When flag carriers flew the world like proud extensions of government foreign policy, the merger of British Airways and its Spanish counterpart Iberia would have been unthinkable. But the advent of Ryanair, easyJet and other low-cost ingenues, followed by the dent in demand caused by 9/11, exposed them to the unforgiving economics of modern aviation. The industry has lost $25bn (£16bn) since 2001, in a decade littered with redundancies, financial restructurings and bankruptcies.
The formation of International Airlines Group (IAG) through the merger of BA and Iberia in 2011 was supposed to muster strength from an imperilled business model. The group would earn more revenue for less cost, while pooling expensive overheads such as buying aircraft. Speaking as BA chief executive at the time, Willie Walsh, now chief executive of IAG, said BA would benefit from adding Latin America to its lucrative transatlantic routes. “We are very pleased to have the combined network of BA and Iberia,” he added.
It is now clear that one half of IAG entered this modern marriage still rooted in an earlier era. According to IAG’s nine-month results, BA made an operating profit of €286m (£229m), bolstered by its UK-US routes and the accumulated benefit of years of cost-cutting, including a bitter industrial dispute with cabin crew in 2010. Iberia, on the other hand, nearly wiped out BA’s gains with an operating loss of €262m.
Several weeks ago, as the Farnborough Airshow approached, some in the aerospace industry again questioned the relevancy of the 64-year-old aerospace and defense tradeshow.
In an increasingly global industry, profoundly transformed over the past quarter century, new venues such as Singapore, Dubai and Bangalore have grown in importance given the significance of their regional market opportunities and potential partnerships.
In spite of these developments Farnborough is not an anachronism and it remains a premier venue to take the industry’s pulse and assess its global health ahead of what promises to be a very challenging production surge for commercial aircraft suppliers and a contraction for most U.S. and EU defense prime contractors.
Commercial aerospace has been a beacon in an otherwise depressed global economy still struggling to return to growth following the financial crisis. While the U.S. and Europe appear to have again stalled for myriad reasons, it is evident that continuing policy errors in Washington, Brussels, Paris or Athens could negatively impact air travel, jeopardizing sales of commercial, business or general aviation aircraft.
The commercial air transport production surge will be the primary topic at this year’s Farnborough airshow. Concerns remain and original equipment manufacturers, OEMs, are particularly aware that supply chain vulnerabilities may not be fully addressed prior to ramp up.
While Boeing [BA 73.69 -0.75 -1.01% ] projects demand for 34,000 aircraft over the next 20 years our numbers are within 2 percent of Boeing’s estimates, most suppliers we know are concerned about their operational and financial ability to support this surge.
Furthermore, this industry is clearly exposed to the effects of highly-disruptive macro events, either regional war or natural disasters. While the globalization of the aerospace industry has benefited sales and dampened market cyclicality, it has also created global challenges, which in turn have increased industry exposure. How to best manage this exposure is a complicated question that will be debated at the show.
Strange Random Aircraft Quote:
“But I have seen the science I worshipped and the aircraft I loved destroying the civilization I expected them to serve.” – Charles Lindbergh (American Aviator remembered for the first nonstop solo flight across the Atlantic, from New York to Paris, in 1927. 1902-1974)
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- Boeing hopes for year of the Max at air show (komonews.com)
- Boeing set for Farnborough fightback (vancouverdesi.com)
- Farnborough Air Show Aerospace Alliance reception live coverage (al.com)