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Abu Dhabi-based airline Etihad announced on Tuesday a $575.0 million deal with aero-engine manufacturer Rolls-Royce to buy and maintain eight engines, for use in Airbus A330 aircraft due for delivery between 2009 and 2011. Etihad has already picked Rolls-Royce engines to power 16 other A330 aircraft, as well as for 34 other Airbus planes. Tthe long-term "Total Care" maintenance agreements included will last for 15-20 years and should keep service sales flowing for the engine-maker.
Yahoo! BuzzShares of Rolls-Royce advanced 2.2%, to 321.25 pence ($4.76), in London, while Airbus parent European Aeronautic Defense and Space (other-otc: EADSF – news – people ) gained 2.1%, to 11.52 euros ($16.11), in Paris. Defense company Thales (other-otc: THLEY – news – people ) also rose 1.7%, to 29.74 euros ($41.59), in Paris.
Whether demand from the Middle East will continue to grow is open to question. The high oil prices of the past few years have frittered away to some $40.00 per barrel, crimping government investment and threatening travel demand. Although airlines such as Emirates, Qatar Airways and Etihad could once be relied upon for stacks of new aircraft orders, the region may not be such a sure bet anymore.
"We don’t expect next year to get a huge raft of orders from the Middle East," said Rupinder Vig, an analyst with Morgan Stanley. "We will see a few people delay orders. But the advantage for Rolls-Royce is that they are continuing to capture market share and are selling two-thirds of their new engines on long-term Total Care contracts, which gives them greater visibility and locks out competition."
Another reliable region for aerospace growth, China, is feeling the pain of the global economic slowdown. The Chinese aviation authority said earlier this month that airlines would have to cut back, defer and perhaps even cancel orders from plane-makers such as Airbus. It may not be long before the Middle East follows suit.
Theodore is the Co-Founder and Managing Editor of TravelDailyNews Media Network; his responsibilities include business development and planning for TravelDailyNews long-term opportunities.
