Here are our thoughts and observations from Day 1 of the Aircraft Finance conference in Geneva, Switzerland:
- The mood here among the 300+ attendees in generally upbeat. There is a general sense that the airline industry has seen its worst and recovery is on the way. A leading indicator is the improvement in the cargo market, which is showing substantial gains year-over-year. Passenger traffic is up but premium traffic, while also showing gains, has a long way to go to recover. Even the notoriously pessimistic IATA was upbeat.
- Aircraft financing for new airplanes is available but expensive. Aircraft financing for used aircraft is much less available.
- The Airbus A319 and Boeing 737-700 cannot effectively compete with the Bombardier CSeries, even if re-engined, is some of the talk here. We were on a panel with James Billing of Boeing and Richard Aboulafia of The Teal Group. Billing prudently avoided being dragged into the discussion over the CSeries, sticking with market forecasts for the single-aisle segment; Aboulafia termed the CSeries a “niche” aircraft. We suggested that Airbus and Boeing could and should “crush” the CSeries by pricing the A319RE and 737-700RE as part of a family offering in airplane campaigns with the A320/321 and 737-800/900 by offering prices on the smaller models Bombardier couldn’t hope to match with the CSeries. Boeing’s Billing and Randy Tinseth, who was in the audience, figuratively ran for the hills on this suggestion—anti-trust regulators would be all over the company on this scenario. An Airbus official in the audience caught us afterward and merely suggested this wouldn’t be a good idea. The genesis of this is that Airbus introduced the A318 to kill the McDonnell Douglas MD-95 and Boeing priced the 737-600 at a reputed $16.7m to undercut MDC’s launch customer sale to SAS. The MD-95 never recovered from the two actions; the A318 and 737-600 proved to be sales dogs.
- There is a growing belief that the Open Rotor engine will not be a successful solution for A320/737 replacement airplanes and the second generation GTF and Leap-X engines will be.