Backlogs May Dwindle For Manufacturers

Boeing and Airbus have both pointed to large order backlogs to convince financial analysts their commercial aircraft production operations will weather a recession just fine. Airbus recently estimated that about a quarter of its backlog might be at risk of cancellation in a deep recession, while Boeing would admit to only a few percent of its orders being "iffy."

But regardless of the level of confidence, even firm orders are just paper airplanes, if you'll excuse the expression. Now, we may be about to find out just how robust those backlogs are.

Economists have debated whether the recent boom in China would wither if the US fell on hard times. The Wall Street Journal now reports China has urged its airlines to cancel or postpone 2009 aircraft deliveries following an abrupt downturn in the air travel market there following the Beijing Olympics.

If the bottom fell out of the Chinese market, both Boeing and Airbus could find it necessary to cut production. That would be especially problematic for Airbus, given the European planemaker recently opened a dedicated production line for its A320 narrowbody airliner in Tianjin.

In the dark days after the 9/11 attacks in the US, robust demand from China helped planemakers offset depressed demand elsewhere in the world. This time, a feared slump in Chinese demand coincides with decisions by even financially sound airlines in other regions to cancel leases and waive options for new aircraft.

Boeing insists it has "had no specific request" to defer or cancel airplanes. An Airbus spokesman declined to comment to the Journal.

In its statement, China also announced reductions in fees and taxes on its domestic airlines, including rebates of some 2008 payments already made. Some Chinese airlines are already asking for more... in the way of a government bailout.

Call it the new capitalism.

FMI: www.airbus.com, www.boeing.com