An Industry Overview
As you will have seen last week, I was invited to an Industry Overview by Airbus, held in London, the session looked at:
- “State of the Union”
- Customer Finance Update
- Fleet Transactions and Movements
- Product Updatehttp://mackenzie-morgan.com/wp-admin/post-new.php?preview=true
- A350 XWB Technology Update
- Maintenance Costs and Reserves
The day was attended by representatives of the leasing companies, aircraft marketing and technical support organisations.
State of Union
Looking first at the economic picture it was clear that the downturn was significantly deeper and longer lasting than was originally predicted, however, it appears that we are on the up-slope. Again what was clear is that the downturn that affected the world was not equal; Japan, Western Europe and the USA being the most severely affected, as opposed to China and other Asian emerging markets that while suffering a slowing of their growth they did not enter recession.
There is a substantial backlog of aircraft deliveries, distributed across the traditional and emerging markets; the backlog has doubled in size in the last decade. The greatest changes in the backlog are in the new markets of the Middle East, China and Asia, including India. Airbus is on target to repeat last years number of deliveries, an impressive display bearing in-mind this year’s economic picture! They have managed order-book and assisted where ever possible/necessary with funding suggestions.
As the utilisation of the operation fleet has been reduced to match demand, it has demonstrated an increasing excess of capacity, equivalent to a fleet of 300 aircraft; better that the peak this year of 500 aircraft and 1400 during mid 2003 and the SARS epidemic. Equally the number of stored aircraft is lower than the historical highs seen in 2001 and 2003, with the majority of stored aircraft in the 1990s generation; such as 737 Classics, 757s, 767s, A300-600s and A310s.
What is clear is that a country’s GDP increases, the population have a greater desire to travel; with the huge populations in India and China, small increase in GDP and desire to travel will have significant effects on the gross number of people travelling. Predictions for the next 20 years are showing a need for 25 000 aircraft in service, with two thirds of those being single aisle aircraft. Aircraft will get larger, operating more point-to-point routes to overcome the operational constraints.
Customer Financing
As a simple engineer, this was the most challenging part of the day! Export Credit Agencies, Sale & Lease Back and Equipment Trust Certificate all vehicles for purchasing large capital items, aircraft. There is an increasing use of these alternative methods for procuring aircraft, access to commercial markets still depressed due to the credit crunch and a tightening of lending standards by the banks, overdue?
Fleet Transactions and Movements
There has been a negligible change in the operational fleet over the last 2 years, plus 2%, deliveries of new aircraft mirroring aircraft retirements. The largest change in the operational fleet has been 1990s generation, a reduction of 16%. As before the growth areas have been in the emerging markets of China and the Middle East. Removal from service of Soviet aircraft types is significantly higher than that of Western types of a similar vintage. It is clear that the new aircraft deliveries are not supporting growth but the replacement of older generation aircraft.
Conclusion
These are my conclusions based on the information provided. We, as an industry, can see the light at the end of the tunnel, we are not going to see the levels of growth previously seen return immediately, but operators are considering fleet replacement programmes to remove older, less efficient aircraft from the operation. Tough times still to come, but we might just be able to think that things are getting better!
