By Nancy J. Gonzalez
2014 was an outstanding year for the aviation industry. Lower oil prices and increases in passenger traffic and airlines’ profits forecast 2015 will continue with this trend.
Passenger traffic as measured by revenue passenger kilometers (RPK) was up nearly 6% in 2014, and capacity was up nearly 5.8%. The result was record load factors of almost 80% worldwide.
Airlines continued using their airplanes more efficiently, as demonstrated by utilization rates that were 15% higher than those of a decade earlier. The lower oil prices and various increased efficiencies favor airlines profit of US$20 billion during 2014.
Last year was also a record year for airplane manufacturers such as Boeing and Airbus. Over 1,490 jet airplanes were delivered, and airlines ordered approximately 3,680 new airplanes.
Global economic expansion is expected to continue, but some regional changes are expected. The bottom line is that with a favorable cost environment and strengthening demand, many airlines will see opportunities for record profits in 2015; therefore, the global commercial airline market is thriving.
To keep the pace of the market, aircraft manufacturers are improving their products, while offering new designs to fulfill their customers’ needs.
Single aisle leads the growth
The single aisle segment will lead the growth in aircraft demand for the next two decades, according to the Boeing Current Market Outlook 2015 - 2034.
As shown in Exhibit #1
, Boeing forecasts a demand for 38,050 new airplanes over the next 20 years, an increase of 3.5% from last year's projection. These airplanes have an estimating value of US$5.6 trillion.
"The commercial airplane market continues to be strong and resilient," said Randy Tinseth, vice president of Marketing, Boeing Commercial Airplanes. "As we look forward, we expect the market to continue to grow and the demand for new aircraft to be robust."
By the end of the forecast period, the commercial airplane fleet will double, from 21,600 airplanes in 2014 to 43,560 airplanes in 2034. Fifty-eight percent of the 38,050 airplanes delivered over that time will be to accommodate growth.
The report states the single-aisle market continues to be the fastest-growing, largest overall segment, requiring 26,730 airplanes over the coming two decades. These aircraft are the foundation of the world's airline fleet, carrying up to 75% of passengers on more than 70% of the world's commercial aviation routes.
The single aisle has increased from less than 60% of shipments forecast between 2005 and 2024 to more than 70% from 2015 to 2034.
This sector is fueled by growth in low-cost carriers and airlines in developing and emerging markets, the forecast says.
According to Tinseth, about 35 percent of the single-aisle market will go to low-cost carriers. "Low-cost carriers will require airplanes that combine the best economics with the most revenue potential," he said.
Each region will respond to its unique situation and conditions with specialized requirements. Middle East airlines continue to favor widebody airplanes and premium passenger services to leverage the area’s geographic advantages and prominence in business travel. Europe and North America airlines will respond to growing competition from low-cost carriers by replacing older, fuel-inefficient airplanes with more economical single-aisle models.Exhibit #2
shows aviation is also becoming more diverse. The Asia Pacific region has the higher aircraft demand, approximately 40%. This region will need 14,330 new airplanes by 2034, valued at US$2.2 trillion.
An additional 40% of the new fleet will be delivered to airlines in North America and Europe, 7,890 and 7,310 new airplanes, respectively. The remaining 20% will be delivered to the Middle East, Latin America, the Commonwealth of Independent States, and Africa.
Small and medium size twin aisle aircraft will continue to comprise 20 to 25% of the new deliveries. Boeing´s forecast show airlines will need 4,770 small widebody and 3,520 medium widebody units in the next two decades, while the orders for large widebody will only account 540 aircraft. (As shown inExhibit #3
"We've seen two years of solid growth in the air cargo market and we expect that growth to continue," Tinseth concluded.
Even though some economic changes are expected in the different regions, the aviation forecast for 2015 expects a positive year for the industry.
Manufacturers juggle with orders, deliveries and technical problems
Aircraft manufacturers have a challenge on board. The market is thriving, but also changing; therefore, they need to develop more efficient and high tech aircraft.
Some aircraft manufacturers such as Bombardier and Mitsubishi are developing and testing new programmes, while others like Airbus are improving their aircraft, trying to fulfill the needs of the market.
Every single aircraft manufacturer is facing their own challenges to design, to test, to manufacture or to deliver their products.
Bombardier wants to dispel skepticism over its ability to maintain the pace of industrial progress. To excel, the company boasts new assets: A revamped sales team and even better performance aircraft than advertised.
Bombardier executives said the company will be proactive to ensure the C-Series finds a position in the Russian market. This series comes after a two-year delay.
