Farnborough Airshow 2018

The 2018 Farnborough Airshow is an aviation industry networking hub connecting over 1,500 exhibiting companies and 73,000 trade visitors. Held every two years, this year the Farnborough Airshow takes place between Monday, July 16, through Sunday, July 22.

As global GDP has grown, the demand for passenger and air cargo traffic has followed. Faster transit times for passenger and high-value cargo, higher density city pairs, global connectivity needs and rising affluence among the global middle class are all driving above-trend growth in load and utilization rates.

Airbus

Airbus agreed to acquire a majority stake in Bombardier Inc.’s C Series October last year and has rebranded the aircraft as Airbus 220. Just last Tuesday they announced an order for 60 A220-300s aircraft with JetBlue.

The A220 comes in two sizes (with a single type rating for pilots) and serves the 100 to 150 seat market segment. It’s primarily a composite airframe with flight control managed by an electronic interface (fly-by-wire, not mechanical), using Pratt & Whitney’s PW1500G, a geared turbofan engine (bypass ratio of 12:1), which delivers lower fuel burn per seat (The A220 offers 29% lower direct operating cost per seat compared to the E190, with fuel cost 40% lower and non-fuel cost 22% lower). It’s able to fly both high-frequency short missions and longer trips that include trans-continental U.S. flights.

Boeing

Boeing enjoyed $134.8 billion in net orders in 2017 from 71 customers and extended its backlog to a record 5,864 planes (approximately equal to 7 years of production).

Last week, Boeing announced a strategic partnership with Embraer to counter Airbus’ A220. Boeing is expected to take an 80% share in Embraer’s commercial airplane and services business, with Embraer owning the remaining 20%. The venture, which is subject to Brazilian lawmaker review, will position Boeing to serve the smaller single-aisle aircraft while giving Embraer access to Boeing’s sales network and ability to negotiate lower prices from suppliers.

China

Traffic varies by region, and according to the latest edition of IATA’s 20-year air passenger forecast, Asia-Pacific will be the biggest driver of growth with more than half of new passenger growth coming from the region. China is expected to overtake the US as the world’s largest aviation market around 2024. Boeing currently delivers approximately 70% of its aircraft to non-U.S. customers (with China accounting for 20% of Boeing’s order book).

Politically, China is a ‘collectivist’ society and dependent on central government management. President Xi Jinping envisions a globally competitive aerospace industry and reduced dependence on foreign aircraft makers. China’s two state-owned aircraft manufacturing groups (COMAC, and AVIC) have accelerated development through acquisitions of U.S. aircraft and avionics companies and partnerships with US companies. The price for access to Chinese markets has been required sharing of advanced technologies. This eliminates the need for Chinese investment and speeds their entry into global markets.

The size and future attractiveness of the Chinese market have led western business to invest in China. That investment is working to create a country competitor. Who will have leverage in U.S.-China trade disputes? Most of the planes targeted by recent Chinese tariffs appear to be older versions of the 737.

Yet if China were to cancel orders for newer Boeing aircraft it would be forced to turn to the second-hand market for aircraft (Airbus is booked and struggling to deliver). The result? Expect existing aircraft values to benefit.

Identifying competitive challenges and coping with political uncertainty. For competitive insights and Aviation economic analysis- Call RESIDCO.