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Global slowdown fears overshadow Singapore aviation show

02/14/2016 | 12:51am US/Eastern
South Korea's Black Eagles aerobatics team perform a maneuver during a preview of the Singapore Airshow at Changi exhibition center in Singapore

Aerospace leaders gathering for this week's Singapore Airshow face conflicting pressures as they juggle growing concerns over jetliner demand while keeping record production plans on track.

Worries about the effects of a faltering global economy and tensions in the South China Sea overshadow the two-yearly event in Singapore, which is both a major commercial travel hub and home to Southeast Asia’s most potent and best-trained air force.

For now, airline traffic continues to grow rapidly, spurred by continued growth in Asian household incomes, while airline profits also benefit from low oil prices.

But as aerospace industry shares fall in step with tumbling global markets, analysts increasingly question the durability of an aerospace expansion cycle now in an unprecedented eighth year.

After a lackluster show in Dubai in November, the industry's expo bandwagon rolls into the crucial Southeast Asian region without the carnival atmosphere of previous years.

"All the thoughts that this is no longer a cyclical industry have disappeared. We are due for a down-cycle," said aerospace consultant Jerrold Lundquist, managing director of The Lundquist Group."(But) I don't think there will be any impact in the next 18-24 months. It is when you get beyond 24 months that you might see some softening."

Southeast Asia is one of the industry's major drivers and has placed record orders in recent years, leading to speculation of overcapacity. Some carriers, including Philippine Airlines, are expected to acquire new aircraft this week.

But rather than counting up new orders, analysts say investors' main concern this week will be to check for signs of waning travel or jetliner demand and whether an overloaded supply chain is in danger of breaking as manufacturers work to turn a record backlog of orders into a smooth flow of deliveries.

"We will be keeping a close eye on traffic this year to see if we can detect emerging signs of weakness," said Rob Morris, head of consultancy at UK-based Flightglobal Ascend.

Doubts over economic conditions have not stopped Airbus (>> Airbus Group) and Boeing (>> Boeing Co) pursuing a battle of wits over new designs.

Airbus, anxious to close the gap between its new 369-seat A350-1000 and the 406-seat Boeing 777X, is seeking an influential champion such as Singapore Airlines for a potential bigger version of its A350 series, industry sources said.

Boeing has said it will decide soon on a potential new "mid-market" jet with about 240 seats to retrieve lost market share for relatively small jets - a project that could lead to a small twin-aisle jet with an unusual, oval-shaped cross-section.

Industry experts will scour comments out of Singapore from both manufacturers for clues to what products they intend to launch ahead of July's premier aviation event at Farnborough, southwest of London, coinciding with Boeing's centenary.

Defense remains at the forefront of the Singapore show, amid growing tensions over Chinese maritime and territorial claims that compete with those of several Southeast Asian nations.

A number of regional states are looking into ways to beef up their fighter fleets and to boost their intelligence gathering, surveillance and reconnaissance capability.

Intense competition to provide maritime surveillance equipment may also characterize the event, along with a significant presence of Western and Asian unmanned aircraft.

At a pre-show gathering on Monday, airline executives will debate the economy, threats to airliner safety from drones, and efforts to cut jet emissions after the Paris climate summit.

(Reporting by Tim Hepher; Additional reporting by Anshuman Daga, Alwyn Scott; Editing by Eric Meijer)

By Tim Hepher and Siva Govindasamy

Stocks treated in this article : Airbus Group, Boeing Co, Lockheed Martin Corporation
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