Big Paris air show starts amid tough times for aviation

The Paris Air Show will open Monday under an uneasy pall, with plenty of reasons for gloom.

This month's still-unexplained crash of a relatively new Air France Airbus A330 over the Atlantic resonates particularly in the country where the jet was built and in the city where it should have landed.

The mood of the aviation business was already darkened by the worldwide recession, which has airlines pressing Boeing and Airbus to delay scheduled jet deliveries.

And with the business-jet market in free fall, two leading makers of such smaller planes, Cessna and Gulfstream, aren't even showing up in Paris.

A much-needed lift to commercial aviation's spirits is due by the end of the month with the imminent first flight of Boeing's long-delayed 787 Dreamliner, but that won't be until after the air show.

That means most of the business deals that move forward in Paris could be on the military side of aviation. Hot defense topics at the show include a potential big fighter-jet order from India, the proliferation of unmanned flying machines and the ongoing battle over the U.S. Air Force refueling-tanker contract.

In a normal year, the Airbus-vs.-Boeing rivalry in commercial airliners prompts a reliably glitzy array of news conferences with order announcements. But this time, those orders will signify little.

"The great market-share war is a lot less important now," said industry analyst Richard Aboulafia, of the Teal Group. "It's not about the orders. It's about the air traffic."

Boeing and Airbus have fought each other to a stalemate during recent years, splitting the market evenly and amassing massive order backlogs.

Keep those orders

Now the desperate imperative for both is to hold onto those orders to maintain production rates — and jobs — in the airplane factories of the Puget Sound region and Europe.

In Paris, both will offer cautious assurances of stability, but the challenge ahead was made clear at last week's meeting of the International Air Transport Association (IATA) in Kuala Lumpur, Malaysia.

The IATA doubled its previous forecast of the airline industry's 2009 loss to $9 billion — on top of an estimated $10 billion worldwide loss last year.

"There is no modern precedent for today's economic meltdown," said Giovanni Bisignani, the IATA's director general.

Surprisingly, despite the gloom, Boeing's share price is up 72 percent from its recent low March 3, compared with 30 percent for the Dow Jones industrial average.

That can be attributed to Boeing convincing Wall Street it will meet its delivery schedule this year and that a planned 2010 slowdown in the 777 wide-body production rate won't expand to include a cut in 737 output as well.

Aboulafia thinks the market is far too optimistic on that score.

He acknowledges the decline in air traffic is not as steep as it was in the early months of this year. But the drivers of air-traffic growth in recent years — rapidly emerging markets in Brazil, Russia, India and China; Middle East carriers funded by high oil prices; robust financial markets that filled business-class seats — all these are still missing.

"This could be a dead-cat bounce," Aboulafia said. "It's the recovery that comes from no longer being in free fall. That's great. Just don't have high expectations of continued growth."

In this depressed market, the Boeing Commercial Airplanes delegation in Paris is pared back to a bare minimum — about three dozen people, down from about 70 people last time.

Looking to a better future beyond the current horizon, Boeing's Pat Shanahan will report Tuesday on the 787 Dreamliner, keenly aware that success only begins with flying the plane, which is scheduled by the end of this month.

Aviation analyst Adam Pilarski, of consulting firm Avitas, predicted that in light of the recent Airbus crash during bad weather, Shanahan will need to respond anew to concerns about how a composite-plastic airplane will hold up in a lightning storm.

"After the Air France crash, it's bound to be on everybody's mind," Pilarski said.

For their part, Airbus executives will have to address the low and slowing production rate of the A380 superjumbo, at a time when the troubled market shows ominous signs of turning away from the company's flagship jet.

Steven Udvar-Hazy, CEO of the world's largest airplane lessor, International Lease Finance Corp. (ILFC), told German business weekly Wirtschaftswoche in Kuala Lumpur last week that he sees "a general structural change in the industry and in the way that airlines think about the A380."

"Interest is weaker than expected, in particular among the Chinese," Udvar-Hazy said. "If I were Airbus I would be very worried. At current production rhythms, it will be very hard to make money with this plane."

Subsidy debate revived

In private meetings in Paris, Airbus will take the opportunity to talk with high-level European government ministers about providing funding to develop the A350, a new composite-plastic jet that will compete with Boeing's 777 and its 787 Dreamliner.

That will resurrect the Boeing-Airbus battle over government subsidies, even as the U.S. and the European Union await a World Trade Organization ruling on the dispute, which is expected this year.

But the dispute resurfaces now in a vastly changed economic order. Can the U.S. government, majority owner of General Motors, still object to industry subsidies with a straight face?

"Airbus' ability to access cash to bring the A350 to market has been greatly helped by the global move in favor of government funding for everything," said Aboulafia.

Still, Congress could react badly to Airbus pleading for subsidies in Paris. Such a move cannot enhance Northrop's hope of winning the Air Force tanker contract with an Airbus A330.

With President Obama's election, the political tide on the tanker award is already perceived to have shifted heavily toward Boeing's 767 because that plane is built by unionized workers in mostly Democratic-leaning states.

Northrop and Airbus parent EADS will use every opportunity in Paris to argue against any political thumb on the scale when the contract is opened for rebid later this summer.

Military might

The flying displays planned at the show include a 40th anniversary parade of all of Airbus' jets, from the A300 to the A380.

But despite the awesome sight of an A380 on a low, slow flyby, military power will still steal the show.

For the first time, an unmanned craft will fly at the show, a drone helicopter made by Austria's Schiebel.

And the highlight of each day's flying display will be the astonishing acrobatics of the Lockheed Martin F-22 stealth-fighter jet, whose wings and aft fuselage are built in Seattle under a Boeing subcontract.

U.S. defense contractors, including Boeing, are keen to sell their less-advanced jets internationally. Boeing will fly its current F/A-18 fighter with an eye to impressing the Indian Air Force.

Boeing is favored to win a contract to sell 126 of these fighters to India, and possibly 60 more. If so, those will have to be assembled in India but will provide jobs in Missouri and California making parts.

Boeing also hopes to push sales of more C-17s, as well as foreign sales of the Poseidon anti-submarine jet based on the Renton-built 737.

Otherwise, Boeing execs will be happy to leave Paris and rush back to Seattle. They have a plane to catch: the Dreamliner.

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