For the commercial airliner manufacturers, observes one industry analyst, getting through the recent Asian Aerospace show was all about 'brave faces and nervous stomachs'. Certainly, there was no shortage of brave rhetoric; how much this was aided by indigestion tablets may not be known for a few months.
If anything, the salesmen and marketing directors probably returned to their offices as uncertain about the future as when they first arrived in Singapore, home to the largest aerospace exhibition in Asia.
For Airbus and Boeing in particular, the current haze of uncertainty must be frustrating at the very least. Each has spent large amounts of time and money developing families of aircraft that are designed to meet every conceivable need of any airline. A stretch here, a wing root there and you have a niche product that gives the airline the optimum economics for each route as well as the commonality incentive to stay loyal to one brand.
But what happens when the economics are not so much about optimisation as about survival? Many of the stretched variants that now exist in the airliner families are aimed especially at the Asian market, and the fear now is that some might become orphans.
That is not the sort of talk you will hear coming from either Airbus or Boeing. For instance, Boeing's commercial airplane group senior vice president for Asia, Larry Dickenson, insists that the crisis will be short-lived and holds little threat to Boeing in the longer term. 'Industry observers will be amazed how quickly things will turn around,' he says.
The company admits it is negotiating with certain customers in the region to see how it can help them through the current economic difficulties, but still he anticipates postponements rather than cancellations and estimates that some 4,850 aircraft will be needed in the region over the next 20 years. Nor does Boeing anticipate giving away much of its claimed 77 per cent marketshare held in Asia-Pacific.
Airbus' president and chief executive officer Jean Pierson has a similar message, saying that recovery will take one to two years and describing the issue as 'purely managing the order book.' So far only seven Asian Airbus orders have been delayed.
So the industry is holding its breath and staying calm, or at least tight-lipped, in the hope that the Asian crisis may be smoothed over largely by heavy doses of bravado and long-term confidence. But if the cracks in confidence appear anywhere, it is at the top and bottom ends of the market.
At the top end, Boeing at least must be congratulating itself for not forging ahead with a very large aircraft to follow the 747-400. The US company has always insisted that it does not launch aircraft - the customer does. It did not see enough demand for the 747-500X or -600X to justify pursuing those ideas beyond the drawing board, and in the current climate it must be delighted to look back on that project merely as a paper memory.
But Boeing has floated several ideas about stretching the -400, in terms of both capacity and range. According to Joseph Ozimek, Boeing's director of product marketing, two stretch variants are being considered. The first would involve a 23ft fuselage stretch that would increase capacity from 420 to 480 seats, but slightly reduce range. The second would have a 31ft stretch as well as an 8ft wing root extension on each side, increasing capacity to 500 passengers and range to 7,800nm.
The second aircraft, known as the -400Y, would give an airline the ability to fly 500 passengers '. . . from anywhere to anywhere in the world,' says Ozimek, who adds that there is interest in such an aircraft. The problem, he acknowledges, is that the number of airlines interested is not very high, so a business case still has to be made before either variant can be launched.
Similarly, Boeing is still hovering over an extended long-range variant of the 777, the -200X. 'This aircraft will fly for 18 hours - 18 hours of ecstasy; you will love it!' jokes Ozimek. Boeing has not launched this aircraft either, but says it is offering it for sale. Given the Asian situation, however, and the fact that the -200X was originally thought to hold particular appeal for that region, Boeing does not expect anything to happen in a hurry. 'Launch to delivery time is not an issue here because it's a simple derivative,' says Ozimek. 'The issue is more about the order of priorities in which we do things. We think the best place to put this aircraft will be about 2002. If someone wanted it more quickly, we could do it. But we think that's unlikely.'
Airbus has not given up on its A3XX proposal despite the loud scoffs from its rival, but the launch date has been slipped by another year and some analysts believe it is more likely to be two. Pierson says the delay is to do with meeting engineering targets and not about establishing a business case. A 'particularly ambitious' direct operating cost target had not been met by the end of 1997, he says, but should be in place by the end of 1998. 'I have never seen such a determination in my board for a proposal.'
Industry observers are sceptical. 'It's a nice throwaway line to talk about engineering targets,' says Byron Callan, aerospace analyst at Merrill Lynch in New York. Wolfgang Demisch at Bankers Trust Research in New York makes another observation, based on the fact that Pierson retires from Airbus at the end of March. 'Pierson's last graceful act was to buy time for his successor to think about it,' he says. 'If there is a speedy recovery in Asia, then the very large aircraft concept may come back. As it stands right now, it's quiescent.'
