Have you already seen the Boeing 737 NEO?

This hasn’t happened for a long time: The 737 is outselling the A320 this year by a wide margin. Right now the order race between the two airplane families stands at 432 vs. 185 net orders. Something fundamental must have happened to trigger this massive shift in customer favour. 
 

It could well be that potential A320 buyers are sitting on the sideline until Airbus has decided on the A320 NEO. They first want to see, what the numbers look like. Especially the leasing companies are worried because an advanced version of the 25 year old bestseller certainly would affect residual values of their fleets of A320 Classics.

However, I think the main reason is that a 737 NEO has already started rolling from the production line in Renton. 

It can be visited in the Boeing mock-up center. It is the 737 with the so called Sky Interior. Using the technology and the design language of the revolutionary 787 interior, it sets a new standard in the narrowbody world. I have seen it myself some weeks ago. It is mind blowing. From the passenger perspective the 737 has become an airplane of a new generation.

 

The new cabin is spacious, modern and friendly. Instead of hatracks which make you sprain your neck when taking or leaving even an aisle seat, there is ample headroom now - even for someone who unlike me is six foot five. At the same time the new pivoted bins are significantly more spacious than the old ones. Don’t ask me, how they did it. The cabin will be quieter as well (although that's a difference you can't notice in a mock-up).

Yes, this interior makes every other 737 and every A320 look old. No wonder that since it has been available as an alternative to the conventional interior, most of the customers have opted for it.

The discussion whether the A320 or the 737 offers better passenger comfort has always been an exaggerated marketing thing – more a question of creative measuring and a matter of belief and taste than of relevant facts. But now there is a clear leader, perceptible to any passenger and visible to the naked eye. No tape measure required.

In the real world there is not that much difference in the economics of both airplanes (pros and cons depend more on specific operation of an airline). Therefor the new cabin makes an even bigger difference. As this year’s sales numbers are indicating it seems to turn the tide in this important market segment in favour of Boeing.

For two reasons Toulouse needs to find an answer to this: 

1. Airbus can’t afford being outsold like this year because the A320 family is its main cash cow (besides the A330).
2. The 737-700 now is less vulnerable from a possible market success of the Bombardier CSeries, which has a contemporary cabin design as well. The A319 isn't.

They better come up with some innovative ideas soon.


Heinrich Grossbongardt
h.grossbongardt@expairtise.com
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Fly, Robin, Fly

A reader of my recent blog „Who want to fly with the dinos?“ sent me an interesting document, the breakdown of the costs to own and operate a charter jet. Even though it is not labelled as confidential I probably should not have it and I won’t disclose the company. But it is one with a bigger fleet; so the data should be somewhat typical .

What is the most expensive part of the business? It’s not fuel, crew or maintenance, the most costly aspect is to own the aircraft. On a per-flight-hour-basis aircraft depreciation accounts for nearly 50 percent of the total cost. When you take into account that a 10 million dollar investment isn’t used more than one hour a day (300 to 400 flight hours per year), this shouldn't surprise anybody who has at least basic economical understanding.

The numbers clearly show that utilization is the most powerful lever to influence the economics of business jet charter. Increasing utilization from let’s say 400 to a still not impressive 500 hours per year would lower the cost per flight hour by roughly ten percent. So the answer to an operator’s question “How can I make more money with my airplanes?” was already given in 1975 by German pop group Silver Convention: Fly, Robin, Fly.

You think, that is easier said than done? Yes, at least not without adopting new ideas and changing the modus operandi. Learn to sell your service, establish an transparent, easy to use and efficient distribution system, reach out to clients who haven’t used business aviation before and you will see this industry taking off.

Another interesting aspect of the data: It explains how all the single-aircraft-operators with a 15 year old Citation, who distort the charter market at the moment, can survive. With a virtually written off aircraft and no overheads they can easily live with spending more on fuel and maintenance and still make money – even with only a few flights per months.

