Farnborough Air Show flies into oil-price storm

The extent to which soaring oil prices are affecting commercial aviation will fly into focus next week when key players from the sector descend on the Farnborough International Air Show near London.

Oil-producing Gulf states are set to make large orders for commercial planes at the week-long event thanks to mountains of fresh cash they are earning from record-high crude prices.

Etihad Airways, the national carrier of the United Arab Emirates, has said it is likely to announce bumper orders of between 50 and 100 aircraft at Farnborough, a biennial event which opens on Monday.

However public airlines in countries suffering from inflation, the credit crunch as well as slowing and negative economic growth, may find it difficult to afford big deals, according to some analysts.

Aircraft makers argue that record crude prices could in fact be a driver for airlines to fast-track investment in more fuel-efficient planes, such as the Airbus A380 and A350, as well as Boeing's Dreamliner.

"We see a bigger demand for replacing older, less efficient aircraft," Randy Tinseth, Boeing's vice president of marketing, said Wednesday as the US planemaker published its 20-year outlook on commercial aviation.

Kerosene, the fuel used to power planes, is distilled from crude oil, which earlier this month struck record highs close to $147 a barrel.

Rocketing fuel costs are pushing up inflation which has greatly contributed to weaker economic growth around the world, and in the case of Denmark, a recession.

"There will be some orders (at Farnborough). Even at the bottom of the most horrible recession there are always some orders," said Nick Cunningham, an analyst for the commercial aviation sector at Evolution Securities in London.

"Clearly the issue in the Gulf is there are plenty of people with money. Looking at everybody else, there are vastly huge problems."

Cunningham added: "The biggest problem which is still developing and hasn't really crystallized yet is that the very large increase in fuel costs for the airlines is going to lead them to put in very big fare increases.

"We've only seen the start of that so far with the fuel surcharges that have gone on. The way it goes is there will be higher fares and then lower traffic. The immediate effect of this is lower orders" for planes, said the analyst.

Twenty-five airlines went bust or stopped operations in the first six months of this year and more could fold as fuel prices soar, a spokesman for aviation industry association IATA said on Tuesday.

The list included airlines big and small from all regions, such as Cameroon Airlines, Denver-based Frontier Airlines and UK-based business class airline Silverjet.

In comparison, in the six months following the attacks in New York and Washington on September 11, 2001, only eight airlines folded, including Swissair, Belgian flagship carrier Sabena and Australia's Ansett.