The outbreak of massive orders must surely have made the last quarter of 1995 a dream for aircraft salesmen - but does it mean a return to nightmares for airframe and engine manufacturers? Probably the biggest single fear for a manufacturer, after that of not having any orders, is that of having too many. On the surface, the combination of the Saudia, Singapore Airlines and ValuJet orders alone - along with the threat of another massive order from Malaysian - could be enough to make the manufacturers' fear of plenty come all too true.
For most of this decade, manufacturers have been doing what they have needed to do for a long time - downsizing to meet the realistic market expectations of the next decade and beyond. The process has been painful so far, and is by no means complete - as the preliminary discussions between Boeing and McDonnell Douglas over a possible co-operation demonstrate all too clearly.
That downsizing has left most manufacturers and - perhaps more crucially - their components suppliers unable to rack-up production quickly enough to meet market fluctuations. Most of them would, of course, not want to expand again too quickly, so sure are they now that high-volume production as seen in the late 1980s cannot be sustained in the long term.
With that in mind, the manufacturers must now balance their caution against the demands of airlines, which wish to modernise and expand their fleets. Too much production capacity and the manufacturers will be left with another cycle of downsizing; too little, and they leave their markets vulnerable to incursions by new entrants. (The latter, inevitably, will lead to an even greater over-capacity in the market come the next, equally inevitable, downturn.)
The trouble is that nobody knows just what the effect of these massive orders will be on the rest of the market. Although SIA may have decided that it and its subsidiaries will need up to 77 Boeing 777s in the next few years, for example, there is nothing to say that the world airline industry needs that many aircraft and the capacity that they represent as an increment.
SIA has a policy of running a particularly young fleet, with an average age far lower than those of most other airlines. Long before its 77th 777 is due in service, its first ones will probably have appeared, on the second-hand or lease market. Their subsequent operators may be airlines, which would always have been in the market for used or leased aircraft - but they might also have been on Boeing's target list of new buyers. The massive orders from SIAS, Saudia and the like might not, in effect, represent a boost to the market, more a displacement sideways of it. Not only that - these large orders tend to involve price discounts which would not be available to those ordering aircraft or engines in ones and twos, so the price for doing business sooner may be less profit later. (On the other hand, a limit on production might just force more manufacturers to hold out for prices closer to "list": the concept of paying full price or losing their place in the queue would be a novel one for most airlines.)
If these orders do prove to be as much substitution for others' as they are incremental for the initial customers, gearing up production to satisfy those customers, could prove to be a major pitfall for the whole manufacturing sector. Success could be the industry's biggest nightmare.
Source: Flight International
