The fourth global alliance

Dino D'Amore
By Dino D'Amore October 9, 2014 20:09

The fourth global alliance

Firstly it is of interest to note that when you ask the question of airlines: Why are you interested in the 737-900ER of late? Price is the factor that swings decisions. We have been given a range that is within 45-48% off of list prices for recent deliveries of the type. This has not yet been verified with Boeing (for obvious reasons).

As always, you can deliver an aircraft but can you deliver the parts to keep the thing in the air?

As we are all aware, in the past you had various avenues for parts supply but in the near future you will be limited to the OEM or at least OEM-approved parts and that limits the market so very much. Just look at the situation with GE90 engines and MROs fighting to get parts for the same with the largest MRO servicing some third party engines with parent aircraft as they come into the shop so they can keep the conveyor belt rolling. At this very moment, Rolls Royce are working away in Derby on a new system that can track engine wear more accurately so that (in part at least) Rolls Royce can produce parts at the required rate and ship them where needed at speed so as to try and avoid the recent GE parts supply problems.

One question will be the supply of 737 parts in the future. If your company is involved in MRO for the 737NG then you must be wondering what is going to happen with the program since at this time there is no timeline in place to cease production of the aircraft. Boeing in a reply to Airline Economics stated:  “There continues to be strong demand for the NG, especially from airlines that need airplanes earlier than when the MAX comes on line. However, we expect 737 production will dominantly shift towards the MAX, if not exclusively, by the end of the decade.”

On the reverse side of the great parts story (the actual manufacturing process), suppliers that have consolidated with assistance from the aircraft manufacturers in order to ensure that lower-tier firms can invest in the ramp-up of production, are yet to fully understand their power. These giants of the aerospace industry with growing margins are yet to make any real demands of the aircraft manufacturers as demands to ramp-up production are universally met. Are we yet to see the problems materialise that we here predicted some three years ago where in return for more productivity and hence further investment the parts suppliers start to ramp-up the cost to the aircraft manufacturer, as they now can with ease? Will this lead to aircraft engines in the future actually increasing in material value or will aircraft economic lives become even shorter as parts supply in mid-life becomes far too expensive to warrant continuing to hold onto a middle-aged aircraft?

These questions actually give rise to the (possibly) logical conclusion that high rates of aircraft production will come to the rescue of the market at large in the future as there will inevitably then be ample opportunity to partout. In a market without this leeway, airlines will have to renew aircraft before C-check in the future to maintain an ULCC or LCC business model. So if an OEM demands total control of all parts and are ramping up the cost of the same, are they not destroying the market model and breaking the circle? One thing is certain: An Allegiant business model would not be possible under such circumstances of total OEM control.

Meanwhile Etihad has made the move everyone has been hoping to see for many years now: The Middle East giant has launched a new brand that envelops Etihad and its five partner airlines in a group that will synchronise schedules and frequent flyer benefits in a similar way to the current three main global alliances. Etihad Airways Partners will initially include Etihad Airways, airberlin, Air Serbia, Air Seychelles, India’s Jet Airways and Darwin Airline. Note the word “initially” which was used in the press release. Could this allude to further airline partial purchases in the near future? PIA is on the table and one could argue that Etihad needs to expand this partnership into Africa at speed before it is unable to ever assail the Emirates juggernaut there. But Etihad is now saying that any airline can become an Etihad Airways Partner even if it is part of an existing alliance. Now that is indeed a shrewd move. OneWorld has no real rule regarding being a member of its alliance and another, but SkyTeam and Star Alliance are another matter entirely, and that brings us to the missing Etihad partner on the alliance list – Alitalia. Etihad Partners are holding out the olive branch to SkyTeam – If SkyTeam take it and allow Alitalia to remain a member whist being a member of Etihad Partners then they will set a precedent that will no doubt cause a flood of interest in the latter. Can SkyTeam afford to do this and can they afford to lose Alitalia altogether? SkyTeam is caught between a rock and a hard place on this one.

Dino D'Amore
By Dino D'Amore October 9, 2014 20:09