Wednesday, February 11, 2015

Aboulafia: Commericial Aviation in Good Shape…For Now

By Jeremy Dwyer-Lindgren / Published February 11, 2015


Richard Aboulafia. Image: Courtesy of the Teal Group

Richard Aboulafia. Image: Courtesy of the Teal Group

LYNNWOOD, Washington: The commercial aviation industry is in “really good shape,” at least for now, said Richard Aboulafia, vice president of analysis at the Teal Group on Wednesday. He discussed current growth, but warned of future slowdowns in wide-ranging remarks on the industry during the annual Pacific Northwest Aerospace Alliance (PNAA) conference outside of Seattle.

EXTRA: Airbus Versus Boeing: The Numbers for 2014

“For the past 11 years we’ve had a super cycle,” said Aboulafia. Driven in large part by consistent access to cheap cash, combined backlogs for the major manufacturers have soared to record levels as airlines rushed to refleet, topping 13,000 frames representing hundreds of billions of dollars in sales. As manufacturers and suppliers rush to fill demand, deliveries are at all-time highs. Traffic numbers, even for cargo, have turned the bend and are trending upward.

Aboulafia dismissed concerns that newly low oil prices would have an impact on re-fleeting decisions, though he added that exactly what impact they would have long-term was unclear. Regardless, the successes of the industry has turned it into a $130+ billion sector, doubling its value in only 10 years and “continuing to defy expectations of a slowdown.”

The Boeing 747 production line. Image: Courtesy of JDL Multimedia

The Boeing 747 production line. Image: Courtesy of JDL Multimedia

Airbus and Boeing  in particular show no signs of letting up, both having captured the lion’s share of that cycle as each has [mostly] successfully marketed a number of airplane programs in the past 10 years.  Aboulafia believes that their duopoly won’t be broken anytime soon either, projecting that neither Bombardier, Comac, or Irkut will make any significant inroads in the near future.

EXTRA: Airbus Breaks Delivery Record in 2014

Yet the bulk of recent orders have not been for the shiniest new toys, like Airbus’ A350 and Boeing’s 787, but instead, re-engined variations on existing platforms such as the A320neo, 737MAX and 777X programs, and Embraer’s E2.

EXTRA: Boeing Aircraft Deliveries Up 12 Percent in 2014

Aboulafia believes that much of the decisionmaking stems from the industry’s conservative nature when it comes to new tech, perhaps especially as the long-shadow of the 787 debacle continues to loom.

But it could also be even simpler: they just don’t want to pay a premium for the gadgetry, opting instead to seek out proven platforms with new power plants – at a similar price point to the original. “The market is being shown every conceivable technology and is saying ‘please just give us new turbines, that’s all we are willing to pay for,’” Aboulafia said.

An A380 on Airbus's final assembly line in Toulouse, France. Image: Courtesy of Airbus

An A380 on Airbus’s final assembly line in Toulouse, France. Image: Courtesy of Airbus

While the general theme may have been quite positive, not everything was sunshine and roses. Aboulafia acknowledged that while business is good now, the current growth rates are not sustainable. “Among the OEMs there’s a feeling that we should be going up 10 percent every year forever. I’m real concerned about a self-inflicted bust,” he said, predicting that the industry could turn south around 2020. “If orders start to sink, will that present a problem?”

Aboulafia lambasted Airbus’ A380 program, stating that he hopes that the company will take a pass on the neo. There is a “divergence between can they or should they,” he said, noting repeatedly that the A380 is an airplane that no one wants (outside of Amadeus and Emirates). He projected the last of the superjumbos will roll off the line in 2021.

Boeing didn’t escape Aboulafia’s crosshairs either. He noted that the 787 program still continues to lose roughly $30 million on each airplane that rolls out the door, a cost that Boeing continues to defer despite its recurring nature. Labor and supply chain also came under fire, in particular the manner in which the company has increasingly sought to squeeze both. Finally, he predicted the 747 would wind down by 2019, stating that despite Boeing’s claims of a cargo recovery to bolster sales, it would need a huge resurrection to have a shot.

Aboulafia also spoke to Boeing’s continued slide in its market share versus Airbus. He believes that Boeing will continue to maintain its edge in the widebody sector with the introduction of the 777X line — “The guy with the biggest twin wins,” he said — but the company has a long-known hole in the narrowbody sector.

The quickest solution would be to simply reintroduce the now-dormant 757, a product Aboulafia says “died before its time.” If it does, or manages to create a similar airplane to fill the gap, Boeing could maintain a 55/45 edge (in terms of dollar value, not necessarily frame count) over Airbus. If it doesn’t, Airbus’ wildly popular A320neo family will edge the European manufacturer ever closer to parity.

Cover Image: Courtesy of Embraer

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