On its second day, the Aircraft Finance & Commercial & Business Aviation conference mostly focused on airframes.
For a start, John Feren, Senior Vice President of the Aviation Capital Group confirmed yesterday’s good news. The overall economic footprint of leasing companies remained still limited. He expects the number of leasing transactions to double this year. In his experience, air transport has “nine lifes like a cat”.
Kostya Zolotusky, Managing Director of Boeing Capital Markets Development, followed with a look into the shifting financing paradigm of aircraft financing. It has been a long way from the traditional credit operations in favour of the ordering airline to today’s aircraft asset-focused financing often involving leasing companies as intermediaries. It should be noted that the objective of these instruments has been to enable the expansion of smaller and weaker airlines.
Back in the 1980s they largely contributed to the expansion of air transport as a response to two symbiotic phenomena. The first was globalization following delocalization of industrial production and service provision to “low wage” countries. It was mainly the IT and telecom revolutions that made this possible. The second was the general pressure on cost of production. It became known as neoliberalism. As we all know it focused on the immediate profit instead of the long term gain… and is the root cause of the current crisis. Well, that is another story. Nowadays, an operator can chose among four ways to secure new or used aircraft. These are assistance by commercial banks, punctual operations on the capital market, traditional export financing assumed by the country of manufacture of the hardware and leasing operations. In practice, they are often combined.
One detail did not escape attention. As in almost any economic activity, the weight of the Western or “First” world is slowly but gradually declining. New entrants from the Middle East and China confirm the relative stagnation or even decline of the Occident. In this context, the specific Islamic financial institutions are noteworthy.
James Halstead, a senior aerospace analyst of “Aviation Economics” conducted a not too serious survey about the perception of air transport by the participants. Most of them agreed with the speakers that the worst of the recession was over. In their opinion, the airlines would find back to pre crisis profitability only after 2012. They were also sceptical about the sustainability of the current luxury interiors of the A380. As early as 2015 the operators would squeeze more seats in their machines in order to make them more profitable. The real clincher was the vote about the manufacturer who would initiate the next major technology leap in the narrowbody market. It was Airbus and no longer Boeing. Maybe this mirrors one facet of the long discussed “decline of the U.S.”
Finally the eagerly expected product update of “A + B” came. Despite a low net order income, the last year had been excellent again. The market share was 66 percent net. The 1000th A330, the 4000th A320 narrowbody and the 6000th Airbus aircraft were delivered. The latter was an A380 of Emirates.
Since 2004, the year the Boeing B787 Dreamliner was launched, Airbus had sold 600 A330 aircraft. The A350XWB is now well under way and has reached 505 firm orders by 32 customers. it is an open secret that even Toulouse has to overcome more problems than expected with their composite reply to the B787. One insider even warned that, like the challenger from Seattle, the A350XWB may be delayed by up to one and a half years. Although it remains small there is a growing faction of specialists who are critical about composite materials promoted as the next revolution in airframing.
As all insiders confirm, Airbus will most probably hold to the successful A320 narrowbody design for at least another decade. It will be revamped instead. A first optimization is the “Sharklet” winglets which reduce fuel consumption by 3,5 percent. A major step, most probably announced later this year, will be the adoption of a new engine. Airbus hopes to limit investments and hopes that its competitor will be in the same situation.
Boeing is getting over the recent crisis. It should be noted that it has underestimated the huge difficulties with the B787 Dreamliner. Finally it had its maiden flight in December 2009. The other new programme is the latest version of the B747 Jumbo Jet. Dubbed the B747-8 it is bound to set the new standard in the freighter market. Like Airbus it hopes to keep investments limited. Therefore Boeing has launched optimizations for still successful B737 series.
Both manufacturers are indeed put under pressure by the new CSeries under development by Bombardier. As Philippe Poutissou, Vice President Marketing of the Canadian company pointed out, the new aircraft family with a capacity from 100 to 149 seats will be a game changer. It promises far higher efficiency. Therefore this clean sheet design may become a serious competitor to the established narrowbodies of Airbus and Boeing.
For once both manufacturers agree. They will try to prevent the emergence of this new competitor. At the same time they intend to keep investments down. This pressure is the main motivation of the systematic updates. Their customers remain in the established fleet path dependences. The new CSeries seems by now accepted in the market. After a first spectacular oder by Lufthansa for its Swiss subsidiary, a leasing company and some days ago Republic ordered some 90 units altogether.
The future may keep some surprises in store.
Meet you tomorrow at the concluding Day 3.