Fred Cromer, Bombardier´s newly-appointed head of the commercial aircraft division, said the company is focusing in the performance of the series.
“Given the success we have had in the flight test programme, it´s a new level of confidence that we can go out and talk to the marketplace that we said we were going to do on a piece of paper is what we´re going to deliver,” Cromer said in a recent interview. “I can tell you not every new aircraft programme has been actually been able to deliver what they´ve promised early on. But from where we sit right now we feel very comfortable telling you the aircraft is going to deliver what we said it was going to deliver.”
The 18-month-long flight test campaign shows the CS100 is essentially the aircraft Bombardier promised it would be. The aircraft might be slightly overweight, but its overall performance is good as promised. The CS100 can fly 3,000nm while reducing 20% fuel consumption and 15% less cash operating cost, as advertised in 2008.
Even though Airbus has no new designs, the manufacturer is busy with several incremental developments for the A350-1000 XWB, the A320neo, the A330neo, the A330ceo versions and the Beluga XL. The business case for an A3280neo does not appear compelling yet.
The A320neo has more than 420 hours flight. However, flight testing was on hold due to a failure on the engine. Although this issue is a delay for Airbus, the company is confident that certification will take place by the end of the year.
“The main problem is deliveries,” said Fabrice Brégier, CEO of Airbus. “Airbus is about to increase the rate of monthly production for the A320 from the current 42 to 50 by 2017. A rate of 60 by 2020 is being considered if it becomes necessary.”
To reach this goal of 50 aircraft per month, the company will install an A320 final assembly line in Mobile, Alabama, set to begin on September 2015.
Also, Airbus is ramping up the production of the new A350XWB. The company already committed the delivery of 15 aircraft this year. Two years from now, the company forecasts a 10 to 12 aircraft monthly rate.
“A350´s ramp –up is key to beating Boeings in terms of deliveries,” said Brégier. “In 2017, a reengined version of the A330neo – powered by Rolls- Royce´s Trent 7000 – will steady replace the A330 classic.”
At that time, the monthly production rate of the A330 will decrease from nine to six aircraft.
In the other hand, the A380 is having some improvements to enhance revenue and reduce unit cost. The A380 main deck economy seat row is one of 4 new cabin interior options it is offering.
Although an Airbus customer wants the company to develop a new generation A380, the programme is edging into breakeven on a unit basis this year.
Chris Emerson, Airbus senior vice president of marketing, said the “Max Abreast” row is for A380 customers wanting to reduce economy-seating unit costs to levels like those of competing low-cost carriers while offering better comfort.
Boeing´s 737NG production will have a boost in the following years. The manufacturer will go from 42 to 47 aircraft a month by 2017, then to 52 by 2018.
The Panel Assembly Line (PAL) fastens stringers to wing-skin panels at twice the rate Boeing could manage using the traditional process. This PAL process improves accuracy, consistency, and repeatability, the company said.
Also, the 787 programme represents a challenge for Boeing because the rhythm of crisis management has gripped since it entered production. The 787 order book might contract slightly, but mostly it continues to grow through the crisis to where it peaks today at over 1,100 aircraft.
Even though the fastener shortages, structural redesigns, and production bottlenecks are problems already solved by Boeing, the new challenge for the 787 programme is cost control. In the first quarter, Boeing reported that the first 255 787s delivered generated deferred losses totaling US$30.9 billion. Two years ago, the forecast for deferred cost was a peak by the end of 2014, but now the company says this cost will continue rising well into 2016.
By deferring the cost, Boeing is employing an accounting policy for highly capitalized industries and it allows the company to record and operating profit on each aircraft delivery. Those extra costs are recovered by deliveries of later aircraft, which are expected to cost less to build.
Even though cost control is a problem, Boeing is pushing production to increase production to twelve 787s per month next year.
Larry Loftis, Boeing´s 787 vice president and general management, said plans call for an increase in rate at the plant in Charleston, South Carolina from 3 to 5, while in Everett, Washington, the company consolidates the production of seven airplanes into a single line.
The United Aircraft Corporation (UAC) is facing many challenges. The depreciating rouble has driven up the cost of imported systems from suppliers; western sanctions are threatening Russian access to a globalized supply chain and customer base, and debt is jeopardizing the stability of the Sukhoi Surperject, UAC´s premier commercial aircraft programme.
Five years ago, the UAC unveiled two strategic goals: Capture 3% and 10% of the commercial and military markets, respectively, by 2025. Nowadays, these goals might be modified.
