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The effect of cheap oil on the jet-making industry

Adam Allington Jan 13, 2015
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The two largest suppliers of passenger jets, Airbus and Boeing are continuing to rack up huge sales.

The two companies reported purchase contracts of around 1,500 new orders each for 2014. Together, Boeing and Airbus face a combined backlog of some 12,000 unfilled orders, enough to keep their profits stable for years to come.

But while falling oil prices are good news for airlines, the trend doesn’t necessarily bode well for the jet makers’ biggest customers.

“There will be less oil revenue flowing into places like the Arabian Gulf where airlines like Emirates, Qatar and Etihad have been ordering planes by the hundreds,” says Seth Kaplan of Airline Weekly.

Airlines operate on notoriously thin margins and are always looking to cut costs. So, whether oil is cheap or expensive, Kaplan says newer planes with better technology will remain in demand.

However, cheaper gas could also prompt airlines to also keep aging, less fuel-efficient jets in service longer. Future investments, however, aren’t likely to change drastically based on the current price of oil.

“Remember the order cycle is pretty long,” says Webster O’Brien, an Airline planning strategist with ICF International.

“So, a lot of the investment is made based on, not on yesterday’s fuel price, but essentially where the industry feels it’s going overall,” he says.

O’Brien notes that cheap gas does offer incentives for startups, who could expand into markets cut out by previous rounds of airlines contractions.

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