At the opposite end of the big manufacturers' market, Boeing now has a good chance of pursuing the 100-seater market practically alone, but is treading equally warily. A recent tour of Europe to assess interest in the 717 - the former McDonnell Douglas MD-95 - showed that interest does exist in a 100-seater, says Boeing. However, the manufacturer still has to convince itself that it really can sell this aircraft before it will commit to developing smaller and larger versions. The resulting family could include an 80-seater, the 717-100, and a 120-seater, the 717-300. 'Clearly, people are wondering what Boeing is going to do for a family on this airplane,' says Ozimek. 'It's fair to characterise it as saying we have no firm plans.'
Boeing's hesitancy in launching a 717 family still leaves it one step ahead of Airbus, which has yet to launch the AE31X, the 100-seater sometimes dubbed the 'Asian Airbus' because of involvement by Chinese and Singaporean partners. The ratio between the cost and the selling price 'still gives us some headaches,' admits Pierson. Adding to those headaches, Singapore Technologies has decided not to join the venture during its pre-development phase, insisting that a business case has not yet been made for the aircraft.
Meanwhile, Airbus is now also considering a smaller variant of its A319, reducing it from 124 to 106 seats, as a potential near-term competitor to the 717. Analysts question the economics here, asking how an aircraft that sells in the $35 million range can be reduced to the $18-$20 million range it would need to fall within to compete with the 717.
BT Research's Demisch harbours doubts on any plans to 'extend' either the 717 or the A319 downwards. 'I am deeply sceptical in general of shrinking planes,' he says. 'There are very few examples where that has been successful.'
Merrill Lynch's Callan attended Asian Aerospace to try and get a feel for how the manufacturers are handling the Asian situation. It is Callan who came away with the impression of brave faces and nervous stomachs. 'I got a sense that the higher up you went in an organisation, the more the optimism was at the fore. But underneath it all there are a lot of signs of the uncertainty.
'For one thing, Boeing and Airbus have not released a market forecast this year. I mean, why mess up a forecast with facts?' says Callan. 'The sense you get is that it has not been that bad so far, but people are holding their breath to see what happens in three to six months' time. What it comes down to is that there was a lot more going on behind the scenes than was being let on at the show. Everyone knows that if one airline says "enough" and cancels, others will follow. If this show was held in April or May I think we would be closer to the heart of such issues.' Boeing would normally have released its forecast in February, but Airbus' biennial forecast is not due until early 1999.
From a marketshare point of view, the two giants continue to growl at each other aggressively. Last year Airbus took 47.6 per cent of orders for medium and large jets (see table). This is ahead of its 33.5 per cent in 1996 and its average over the last four years of 36.8 per cent.
Boeing insists it will hold on to its dominant position in the world marketplace; Airbus says it expects to take at least 50 per cent. 'We are in this business to be Number One,' says Pierson. Given its lesser presence in the widebody market - and, therefore, less exposed position in Asia - some analysts believe this is not an unrealistic goal.
Another factor that could affect Boeing more than Airbus is a softening of widebody prices. Fred Klein, president of GRA Aviation Specialists in Washington DC, expects this because Asia accounts for some 35 per cent of the widebody market. But he points out that the large backlogs that exist at both companies should help reduce the impact of a price softening, along with the fact that economies outside Asia remain strong. 'We know of at least one major US airline that has said it is standing by if there are cancellations. Some people say it is a bad thing to cancel, and it could be, but for everyone who sells an airplane cheap there is someone who gets a really good bargain,' says Klein.
Klein is more concerned about a long-term downward effect on aircraft residual values that could occur as a result of the existence of so many variants, just as the Asian carriers may withhold interest. 'Everyone is trying to make sure they have a full product line and airline planners have worked diligently to fit the right aircraft to the right route because of economics,' says Klein. 'But if the financiers are not very careful, this could put pressure on residual values, particularly with widebodies. You get planes with specialised and, therefore, smaller markets. The narrower the operator base, the more trouble you have selling it.'
Overall, however, some think that the Asian situation, providing it does not spread to other world economies, might prove to be a useful and timely check on an industry notorious for its over-confidence in good times. 'The combination of Boeing's well publicised production difficulties and the Asian crisis have dissipated the budding euphoria that was emerging in the aviation industry and put a damper on order activity and on a production expansion that had been in full swing,' says Demisch.
'I think that means that rather than having a normal cycle that would have been 9 to 10 per cent of the installed base, it will be significantly less. My guess is it will be nearer 6 per cent. My hope is that this can be translated into a more extended cycle. There is a basis for optimism, therefore, that there will be a more sustained period of strength. It's a plausible idea.'
Ironically, others in the industry are also welcoming the breathing space that the Asian situation might give them. Through the 1980s and 1990s, the engine manufacturers have been forced into a whirlwind of activity trying to match a powerplant to each airframe variant. Some would like the time to develop the products they believe really will get operating costs down to meet the increasingly tough standards being set by the airlines.
