Tuesday, February 2, 2010

Rising Fuel Prices, Falling Aircraft Orders

Boeing is projecting revenue for 2010 to be 5 percent less than last year. The bigger dropoff could come in 2011, though, as aircraft orders being placed now for manufacture next year are declining, according to a Reuters report, not just at Boeing but also at Airbus.

The value of an airplane depends a great deal on the cost of operating it, much of which is the cost of fuel. Part of the reason for the decline in airplane orders is the projection of rising fuel prices over the next ten years. With the global economy recovering, and in the absence of reforms in the way crude oil is traded, there is nothing to stop world oil prices from going higher than they were at their peak two years ago. The projections from Boeing of declining orders reflects, I believe, a consensus view among companies in the transportation sector that oil prices will be going higher.