Clipped Wings For Asian Airlines

Falling currencies and rising debt curb fleet expansion

On a tarmac outside Seattle sit three shiny new Boeing 737s, their tails painted in the deep blue colors of their buyer--Garuda Indonesia. But they won't be aloft anytime soon. With the rupiah down 45% since July, Garuda can't pay for them just yet.

The grounded planes symbolize the harsh reality hitting airlines across Asia. Plunging currencies, debt problems, and sharply lower forecasts for air travel are forcing executives to rein in their sky-high ambitions. Over the next three years, Boeing Co. expects that Asian orders for 60 planes will be postponed.

A downturn in Asia can be bad news for aircraft makers. The region accounts for a full one-third of the $1.1 trillion in commercial aircraft sales expected over the next 20 years. Already, the gloom has forced Boeing Co. to delay launching new 777 models. Investors have pushed Boeing's stock down by 8% to around $50 since Dec. 8, when word of spreading postponements surfaced. Asia worries prompted Merrill Lynch & Co. to cut its 1999 earnings-per-share estimate for Boeing by 14%, to $3.60.

NICE PROBLEM. Boeing executives still exude confidence. After all, Boeing's biggest problem this year has been trying to keep up with a crushing backlog of 1,750 planes. So its production lines will be used to satisfy customers in the West. Also, Boeing believes the planes will still be needed in Asia. "You will not see cancellations," predicts Larry S. Dickenson, Boeing's vice-president for Asia sales.

But many analysts are not sure the picture is as bright. The fear is that if Asia's problems deepen, Boeing's customers will slash expansion. Carriers like Singapore Airlines, Korean Air, and Malaysian Airlines all have invested furiously as they vie for regional supremacy. But as their fleets swell, passenger growth has begun to flatten.

More worrisome are Asia's mounting debts. Malaysian Airlines, for example, has $4 billion in orders and options for 13 Boeing 777s. But it is strapped for foreign currency to service its $3 billion debt. Korean Air, meanwhile, has a massive $5.5 billion in debt and lost $190 million in 1996. The carrier's losses could triple this year. Predicts Hong Kong consultant Jim Eckes, managing director of Indoswiss Aviation: "Orders are going to be canceled by a number of airlines."

It's not all dark skies in Asian aviation. Carriers like Singapore Air and Cathay Pacific remain among the world's best managed and are well positioned to grow when the crisis abates. But for the next few years, Asia's airlines will have to cope with the excesses of the boom years. That means more jets may be stranded on Boeing's tarmac.