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Leeham News and Analysis
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Too many orders? Yes, says consultant. No, says ex-super-salesman
Jan. 28, 2019, © Leeham News: There are too many airliner orders for the future demand, says a leading aviation consultant.
John Leahy. Airbus photo.
No, there aren’t, says the leading industry salesman, now retired.
These opposing views emerged at the Airfinance Journal Dublin conference last week.
Adam Pilarski, the consultant from the US firm Avitas, said a recession is on the horizon.
John Leahy, the former COO Customers from Airbus, said overbooking orders is a good thing.
“That depends”
Leahy, who followed Pilarski, asked him to stay on stage in the interview format of Leahy that was planned. The change allowed some direct back-and-forth between the two industry veterans.
Adam Pilarski. Avitas photo.
Pilarski said in his solo presentation there were too many orders. Leahy, who in his career sold nearly $2tr worth of airplanes, hedged when asked if he agreed.
“That depends,” Leahy said. “I believe in overbooking. Boeing does too.
“In the last major depression after 9/11, Airbus stayed pretty steady at just about 300 airplanes a year delivery. Boeing went from more than 600 in 1998 to under 300. One of the reasons is we have more orders than we could produce. We were in the process of ramping up.”
Airbus, he said, created algorithms—much like airlines did in analyzing passenger no-show history—to predict how many orders might be deferred or canceled for whatever reason.
“You don’t know who they are, but you can predict pretty accurately, especially on the single-aisle, what percentage in a given year…won’t show up,” he said. “So Airbus is overbooked. Boeing is overbooked. Could there be a downturn in orders in 2019? Adam could be right. But I absolutely assure you that Boeing and Airbus will increase production in 2019 rather substantially,” even if there is a recession this year as Pilarski predicts.
Pilarski agreed.
Increasing production
“When orders go totally down, production goes up,” he said. “There is no doubt in my mind, if I were a supplier to [Airbus], 2019 production will be going up.”
The question, Pilarski said, is long term, “I think we’re making too many planes for how many people will be flying.”
Part of his equation is he predicts a 3.5% GDP vs 5% forecast by some. He also wondered whether airlines and lessors will be profitable in the next recession.
Pilarski noted that there are airlines and lessors in the Middle East and China that may not be “driven by economic considerations,” but rather by strategic considerations.
“They may buy planes whether these planes can be profitably deployed,” he said. Speaking as if Leahy was still with Airbus (he retired a year ago), “You, John, shouldn’t care. If somebody is willing to buy it, that’s fine.”
Supersonics
Pilarski predicts that supersonic transports, which failed with the sole example, the Concorde, will reemerge and be successful. Pilarski sees speed becoming a sales commodity. The last time this was the case was during the propeller era, when as little as a 10 minute difference between Douglas and Lockheed transports were used as marketing advantages.
Leahy agreed.
“I think the next bid leap in this industry will be speed,” Leahy said. “We are now flying to Singapore non-stop from New York, with even longer trips on the horizon. These are 19, 20, 21, 22 hours. There’s first class. Lie flat beds. Enough alcohol on board…you can actually get drunk, get sober and get drunk again before you get to your destination.”
People paying all that money, Leahy said, “would love to get there in a quarter of the time.”
The jet age’s limitation at Mach .80/85 “has been a limitation on the industry,” he said.
Now that talk has taken an interesting turn – Mach 4 planes!
I think we can safely assume that such speeds can not be reached economical at current altitudes, so are we talking flight levels of 80-100,000 feet?
Suborbital!
If speed is needed then the speed of light is at our finger tips (figuratively and literally)
Some things like 4 wheel vehicle are a fact of life.
Mach 2+ aircraft are not going to cut it.
I wonder what Leahy’s algorithms said about the Amedeo A380 order.
The algorithm is for the whole 380 order book, the instance of Amedeo just proves it right.
When I looked at Ryanairs 737 deliveries a few years back, they were getting about 1 months worth of planes from Boeings then yearly production.
That had me thinking that Ryanair was acting as a sponge to soak up the ‘no show orders’. They would get them at a very good price if they sign away in any month the quantity they will get- maybe just getting 3 months notice that ‘Aug would 8 new planes delivered’.
Its also done in many other areas , TV commercials are similar, some advertisers spots are used to fill any vacancies in the schedule, as its like airliner production cant have vacant slots.
I do think we are heading for over capacity with regard to production. Forecasts vary with regard to sales but they are all above 35000 and less than 40,000 over 20 years. Airbus want 1200/year, Boeing want 1200/year and then China/Russia… anybody’s guess, 300, 400, 500…/year. Put the numbers together, production capacity is heading to over 50,000 over 20 years!
One hell of a dog fight is coming. Good for airlines, bad for OEMs
Fuel price, differentiated starting/landing fees and ICAO noice regulations applicable for older Aircrafts can have an effect on the old gas guzzlers average Life.
It is good to hear from him, he offers great insights. I would suspect it wasn’t that innovative to estimate how many present orders might be cancelled, and really the gamesmanship of those calculations and keeping certain quantities of slots for key customers over a given time period is an art, not really a science.
The dark arts of aviation sales campaign management he is indeed a master of. Congrats to enjoying his retirement but I imagine he is a bit sentimental about what he’d want to do today/moving forward.
Airbus may have gotten it wrong with A380 with their algorithms , but I think they probably nailed it with the A350-1000. It’s just a matter of time for the orders to start rolling in. For those critics who say that the plane is not doing well because it’s too big, news flash, 777x is bigger and or heavier and is 10 abreast. The 787-10 does not have the range. Perhaps British AirwAys ‘ strategy of 787-10 and A350K will be the strategy to pay attention to. Light and nimble. In other words, I think the 787-10 and A35k are probably under ordered.
John Leahy, can’t you come out of retirement and teach this all French Airbus board how to run a company. Airbus is going to become a production company under this management, the french can’t forward think, can’t innovate and create massive processes to complete things ( red tape ) slowing things to a stop. Go boeing launch the B797 and watch total panic set in at Airbus when orders are lost for the A321 and A330, the B797 is exactly what AA, DAL and UAL need.