Grounded Boeing 737 MAX aircraft are seen parked in an aerial photo at Boeing Field in Seattle, Washington, July 1, 2019.

Lindsey Wasson | Reuters

Boeing and Airbus have reveled in a decade of airplane sales that outshined any other in history—but the period is ending on a sour note.

The biggest shock by far has been the grounding of the Boeing 737 Max after two fatal crashes in a span of five months killed 346 people. The worldwide flight ban — now in its 10th month — forced Boeing to stop deliveries and has ground new orders of Boeing’s best-selling jetliner nearly to a halt, draining cash and tarnishing the image of the biggest U.S. exporter.

Last week, Boeing abandoned its projection that regulators would lift the grounding by the end of the year after the Federal Aviation Administration chief chastised the manufacturer, saying he wanted to “directly address the perception that some of Boeing’s public statements have been designed to force FAA into taking quicker action.”

“Boeing reaffirmed with the FAA that safety is our top shared priority, and we committed to addressing all of the FAA’s questions as they assess Max certification and training requirements,” Boeing said in a statement after its CEO and commercial airline chief met with the agency in Washington D.C. “We will work with the FAA to support their requirements and their timeline as we work to safely return the Max to service in 2020.”

The beleaguered plane traces back to an arms race between Boeing and Airbus to deliver as many fuel-efficient planes as quickly as possible to airlines eager to cash in on a boom in air travel. The companies also sought to respond to airlines’ demands to cut fuel consumption with more efficient engines. Boeing rolled out what became the Max months after Airbus launched its new fuel-efficient model of its workhorse single-aisle jet, calling it the 320neo line. Boeing, based in Chicago, is now under scrutiny for failing to put in sufficient safeguards on the Max in the case of malfunctions.

But cracks in the rally of jetliner orders aren’t limited to the Max crisis. Both manufacturers will enter the next decade amid slowing air traffic growth and trade wars. Demand growth for their higher-priced wide-body jets that can fly longer distances has slowed the most, as carriers opt for nimbler, fuel-saving planes that can fly travelers on ever-longer nonstop flights, a trend that helped kill the largest jetliner in the world, the Airbus A380. Demand for wide-body planes remains relatively weak amid some softness in international travel and a slump in cargo.

A Singapore Airlines A380 passenger plane taking off at Changi International Airport in Singapore.

Fyrol Mohn | AFP | Getty Images

“The boom in orders is over,” said Sheila Kahyaoglu, aerospace analyst at Jefferies.

In addition to cheap interest rates, wanderlust helped fuel the surge in orders over the last decade. On the heels of the financial crisis through last year, air travel demand grew at about twice the rate of the global economy. Airlines raced to fit more seats on their planes and flights have been flying fuller than ever.

“People of my generation wanted to generate goods, processions. People of today’s generation are very much not of that mindset. They actually covet experiences,” Delta Air Lines‘ chief marketing and communications officer Tim Mapes said at an industry conference in August. “Travel today is so much more accessible. It’s all about the selfie shot in front of some exotic place with somebody that you care about.”

Over the last 10 years Boeing and Airbus racked up orders for more than 20,000 jetliners, up 66% from the previous decade.

Orders peaked in the middle of the decade. Airlines were concerned about the high cost of fuel, their single biggest expense after labor, and pushed for fuel-saving options, but when prices cratered their needs became less urgent.

There are also concerns about meeting demand. The two manufacturers are sold out on single-aisle planes until the middle of the coming decade and had already been struggling to keep up with demand. Aside from the airlines like Southwest and American that have lost hundreds of millions of dollars in revenue because of the prolonged Boeing Max grounding, Airbus; production delays have hit customers like JetBlue and Lufthansa.

Boeing and Airbus had order backlogs that are worth more than $800 billion by the middle of the 2019, according to aerospace and defense analysis firm Teal Group.

But those backlogs they have accumulated has helped send both companies’ stock prices to record highs.

“The industry is probably on the other side the peak,” said Ron Epstein, research analyst at Bank of America Merrill Lynch. “The question is is going to be a soft landing or a hard landing and it looks like a soft landing.”

Even after the first crash of the 737 Max, a Lion Air jet that went down shortly after takeoff from Jakarta in October 2018, Boeing’s stock hit a record high, earlier this year. Less than two weeks after the company’s stock hit a record, another nearly-new 737 Max crashed, that time an Ethiopian Airlines flight headed to Nairobi from the Ethiopian capital of Addis Ababa.

The investigation team inspecting debris from the crashed aircraft of the Lion Air JT 610 at the Jakarta International Container Terminal Port’s evacuation post, Priok, Jakarta, on Nov. 1, 2018. The Boeing 737 MAX 8 crashed into the Java Sea after takeoff from Jakarta on Oct. 29, 2018, killing 189.

Dasril Roszandi | NurPhoto | Getty Images

Since then the stock has dropped 21%, wiping about $45 billion in market capitalization off the Dow component. The losses could have been even deeper if Boeing wasn’t sitting on that backlog since many investors assume regulators will eventually allow the planes to fly again. Airbus’ stock hit a record last month of 136.40 euros, a share, the equivalent of $151.68.

A number of Southwest Airlines Boeing 737 MAX aircraft are parked at Southern California Logistics Airport on March 27, 2019 in Victorville, California. Southwest Airlines is waiting out a global grounding of MAX 8 and MAX 9 aircraft at the airport.

Mario Tama | Getty Images

Growth wanes

Growth in air travel demand has slipped globally. While demand in the U.S. — the world’s largest aviation market — has held up, weakness on international routes and a slowing economic expansion has weighed on the overall numbers. The International Air Transport Association, which represents most of the world’s airlines earlier this month said “traffic growth continues to be depressed compared to historical long-term growth levels, reflecting continued moderating economic activity in some key markets and sagging business confidence.”

Still, their backlogs are robust and manufacturers expect demand to continue for decades to come. Boeing, for example, forecasts global commercial aircraft deliveries of 44,000 planes worth $6.8 trillion through 2038. But in the nearer term, both companies face an uncertain sales environment in the coming decade.

They get paid the bulk of the price of the planes when they’re delivered, setting them up for risks if there’s a downturn.

“An order is not an order until the aircraft is delivered and paid for,” said Rob Morris, global head of the consulting business at aviation analysis firm Cirium. “In that context a high backlog is bullish but the credit strength of that backlog is critical since the aircraft need to be delivered for the [manufacturer] to achieve the expected revenue.”

Issues with larger planes are already hitting the manufacturers. Airbus earlier this year said it would shut its A380 program after about a decade, a brief lifespan for an aircraft, due to paltry demand. Boeing’s issues with the Max have left it hamstrung from pursuing a plan to build an all-new aircraft to serve mid-range routes. The company in October announced it would cut production of its 787 Dreamliners, long-range twin-aisle planes to 12 a month from 14.

The first Boeing 787 Dreamliner test plane is the centerpiece of an aviation-themed park at a Japanese airport. 

Source: Flight of Dreams

“If you’re a manufacturer you kind of got addicted to growth,” said Richard Aboulafia, analyst at Teal Group “How do you explain to investors: ‘It’s okay. It’ll be a plateau’?”

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