ANALYSIS-UPDATE 1-U.S. airlines may cancel more aircraft orders

(Adds Airbus comment)

By Kyle Peterson and Karen Jacobs

CHICAGO/ATLANTA, April 8 (Reuters) - U.S. airlines, which have already downsized, may be forced to defer or cancel more aircraft orders if the prolonged recession further erodes travel demand and continues to choke credit markets.

Experts say the possibility for more order modifications in the near future is growing. That's bad news for airlines in need of modern aircraft, and also for plane makers.

"Once (airlines) start looking at what they need for the future and trying to preserve as much cash as they can, I think it's quite possible we'll see some major order deferrals if not outright cancellations," Jim Corridore, airline analyst with Standard & Poor's Equity Research said this week.

For U.S. airlines that currently lag foreign rivals in fleet renewal, the need is great for fuel-efficient planes to bolster their competitive positions and to meet potential demand for heightened energy conservation. Meanwhile, plane makers Boeing Co. (BA.N) and Airbus (EAD.PA), who get paid when they deliver aircraft, face a weaker growth outlook. Airlines already are discussing changes to their plane orders, said J.P. Morgan analyst Joseph Nadol.

"With no sign of relief on traffic growth, a number of airlines are in negotiations with Boeing and Airbus for order modifications, and agreements may be reached in the coming weeks," Nadol said in a March 25 research note.

"Falling demand should ultimately prompt Boeing and Airbus to cut rates, and while the timing is uncertain, we see announcements coming sooner rather than later," added Nadol, who expects a cyclical decline in commercial aerospace orders starting in 2010.