers around the world – with Airbus claiming one of the largest orders in the company’s history!
What does this mean?
Airbus secured a deal to sell 430 jets to Indigo Partners, an investment firm that will lease them to several low-cost carriers it partially owns, including Frontier Airlines, Mexico’s Volaris and Europe’s Wizz Air. While plane manufacturers usually end up selling jets in bulk at about a 50% discount to the announced price, the deal is still a welcome rebound for Airbus, which has struggled to match its rival Boeing this year and is weighed down by disputes with Emirates Airlines over delivery of its massive A380 double-decker jet.
Boeing, meanwhile, announced that it would be selling about $27 billion worth of planes to FlyDubai, a carrier in the United Arab Emirates.
Why should I care?
The bigger picture: Once minor players in the sector, low-cost carriers are beginning to come of age.
In markets like South Asia, low-cost carriers already account for nearly 50% of all air traffic, while in more developed regions like Europe and the United States, they account for somewhere around 30%. On top of that, new leasing deals which effectively let airlines rent aircraft mean that upstart carriers don’t have to spend as much upfront to get planes in the air. However, low-cost carriers will need to prove that they’re expanding in step with actual customer growth, and not overheating – as some airlines may be doing…
For markets: Boeing and Airbus are both flying high in 2017.
Shares in Boeing have nearly doubled this year as the company has made efficiency gains in manufacturing, and demand for Boeing’s smaller passenger jets have led it to boost production levels by nearly 40%. Airbus’s stock has also performed well this year, as its short-haul, single aisle commercial jets are proving popular with high-growth low-cost carriers.