The state of the market

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By admin July 10, 2014 14:34

The state of the market

There is so much going on today that it is hard to know where to start, so please do ensure that you read down today’s news in full: We have IndiGo and that possible A320Neo order, the wonderful figures from American and good figures from United and much more besides. However, since we are on the eve of the Farnborough airshow, we should consider the current state of the commercial aircraft market.

As we reported yesterday, the Emirates 777X deal confirmation for 150 aircraft will take some topping at Farnborough next week, but Airbus is trying with its A330Neo to make the show its own. But in all this there is the undercurrent that the airframe manufacturers have let a very powerful genie out of the bag, consider the facts.

It all started with John Leahy and his team having the fantastic foresight to break the order and delivery cycle and increase margins and market share by utilising the new engine technology then being talked about by Rolls Royce, which ended-up being P&W alone with the GTF. This strategy meant ditching the R&D spend, ditching the long lead times and run through a slightly-lightened airframe with far lighter cabins due to new technologies in seating and connectivity (we should not forget the importance of this factor), throw on the new engines and hey presto there is the upgraded aircraft customers so desperately wanted without the R&D spend. We gave John Leahy the Aviation 100 Face of Aviation award for his foresight and it remains a wonder to this day that Boeing did not have the same levels of gumption in their team to see this all coming. As it was Boeing was left scrambling around wondering what to do with itself before being forced into the 737Max by America Airlines and CFMi. Record orders for the Neo and Max followed and the rest is history other than to add that the continued popularity of the 737-800 across order books shows clearly that Boeing were right to resist updating what remains the gold standard.

So fast forward two years and we have a situation where every airline wants an upgraded and re-engined version of their current aircraft. Boeing, with the launch of the 777X, really laid down the gauntlet. They effectively said to Airbus, ok if that is how you want to play it with the launch of your A350-1000 then fine, cope with this. Boeing had the space in its family to launch a 777X without the aircraft encroaching on orders for the 787. For Airbus though the predictable calls for an upgraded A330 came fast on the back of the 777X launch and it is a nightmare for poor Airbus. As mentioned here many times before, any A330Neo will without question both overlap on the A330s currently flying and on order and with the A350-800, which would be all but killed-off by any A330Neo launch. In launching any A330Neo Airbus will be accepting that A330 orders and A350 orders alike may well be converted and the program may well end-up simply robbing Peter to pay Paul creating a loss not a gain for Airbus – unless that is they can come up with sizable new launch orders. Airbus is in a predicament as it cannot launch the A330Neo unless it gets the all-important critical mass of launch orders and that means getting something more than letters of intent and order conversions at Farnborough next week from the likes of CIT, Intrepid, AirAsia and dare I say it – Delta, who started the whole process rolling but remains likely to move towards Boeing for aircraft.

However, I feel that the best fit in the market today will be a sizable launch order from Lufthansa for the A330Neo that will facilitate the launch of its low-cost, long-haul operation. I feel that were it not for the profit warning from Lufthansa last month then this would have been a done deal. Although they claim they are not making any order announcements next week, it could still happen. Never underestimate the power of Lufthansa Group when it comes to launching new Airbus aircraft.

But in all this do you not get the feeling that the airframe OEMs have lost control of their own destiny to the engine manufacturers? The all-powerful Rolls Royce Aero Engines is now able to not only control the aftermarket and control the economic life of an aircraft through the same but it is now also able to seemingly control what aircraft are brought to market through new technology launches, which are in effect forcing the airframe OEMs to launch aircraft updates and in so doing force other engine OEMs to move with them and do the same.

The future is uncertain bar one distinct fact – Rolls Royce will have massive market control within a decade. So–what do you do? Well, if I were forced to gamble my house on any shares in the long term then I would have to throw the lot on Rolls Royce as the only way is up. But with power comes responsibility (so said someone in a movie somewhere) and so we should expect more give coming from Rolls Royce on aftermarket control or else we face a future where cries of “monopoly” will ring in the ears of regulators, while aircraft will depreciate far faster than they do now because the engine assets are worthless on the open market for part out. It is all very exciting and not just a little worrying, but who said commercial aviation was ever dull.

admin
By admin July 10, 2014 14:34
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