Single-aisle Segment Takes Over Giant Aircraft MEXICONOW Staff Report
In spite that China's economy is cooling off, Europe's has been weakened by its debt crisis and the U.S. economy has been sluggish, Chinese, European and U.S. carriers keep ordering aircraft. Commercial aviation has weathered many downturns in the past. Yet recovery has followed quickly as the industry reliably returned to its long-term growth rate of approximately 5 percent per year.
According to Boeing's Current Market Outlook 2013-2032 (CMO), despite uncertainties, 2012 passenger traffic rose 5.3 percent from 2011 levels. Randy Tinseth, Boeing's Marketing VP explains: "We expect this trend to continue over the next 20 years, with world passenger traffic growing 5.0 percent annually. Air cargo traffic has been moderating after a high period in 2010. Air cargo contracted by 1.5 percent in 2012. Expansion of emerging-market economies will, however, foster a growing need for fast, efficient transport of goods. We estimate that air cargo will grow 5.0 percent annually through 2032."
The CMO report states: "We forecast a long-term demand for 35,280 new airplanes, valued at $4.8 trillion. We project that 14,350 of these new airplanes (41 percent of the total new deliveries) will replace older, less efficient airplanes, reducing the cost of air travel and decreasing carbon emissions. The remaining 20,930 airplanes will be for fleet growth, stimulating expansion in emerging markets and innovative airline business models."
"Approximately 24,670 airplanes (70 percent of new deliveries) will be single-aisle airplanes, reflecting growth in emerging markets such as China, and the continued expansion of low-cost carriers throughout the world. Wide body share will also increase, from 23 percent of today's fleet to 24 percent in 2032. The 8,590 new wide body airplanes will allow airlines to continue expansion into more international markets." Please see the accompanying graphics in this article as shown in Boeing's CMO report.
Not surprisingly, Boeing sees a continuation of good times for air transport, since Airbus and Boeing hold a combined backlog of nearly 9,500 aircraft. That means they are already 27% of the way to filling the forecast total.
Four billion passengers traveled last year; by 2032, Boeing says that figure will be 9 billion. Boeing's view has been bullish for years and it occasionally meets skepticism from analysts who question whether passenger growth will sustain the huge orders placed by specific carriers in emerging markets. But by all accounts, according to Tinseth, Boeing's long-term forecasts have been accurate despite market dynamics, and if anything, they have been conservative.
According to Tinseth, the single-aisle segment has exceeded expectations while large aircraft have underperformed.
Jens Flottau of Aviation Week magazine explained: "The crucial point in this: As a result of the global financial crisis that cast its shadow in 2008 and the currently moribund economic development- even in the world's most significant growth markets such as China- airlines have become more risk-averse than in the past. Many just cannot afford the massive investment needed in the huge aircraft, and many others have also seen the great benefits of consolidation as shown in the U.S., where tighter capacity control - unheard of historically- has led to a strong improvement in profits, particularly within the past two years. As airlines see the benefits of bypassing the biggest wide bodies, the question is whether they will stick to that pattern or if it is just a temporary measure that will be surpassed by the requirements. Airbus of course argues that the current softness in the market is a temporary phenomenon."
Fabrice Bregier, Airbus CEO explained in an Aviation Week Magazine interview to an inquiry if he thought the A380 came too soon for the market:
"Perhaps it was launched a bit early, but we have it. It works and it is a fantastic aircraft. Look at Emirates and how they get their market share that is also due to the A380. The first customers have not optimized the aircraft from a cost point of view. We do not see high-density A380s. We have a lot of open space, which is nice, but it does not mean that there is any revenue attached to it. I think you can manage higher-density layouts without sacrificing customer comfort. And that helps to improve the performance of the aircraft. We are now clearly moving in this direction. We were probably a bit too exotic in its configuration in the beginning."
More cloudy skies for the giants
Max Kingsley-Jones of Flight Daily News reported on an alternate explanation for the giant aircraft woes:
Airbus remains convinced that the ultra-large aircraft market is as big as its product offering, predicting some 1,710 sales over the next 20 years. Boeing's estimate is less than half that, at 760 (both figures include freighters). However, supporting evidence if high demand in the size category has been thin on the ground.
According to the manufacturers' own numbers, from the beginning of 2012 to last May, airlines have placed just eight net orders for the A380 and 747. Gross orders over the past 18 months stand at 19. In the past five years, 109 new orders have been placed for A380s and 747s. But cancellations have meant orders of the two bog quad-jets have grown by just 75 aircraft. These are almost entirely A380 orders, as nearly all the new 747 deals have been offset by the cancellation of existing contracts.
