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51st PARIS AIR SHOW, ALL SET TO PLEASE By Howard Wheeldon, FRAeS, Wheeldon Strategic Advisory Ltd.

 

boeing15 Jun 15. Given the scale of new aircraft orders that Boeing and Airbus have received over the past few years second guessing the number of orders likely be announced at the 51st Paris Air Show being held at Le Bourget this week is no easy task. However, I will stick my neck out suggesting that it will probably be just a few more than the 300 new aircraft that has emerged as the consensus forecast from analysts.

In an industry in which timing of new order announcements can mean everything to one airline and relatively little to others the mood music does suggest that the flow of order announcements from Paris this year will be well down on that of the Farnborough Air Show last year.

If that proves to be correct then it is merely a reflection of maturity of the present airline modernisation and expansion cycle as opposed to being anything to do with the show itself. In their 20 year forecasts for new commercial and freighter aircraft requirements Airbus and Boeing predict new aircraft orders of 31,350 and 36,770 respectively. Having been making forward expectation forecasts for decades it is worth noting that they have a long history of getting such forecast right.

While attempting to compare and contrast between the two really large European air show events serves little purpose in my view one thing seems fairly certain: even if the total number of orders announced at Le Bourget does beat the consensus if analyst expectations it is hardly likely to exceed the massive haul of 687 planes ordered at the Farnborough show last year and that at list prices worked out to a value of around £110bn.

When the Paris Air Show was last held in 2013 the event attracted 2,215 exhibitors from 44 countries; 285 official delegations from all over the world; 139,273 trade visitors; 3,100 journalists and a flying display that featured 150 aircraft performing. Like Farnborough which is held on alternate years to Paris, these are big shows and from a big picture perspective they really matter.

For the most part I suspect that from a business aspect both Paris and Farnborough shows are seen as giant trade shows. From a global aspect despite a raft of new show ranging from Dubai, Singapore and Berlin there is little doubt that Paris and Farnborough have retained their significance as the must do shows.

As at most shows civil aircraft dominate the business end of the spectrum with a touch of business jets also being thrown in. And with international government delegations despatched to look at the various military aircraft capability and technology on offer there are plenty of other reasons for air shows to exist from a military perspective as well. Final military contracts often get signed at shows such as this and I suspect that Paris this year will see more than the odd Prime Minister and President attending the show to do just that.

But even if there will be plenty of military aircraft on the ground display section to view and that will also be taking part in actual flying displays it is extremely rare for military aircraft orders to be announced at European trade shows such as Paris or Farnborough. It is though Europe’s showcase event this year and thus a wonderful shop window for aircraft such as Eurofighter Typhoon, Dassault Rafale and Saab Gripen to be put through their paces.

For both civil and military aircraft supply chain and the huge support element that has built up around the industry make no mistake that Paris is an important selling and network event. New ideas, new relationships and new partnerships are born at events such as this. And for those that prefer doing their business and networking in a more relaxed atmosphere with a glass in hand and fine meal in front of them the private industry chalets will be extremely busy. For journalist too this is an extremely busy time for them to get to see senior company management and to catch up on the latest technology.

Ahead of the sometimes deafening noise of civil and military aircraft and also helicopters taking part in the flying display I suspect that the time to do real business and to get round the trade sheds is quite definitely in the morning.

So what are the real issues at Paris this year? For Boeing and Airbus it certainly won’t be worrying about any lack of orders. Far from it but one particular aspect of concern that impacts on all those engaged on the burgeoning aerospace manufacturing industry worldwide centres on the massive order backlogs and of whether capacity needs, can or should be further increased.

Ramping up production capacity in this industry is about far more than just increasing the size of aircraft assembly plants in order to get more completed planes out of the door. In the highly specialist activity of aircraft production it is also about the ability to source supply of highly specialist materials and products required such as titanium and carbon composite.

Supply chains in the aerospace industry today are large, sophisticated and complicated. The ability of each individual supplier to increase production when and if required may be less easy to determine that one might imagine. Indeed, looked at another way and within what is often perceived to be a low margin business activity, for the supply chain to gear up production can be fraught with downside risks particularly if it requires additional investment.

Product quality from the supply chain may also sometimes be a relevant issue to consider and some high profile profit warnings over the past year such as those from Zodiac Aerospace highlight problems facing the supply chain. Of course, the industry has faced these problems before and it has always come out on top. Ask someone who is perhaps still engaged in the supply chain today just as they perhaps had been thirty years ago whether back then they could have imagined churning out the amounts that they do today and they would probably just laugh.

But it is tight out there in the supply chain right now and while Airbus and Boeing will no doubt find ways to increase output if that is what they choose to do then they will also need to keep their supply chain on-side. The pressure for greater production is definitely on but at least for a short period at least the industry is not expecting to break new records on orders received. If there is a lull though it probably won’t last more than a couple or three year so the increased production problems are not about to go away.

The more immediate production increase problem appears to be on narrow bodied aircraft where demand for new planes has been absolutely massive. Boeing plans to increase 737 production to 47 jets a month in 2017 and to 52 jets a month in 2018. The company believes that it could still go very much higher than that but sensibly it has chosen to keep its options open.

Airbus is currently producing 42 A320 family jets per month and with such a massive order backlog the company believes that it could ramp up production to 60 aircraft a month by 2018. However, while the aircraft manufacturers appear fairly confident some doubt whether the manufacturers of narrow bodied aircraft engines can keep up.

This time last year CAPA (Centre for Aviation) was showing no less than 12,596 outstanding firm orders on its database for commercial aircraft of all manufacturers. That figure will have risen even further since then and it may be interesting to note that the record order backlog now represents more than half the number of commercial aircraft that are currently in service.

As a major engine supplier to world airlines of large Trent family engines that are fitted to wide-bodied commercial Boeing and Airbus aircraft Rolls-Royce has gearing up production of in recent years through a combination of significant investment in new production facilities such as in Singapore and also at Derby and other IK locations. The process of efficiency based investment is ongoing and the result is the ability to produce more engines.

Of course, Paris will not just be about the big two commercial aircraft makers Airbus and Boeing, the large military aircraft manufacturers that include Lockheed Martin, Airbus, Boeing, Dassault, Saab and others, helicopter manufacturers such as Airbus, Sikorsky, Boeing and AgustaWestland but also various business jet manufacturers as well. Bombardier will also be there showing off its much delayed CSeries jet and no doubt hoping to add to the 243 firm orders it has already received.

A great show in prospect then and whilst I have only here touched the surface the one thing that I can conclude is that the Paris Air Show looks to be in rude health.

CHW (London 14th June 2015)

Howard Wheeldon FRAeS

hwheeldon@wheeldonstrategic.com

Tel: 07710-779785

 

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