“Basically, these figures are still workable,” said Yuri Slyusar, UAC chief executive, in a recent interview. “The latest economic turmoil has led us to promise the board of directors to develop sort of anti-crisis programme to increase effectiveness and to cope with recent economic conditions.”
Even though UAC is keeping its crisis response plan confidential for now, Slyusar acknowledges some budget-cutting will be necessary.
The supply base for UAC might also have a major shift. Industry consolidation in the U.S. and Western Europe favor the creation of a large collection of Tier-1 suppliers.
Slyusar said the rouble deterioration and the currency fluctuations favor domestic manufacturers and suppliers to switch some of their international suppliers in the process of Superjet modernization and MC-21 development.
Even though the Russian government cash injection has saved Sukhoi´s airliner from financial ruin, a slow starting production of the Superjet programme had already produced a series of annual losses and overall debt of US$2.5 billion.
Also, the currency fluctuations increased the cost of the Superjet 100´s heavily imported aircraft systems. The 86-seat regional jet remains critical to the Russian aviation industry to regain commercial aircraft global market.
To support Sukhoi, President Vladimir Putin had committed to inject US$2 billion into Sukhoi Civil Aircraft (SCAC), relieving the UAC subsidiary of a crippling debt load at a critical moment.
Flightyglobal´s Ascend Fleets database lists 66 aircraft delivered 4 years after entry into service, while 115 firm orders remain in the backlog and 77 letters of intent to buy have been signed. Mexico´s Interject was the first Western Superjet customer and still remains as a sole carrier.
ATR is growing and to keep this pace, the company is making changes to increase the size of its final assembly line in Toulouse to 30,000 square meters, compared to 8,000 square meters eight years ago.
In the Toulouse facility, ATR wings made in Bordeaux are attached to the fuselages made in Pomigliano dÁrco, Italy by Alenia Aermacchi, before the cabin interiors and cockpit avionics are fitted.
The ATR turboprops are then painted by al local Airbus contractor or flown to central France. Each ATR takes 10 months to make. The company also has improved its delivery facilities.
Mitsubishi is ready to begin the flight test period for its MRJ program on September or October. This regional jet was schedule to begin the flight test period on spring 2015. Despite of this delay, Mitsubishi continues to cite 2Q2017 first delivery target.
Yugo Fukuhara, vice president of sales and Marketing for Mitsubishi, explained the company could have flown the airplane in March – as previously planned – but the company wanted to review the strength if the ram air turbine (RAT) and address certain software bugs.
He said the company could perform the flight test and then solve these problems. However, Mitsubishi decided it would rather wait to fly the airplane until the fixes were in place, in the interest of performance.
The first two flight – test airplanes are fully assembled and the company plans call for the first flying prototype to perform envelope expansion and system tests. The second will carry out performance and function tests, while the third will evaluate detailed flight characteristics and avionics tests. The fourth will perform interior, community noise and icing tests, while the fifth will assess autopilot function.
China and Russia continue their plan to develop a next-generation widebody jetliner. The plans are to develop three new models.
The baseline version of the proposed twinjet will be able to transport 250 to 280 passengers up to 6,476 nm. The following versions will be the smaller and stretched models of the same airframe.
The terms of this agreement show the first flight would be achieved around the middle of 2021, followed by certification in 2024 and initial deliveries. The basis for the agreement forged between the UAC, Comac, and Avic was a consensus reached between Russian president Vladimir Putin, and his Chinese counterpart, Xi Jinping, last year.
Embraer is preparing its new E2 line for enter in service in the first half of 2018. This new programme is an adaptation of the E-Jet.
The company´s strategy for this adaptation is to avoid direct competition with Boeing and Airbus. Embraer´s jet direct competition is Bombardier and its CSeries jet.
According to experts, financing instruments to customers could offer a clue to at least the level of confidence shown by the financial community in Embraer´s or Bombardier´s products.
Embraer´s programme includes the latest generation engines, in conjunction with new aerodynamically advanced wings, full fly-by-wire controls and advances in other systems to improve fuel burn, maintenance costs, emissions and external noise.
The global commercial airline market is thriving. The figures recorded last year were positive for the market and the forecast show 2015 will also be positive.
Many airlines are replacing their fleet and the emerging markets have a high demand; as a result, more orders will be place in the next 20 years.
To keep up this pace and fulfill customers´ demand, aircraft manufacturers are upgrading their products, while creating new programmes. Many of them are struggling with new technology, cost control, technical details, production and delivery, but most of them are positive the companies will achieve their goals.
The biggest risk factor is China’s growth, if China slows down, the 20-year forecast will necessarily suffer.