Is 60 aircraft per month output too high?

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By TESTCustomwebLP TESTCustomwebLP April 20, 2015 20:09

Is 60 aircraft per month output too high?

International passenger travel rose 4.6% in February from February 2014 and up from the 3.7% increase in January 2015. Economy class travel drove the rise in volumes in February, up 4.8% year-on-year, a sign that fares are falling perhaps. However, the year on year results are proliferated by the Lunar New Year occurring one month later in 2015 (in February). The recent growth trend in premium international passenger travel has flattened over the past several months. Premium international air travel volumes saw a 2.3% rise in February year-on-year. The rapid expansion of Chinese, Indian and Middle Eastern passenger numbers is being somewhat offset by the near total collapse of Russian transits and weakening African and South American markets. The European market, despite improved Eurozone business confidence, was particularly weak in January 2015, up just 0.3% for premium class, and 1.6% for economy – notably slower than the trend in 2014, which averaged close to 4% overall, this is in part due to Russian and North African markets shrinking back.

Mexican/US routes are performing well with passenger demand outstripping airline capacity through March 2015. In the US market there are signs that American Airlines is instigating a price war. Airline fares in the USA fell 1.7% in March from February and over 5% year on year. American is offering low forward booking rates at this time and it remains to be seen if Delta and United will follow.

Against this backdrop of continuing global passenger demand increases despite the shrinking Russian air travel market, one has to feel for easyJet, which pulled out all the stops to win the Gatwick Moscow route in a bidding war with Virgin only to see demand fall off a cliff a number of months later.

South African Airways is trying to reach Eastwards to revive its fortunes and it is currently in talks with Air China about a partnership that could see the Air China take a stake in SAA, no doubt in return for increased Chinese investment in the South African mining sector (as reported on Friday). Air China already has close ties with SAA, with SAA doing a deal in December 2014 that saw it halt Beijing flights in favor of selling tickets via Air China as part of the SAA 90-day turnaround plan that is seeing it cut unprofitable international routes. Air China would only invest if Beijing asked it to.

Meanwhile China’s low-cost carriers could be kicked out of Shanghai Pudong International Airport and Hongqiao International Airport along with a number of domestic cargo operators in a bid to ease pressure on the airfields, according to Jiang Huaiyu, director of the CAAC East China Regional Administration. He is on record as stating that low-cost, cargo airlines and private jets might soon be required to base themselves in either Nantong in Jiangsu Province, or Jiaxing or Ningbo in neighboring Zhejiang Province to ease pressure on the key international hubs of Shanghai. If this were to happen then the effects on Spring Airlines would be significant – It is a story worth following.

Meanwhile, Airbus has passed the 1,500 A330 order mark and one wonders what the future holds for the A380?  Emirates president Tim Clark said again on Friday that he is still waiting for a decision from Airbus over a possible A380Neo, and secretly he must have been hoping that the recent huge Rolls Royce order would have speeded things up. Emirates said it would place an order for 200 A380s if they were upgraded versions. Problem is how much is Emirates willing to pay Airbus and Rolls Royce under such an order? If they can work that out then chances are the announcement will come at the Paris Air Show in June amid full fanfare.

Meanwhile Airbus is concentrating on the A350 and A320. Airbus says it will deliver 15 A350s this year, while it plans to increase production of the A320 to 50 planes a month from 42 month between now and 2017 with talk of production increasing to 60 aircraft per month by 2020. With both Boeing and Airbus pushing production levels of the 737 and A320 types to new highs, one wonders what that will do to the residual values on current in service narrowbody aircraft, not to mention what it will do to lease rates in the near future.

Boeing and Airbus need the cash so have to increase production but we all recall what overproduction of the A320 did to lease rates and values as soon as one or two operators fell by the wayside. With manufacturer output at very high levels, asset values will be more susceptible than ever to price declines.

The weak euro may yet see smaller companies in the Airbus supply chain repatriating work to Europe over the course of 2015. Airbus has of late had quite a few supplier problems, especially in the seat department, as reported here in January.

Fabrice Bregier, chief executive of Airbus Group’s passenger jet division, went so far on Friday last as to state: “I think the cabin equipment suppliers would do well to have an equivalent level of industrial maturity to that of aircraft manufacturers. They are big industrial companies now, they are not small companies, so they must put in place measures to meet their obligations. It is becoming unacceptable.”

Zodiac Aerospace is the main problem for both Boeing and Airbus – Both manufacturers have intervened by placing more people in Zodiac factories to help overcome the delivery delays, and are insisting on vetting Zodiac seat sales as an “exception” to their catalogs, but one wonders – how can production rates increase towards 60 aircraft per month without massive overhaul at Zodiac Aerospace?

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By TESTCustomwebLP TESTCustomwebLP April 20, 2015 20:09