Airbus, Boeing on the defensive

EasyJet may order 100 jets from Boeing or Airbus at the air show

LONDON, England (CNN) -- The battle for supremacy at the Farnborough air show in southeast England on Monday will be a tense one this year, as the airline industry struggles through a post-September 11 slump.

At the last Farnborough air show -- which alternates with Paris as Europe's biggest air show -- orders worth about $52 billion were racked up, according to the show's organiser, the Society of British Aerospace Companies.

The show has also turned into a bun fight as Boeing and EADS -- which owns 80 percent owner of Airbus -- tried to outdo each other. Both would save up orders to steal headlines, but Boeing has decided -- after losing out -- to drop out of PR battle.

The airline industry has lost about $12 billion over the past year, but now the two biggest protagonists Boeing and EADS will be hoping their defence businesses can drum up orders to see them through the downturn.

"I'm not sure there are going to be many orders as the airline industry restructures," Keith McMullan, at London-based consultancy Aviation economics, told CNN. "The big players will be hoping defence spending increases, especially from the United States."

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President George W. Bush has proposed to increase defence spending by $48 billion to $379 billion for the coming fiscal year. And European countries, which have slashed spending since the end of the Cold War, have begun raising their defence budgets.

Britain plans to spend an additional £3.5 billion over the next three years, while French President Jacques Chirac said France could no longer afford to trail Britain in military spending.

Analysts do expect some orders to be announced at the show. EasyJet, Europe's second-biggest low-cost airline, could announce an order for 100 planes from Airbus or Boeing, said McMullan.

Low-cost airlines -- like Ryanair (RYA) and Easyjet (EZJ) -- are expanding their fleets as demand continues to grow, even as traditional national flag carriers cut routes and jobs, and ground aircraft to counter the impact of an economic slowdown and the effects of September 11.

Ryanair Chief Executive Michael O'Leary expects traffic to grow 30 to 35 percent a year over the next two years, exceeding the company's owns estimates, before "steadying back" to 25 percent a year.

Europe's fourth-largest airline KLM is expected to announce on Monday plans to buy 12 Airbus A330-200s for as much as 1.5 billion euros -- based on catalogue prices -- to replace 12 Boeing 767s.

But orders are under pressure. Airbus and Boeing together expect to deliver 680 jets this year and up to 600 next year.

Airbus hopes to bank sales of its NH-90 military helicopter as airline orders decline

Their backlog of orders are not guaranteed, and many airlines may consider canceling orders unless some orders are heavily discounted. According to some analysts, Boeing and Airbus have cut prices by as much as 40 percent to keep their factories busy.

Airbus' parent EADS, or the European Aeronautics, Defence & Space Co. (PEAD), will be keen to emphasizes its defense credentials. Key projects -- the NH-90 Helicopter, Storm Shadow long range cruise missile and the Eurofighter (Typhoon) warplane -- are expected to boost revenue by 50 percent to 9 billion euros by 2004, EADS has said.

Boeing makes about $1.3 billion from military aircraft and missiles, and analysts have little doubt it would benefit from Bush's increased spending. Some of the money would be funnelled back into updating its aging but lucrative civilian aircraft range.

Its commercial jet unit had second-quarter sales of $7.7 billion, down from $9.3 billion in the same period a year ago.

But Chief Executive Phil Condit has said he could not predict when jet deliveries would rebound.

"I'd be hesitant to say I know where that turnaround is," Condit said last week as he delivered second-quarter earnings. "My best guess is that the bottom is likely to be '03."