Jan. 28, 2019, © Leeham News: There are too many airliner orders for the future demand, says a leading aviation consultant.
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.
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.
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.
“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.”
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.
“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.