Karl Krapek, president of Pratt & Whitney, puts forward this view on the GP7000 programme, the proposed joint venture with General Electric for an engine for the A3XX. 'We continue to work that programme because we are trying to achieve a new level of cost,' he points out. 'What the Airbus delay gives us is more time to get this work done. Our targets are high, so we like the extra time.'
Similarly, P&W has launched a new engine for the narrowbody market, the geared-fan PW8000, and industry observers believe that delays in programmes such as the AE31X will work to the engine manufacturer's advantage as it fine-tunes this product.
Even with a potential new rival in the wings, CFM International's president, Gerard Laviec, feels it is too early to be talking about new products. The CFM56 holds a dominant position in the narrowbody marketplace and Laviec feels his company can continue to enjoy that status for the foreseeable future. 'We don't see a need for a new application for this size of airplane yet,' says Laviec. 'We think 2002 will be just on the eve of a downturn. We don't know how steep it will be, but it makes me think that 2002 will be too early.' So CFM, given the luxury of time, has instead drawn up a blueprint of technologies that it can examine in detail for each one's potential.
Time might also prove to be the friend of International Aero Engines. While P&W is a partner in IAE, no decision has been made yet on partnerships for the PW8000. 'I personally think that [IAE's] V2500 core on that programme would make a great engine,' says IAE president and chief executive officer Barry Eccleston. He, too, would welcome time to talk through that idea. While denigrating the geared-fan idea, Rolls-Royce managing director John Rose says that the company isn't interested in speculative engine projects, and prefers to wait for an airframe application.
At least as far as manufacturing industry is concerned, the Asian crisis is being seen as the proverbial ill wind. By the end of the year, the industry hopes to know more precisely where it has blown destructively, and where more kindly.
Jets revamp the regionalsThe regional jet success story simply goes on and on. This year the 30-seat variants are following in the footsteps of their 50-seat big brothers.
According to Fairchild Dornier, which expects to see its 328JET enter service in April 1999, there is a current market for over 400 30-seat regional jets in the US alone. American Eagle and Continental Express plan to place 125 firm orders and 125 options between them in the first half of this year and carriers like Atlantic Southeast, Comair, Mesa and SkyWest are also believed to be interested. Earl Robinson, president of Fairchild's regional aircraft activity, says 125 30-seat regional jets will be required per year worldwide over the next 10 years.
With Bombardier still reluctant to launch a 30-seater to join its 50- and 70-seat Canadair Regional Jets, that market is effectively left to Fairchild and Embraer. Already, Embraer has clocked up 48 firm orders and 72 options for its 37-seat ERJ-135, including 20 firm orders and 40 options for Business Express. Roll-out date for this aircraft has been brought forward to 13 May, with the first flight in July.
The issue of subsidies has now spilled over into the regional airline sector. After Bombardier complained about interest rate support provided by the Brazilian government export credit agency to overseas buyers of Embraer's products, Brazil and Canada have appointed a trade representative to resolve the dispute. Canada has said it will go to the World Trade Organisation if the issue is not resolved to its satisfaction.
Embraer's president Mauricio Botelho is making light of the matter: 'It will go nowhere,' he says. But a decision that goes against Brazil could force the company to be less aggressive on prices - a critical factor at this end of the market. 'Pricing is the key question here,' says Bankers Trust's Wolfgang Demisch. 'There is no ointment without a fly. But the reality is that the airplane is very good and offers convenient point-to-point service to non-hub destinations. The hidden ingredient here is that your crew is much less generously paid.'
Regional jets now account for 10.6 per cent of the total aircraft backlog, up from 5.4 per cent at the end of 1996. While net orders for medium and large jets increased by only 2.4 per cent last year, turboprop orders rose 14.5 per cent and regional jet orders leapt from 72 in 1996 to 318 in 1997.
Where Embraer is showing caution is at the 70-seat end of the market. The company does not rule out the possibility of launching a 70-seat regional jet, but senior vice president, commercial sales Jules Rondepierre says: 'It seems like a very crowded market right now.' Bombardier has a 70-seater, while Fairchild also plans to launch one, the 728JET, which would form the basis for a new family. Embraer's chief concern here, however, is whether Boeing will extend its 717 down to an 80-seater.
Other regional aircraft manufacturers are extending the brave face philosophy. The Aero International (Regional) consortium is to be split into its UK and French/Italian parts following the collapse of its planned AirJet 70 programme. Industry observers now question whether the two companies will ever be more than minor players in the regional marketplace. But Alain Brodin, senior vice president commercial, remains optimistic. 'Contrary to the popular belief that regional jets will replace turboprops, what we saw last year was a demonstration that there is room for both,' he says.
Meanwhile, Saab Aircraft will cease production in 1999 and has reshaped itself into a leasing and product support company for the Saab 340 and 2000.
Source: Airline Business