Cancellations and deferrals are probably to blame for Airbus having some open delivery slots in 2015, but Airbus sales chief John Leahy insists that this availability is not evidence of a weakening appetite for the type. He is maintaining his target of 25 this year, as Airbus embarks on a new advertising campaign for the aircraft.
However Boeing maintains that the drivers it says are redefining the shape of airliner demand are evidence of why the US market has been moribund for the big Airbus. John Wojick, Boeing's global sales senior VP points to the US market's multiple hub system as preventing Airbus from securing a customer for the passenger A380 variant there. "Why are there no A380 operators in the USA? Because there are so many multiple hubs. You can connect passengers from anywhere in the USA over probably 10 different hubs to most international destinations", he says.
GE Aviation is bullish
"This is a monumental time in the aerospace industry" as an unprecedented ramp-up in production of commercial airplanes and engines coincides with an unprecedented introduction of new technologies, says David Joyce, CEO of GE Aviation.
GE Aviation is investing #3.5 billion in plant and equipment over the next five years to industrialize such new technologies as lightweight and temperature-resistant ceramic matrix composites (CMCs) and 3-D "Printing" of complex engine parts. "Above and beyond that is $1.2 billion in research and development this year alone", he says.
GE Aviation will produce 4,300 engines a year by the end of this decade, up from 3,800 next year and 2,800 in 2010. 500 wide body engines will roll out of GE in 2013, double the rate of 2010. GE and its partners now have 30,000 engines in service, a number that will leap to 46,000 in 2020. Its backlog for equipment and services now stands at $103.4 Billion.
Not a bad year after all
Boeing's CMO report described 2012: "Airlines continue to adapt to the dynamic business environment. Operating statistics suggest that airlines are deploying capacity strategically to help boost yields and cover higher fuel expenses. Passenger traffic continues to grow at or above trend. Passenger traffic grew 5.3 percent in 2012 compared to 2011, while capacity grew at a rate of 3.9 percent. This led to an industry-high load factor of 79.1 percent in 2012. Despite a challenging economy, 2012 was one of the best years the airline industry has had since the Great Recession. In 2012, airlines earned $7.6 billion profit.
Asian airlines and North America contributed the most to profitability. IATA forecasts an even more profitable year in 2013, with traffic following the trend of at least 5.0 percent annual growth."
A report from Flight Daily News with data from PricewaterhouseCoopers (PwC) states that for the 100 biggest firms, 2012 was the best year ever in terms of revenue and profit, topping even 2011 - which broke the all-time record set in 2010. Last year, with surging commercial aircraft sales more than making up for a softening defense market, sales reached $695 billion and operating profit hit $59.8 billion, up by 45% and 2% respectively. When it came to delivering commercial airlines, the 2012 total of 1,189 aircraft was a whopping 18% higher than the record year of 2011, in which the 1,000 mark was breached for the first time. To put that growth in context, go back to 1999; then, Airbus delivered 294 aircraft, half of Boeing's tally and exactly half the number it handed over to customers last year.
Considering orders, 2012 broke expectations by eclipsing the 2,000 mark for the second consecutive year and for the third time in history. With a book-to-bill ratio of 1.7:1, the industry is now sitting on a record airliner backlog of 9,000 aircraft.
Even in the defense business - supposedly suffering from the European downturn and US sequestration- order backlogs rose, with the 10 biggest companies closing the year in $497 billion in orders to fill, up from $494 billion at end-2011.
Indeed, as PwC sums up in its 2012 industry review, a decade of steady growth in defense spending has aligned with the longest up cycle in commercial aviation history. But, cycles cycle and what goes up does, eventually come down. Looking forward, PwC sums up: "having well managed the growth and achieving record results, the industry must now effectively weather the down cycle."
Aviation is a dynamic industry that continuously adapts to various market forces. Key market forces that impact the airline industry are fuel prices, economic growth and development, environmental regulations, infrastructure, market liberalization, airplane capabilities, other modes of transport, business models, and emerging markets. Each of these forces can have both positive and negative impacts on the industry. Fuel is now the largest component of an airline's cost structure. This has driven manufacturers to produce more efficient airplanes, while encouraging airlines to pursue cost reductions and revenue enhancements in other areas in order to maintain profitability, even with higher fuel costs.
The industry hopes that Boeing's Current Market Forecast proves itself conservative when it can be compared to reality in a not too distant 2032.