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Paris Air Show – A Job Almost Well Done By Howard Wheeldon, FRAeS, Wheeldon Strategic Advisory Ltd.

 

airbus117 Jun 15. With the professional and trade elements now wound down ahead of the French public being allowed their turn to look at the various exhibits what follows are a just a few observations on the successful 51st Paris Air Show held at Le Bourget during this week.

Suffice to say that in terms of commercial aircraft order announcements numbers were well up on forecasts that had placed the number of planes likely to be ordered at around 300. True, the consensus figure was based purely on orders and does not usually attempt to include commitments which, as an unknown quantity, are all but impossible to forecast ahead of an event such as this.

If my calculations are correct, excluding previously unidentified customer confirmations, Boeing received firm orders for 145 planes plus another 177 commitments. Across the other side of the runway, Airbus confirmed orders for 124 planes together with commitments for a further 297 planes. Based presumably on list prices, Airbus placed a value of $57bn on what it had received this week in its final show statement. Meanwhile, the equivalent value of orders received at the show by Boeing was put at $50.2bn. What absolutely fantastic figures these are

It is far from easy to conjecture what the full value of these orders might be for the UK economy as a whole due mainly to the choice of engine being decided by the airline customer very much later in the process. But past experience provides a guide and I might venture to suggest that on the law of averages we could assume that the through-life value of what has been announced in Paris this week to the UK economy from both commercial and military aircraft sectors could well be in the region of £12bn spread over the period of the next fifteen years. Indeed, it could even be very much more than that. An awful lot of jobs, benefit to the Exchequer and of course, to the balance of trade figures as well.

However one chooses to analyse these figures they should be seen as being very impressive. Whilst it is true that order numbers for both manufacturers were dominated by narrow body aircraft the addition of a reasonable mix of 777, 787 aircraft orders together with sizable commitment for its 747-8 freighter aircraft should ensure that senior Boeing Commercial staff head back to Chicago and Seattle content that the Paris Air Show has been well worth the investment. The same should be true for senior Airbus executives too and leaving aside the prevalence of narrow body orders received highlights from the long list of orders received by the European aircraft manufacturer for me are the string of additional orders for variants of the A350 XWB and A330 aircraft families.

Others will no doubt spend more time than me analysing the various orders received by both aircraft makers looking for trends. There was of course to be no additional order announcements for the Airbus A380 ‘superjumbo’ at Paris this time but that is not to suggest that further orders may not appear later this year. Indeed, John Leahy who has lead Airbus sales so brilliantly for the best part of a generation said in Paris this this week that he anticipated the possibility of 25 A380 aircraft being ordered in the months ahead. He has also suggested that the company will decide next year whether to go ahead with an upgrade for the A380 including a new engine.

As readers of ‘Commentary’ over the years well know I never attempt to involve myself in the constant round of rivalry between the two largest aircraft manufacturers in the world. Who won out and who lost at a particular show on the order front matters far less to me than most. Of course I take notice but unless I spot a specific and noticeable trend the difference in order numbers taken during one week matters far less to me than some others. The point for me is that it is the competition and the constant sparring that goes on between these two fine aircraft manufacturers that makes this such a great industry to be in and long may it continue. Not only does it spur more research and development more investment that eventually leads to technological achievement but in the process it also helps to keep both companies well ahead of those that might wish to eventually emulate what they have already achieved.

We cannot shrug our shoulders, dismiss or ignore what China and Russia and are attempting to do or what they have set out to achieve. And it is equally true to say that technology, efficiency, delivery and providing airlines and their customers, we the travelling public, what we all want and need that will lead to continued success. The industry that Boeing and Airbus have led for so long has brought 40% plus reductions in noise and similar levels of increased fuel efficiency over the past thirty years. Engine manufacturers such as Rolls-Royce have played a vital part in this process and they will do more in the years ahead.

What I wish to see most of all though is Boeing and Airbus both are doing well and that is the position that I judge to be the case today. The outlook remains very good and while we cannot possibly predict what problems might lie ahead in wait my view is that there is nothing these two companies cannot overcome including raising output to meet massive order backlog demand whilst at the same time keeping the supply chain on board provided that they both look and invest on a long term basis.

So what else of note did I spot that occurred at the Paris Airshow this week? Rolls-Royce announced that Ethiopian Airlines would take Trent 1000 engines to power the six Boeing 787-8 Dreamliner aircraft. This is a coup for Rolls-Royce as the airline is currently operating a fleet of GEnx powered Boeing 787’s. It is also yet another signal of success for the ‘power-by-the-hour’ support contracts offered by Rolls-Royce to airlines. Rolls-Royce also talked about future involvement in terms of positioning for the next generation of business aircraft.

Having failed to announce a single order at Paris Bombardier will clearly be very disappointed that it troublesome 100 to 150 seat C-Series narrow bodied jet with which it hopes to challenge the dominance that Boeing and Airbus made no new ground in terms of new orders. With development costs of the C-series having reportedly now reached $5.5bn, more than £1bn above target, these are trying times for the Canadian aircraft maker. Although I did not see them myself I understand that Bombardier fielded two planes taken from its ongoing test flying programme at Paris this week. With only 243 orders taken so far and that is clearly not nearly enough to establish profitability in what is by any standard you look at it a low margin business segment that relies on scale and efficiency of manufacturing for bottom line success the struggles for Bombardier are not over yet. On the positive side the test programme has resumed and appears to be heading in the right direction. But with the aircraft having had so many issues and not due to enter service until the middle of next year confidence from a potentially massive customer base may have slipped. Whatever, the next few months will be crucial for the C-Series programme.

Military rarely features in terms of order announcements at European or Asian air shows although Rolls-Royce did announce news that it had received services contracts valued at up to $224m to support military branches and global air forces supplied by the US Department of Defense. These contracts will support Rolls-Royce AE 2100, Adour (F405) and T56 engines across a variety of military aircraft including Lockheed Martin C-130 aircraft and the US variant of the BAE Systems Hawk, the T-45 Goshawk that was built by McDonnell Douglas and Boeing.

For the massive supply chain that supports this great industry I guess that the 2015 Paris Air Show will have served those that braved the very high cost of investing in stands well. Clearly, as I suggested in my piece last Sunday, the pressure will be on them to produce more to meet the high level of demand. They will also be required to become even leaner and meaner in the process. It won’t be easy to achieve everything at once but then, this is an industry that has always taken a ‘can do, will do approach.

Great show that Paris apparently was this year, I am told that the only fast jet to be seen in the skies above was a Dassault built Rafale jet. That no other US or European fast-jet aircraft flew at the show is clearly disappointing and yet it is hardly surprising. For a start it fits with the decision of several large European and US primes not to take space at the Paris Air Show this year and in the case of US Department of Defense, to rein back. Of course there were some static display aircraft but nothing like as many as previous years. Expense is one issue but perhaps the largest gripe is the attitude and approach taken to foreign governments and companies by the French themselves. In particular the constant gripe is the manner in which the French authorities always steer government and military delegations that attend the show only to French owned company stands.

Free, open and fair competition is what Governments and aircraft manufacturers want today and there should be no room left today for old fashioned out of date protective practices. The French Government may have managed to secure no less than three significant international orders for Rafale this year but it is high time that it put its own house in order with regard to its unfair and unreasonable protectionist approach.

hwheeldon@wheeldonstrategic.com

Tel: 07710 779785

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