Heinrich Grossbongardt
h.grossbongardt@expairtise.com
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Bio fuels are great – sustainability can be tricky

When Swedish utility giant Vattenfall announced that the new heat and power station it was going to build in Berlin, would burn wood instead of coal everybody thought that this is an excellent idea. Today many people aren’t that sure any more, because they have learned that the one million tons of wood pellets would not come from German forests but from Liberia. In the African country wood is an important energy resource for poor people, so environmentalists are concerned, that German hunger for carbon neutral energy might make firewood unaffordable for ordinary people in Africa. 

This example demonstrates that protecting world climate can be a tricky thing. As in any complex system you have always to be aware of unexpected side effects. 

The aviation industry needs to be careful not to fall in the same kind of trap. Achieving the ambitious goal of carbon neutral growth by 2020 requires besides advancements in fuel efficiency the use of 2^nd generation bio fuels made from Jatropa, Camelina or Salicornia until algae based fuels become available. The good news is that producing theses feedstock doesn’t interfere with food production, because it grows on soil which can’t be used for traditional agricultural crop. 

On the other hand even Jatropa, the most productive bio fuel source available, needs about three hectares (75 acres) for producing 10.000 litres per year. In order to make it available in meaningful quantities will require large scale farming. In most cases this means monocultures, which have their own ecological downsides. Plus there will be a significant impact on the socioeconomic side. 

All this needs to be considered in an early stage in order to mitigate risks and to maximize the benefits for both the global airline industry and the economies in third world countries. For them this can be a source of valuable foreign currency. But Bio fuels will only be accepted by the public, when they are produced in a social acceptable and sustainable way. 

The best experts on assessing the social and ecological impact of projects like this are certain NGOs. Airbus, Boeing, the engine manufacturers and all other working to secure the future of aviation, would be well advised to get them on board early. Experience from other industries shows, that it is usually smarter to discuss these aspects early, than to do damage containment later. 

Just ask Vattenfall about their Berlin experience.

Heinrich Grossbongardt 
h.grossbongardt@expairtise.com 
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Who wants to fly with the dinos?

Believe it or not – there are industries which haven’t arrived in the 21^st century yet. Sure, they use computers, communicate per email and have a presence in the Internet. But when you compare their processes, how they understand the market and how they are running sales & marketing with what is state-of-the-art in other industries, they look like dinosaurs.

Business Aviation is one of those who have staid behind. You want indications?

• According Eurocontrol 40 percent of all business jet flights are positioning flights – aircraft flying empty from A to B to pick up a customer, who wants to fly from B to C. 
• The average utilization of a bizjet used in the charter market is a mere 300 to 400 hours per year. Many of these aircraft cost as much as a Dash-8 or a Canadair Jet, which have 2.000 productive hours per year.
• Eurocontrol says that 63 percent of all operators in Europe have just one airplane. The U.S. market is not fundamentally different.
• 90 percent of all business charters are arranged through brokers. Business Aviation is one of the last industries where you need to go through a middleman to buy a service. 

When I recently told an executive of a big German charter and aircraft management firm, that I think they are living still in the 80s, his answer was: “May be true. But where is the problem?” Exclusivity has been an excuse for inefficiency and the abundance of customer’s money during the last boom made it easy not to change. But now we are living in a different world and Business Aviation is struggling to find its place. 

A business jet is a time machine. It takes executives, technical specialists and other users where they want to go when they want to go. Our economy can’t get by without it. Just look at the Eurozone reaching from Lisbon to Tallinn and from the Polar Cycle to Sicily. But to exploit it full potential the Jurassic Parc of Business Aviation needs to evolve and to develop 21^st century structures.. Business leader, who are pushing their companies through one cycle of efficiency gains after the next in order to stay competitive, simply expect all their partners, suppliers and service providers to have the same culture. 

Those few, who have gotten the message, have been successful even during the downturn. My favourite example is Bernhard Fragner and his Globe Air team, a Linz/Austria based Citation Mustang operator. But innovators like him are scarce. We need many more like him.

Business Aviation finally needs to live up to its name. 

Heinrich Grossbongardt 
h.grossbongardt@expairtise.com 
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The phantom seats

There is it again – the stand-up-seat for the ultra high density cabin. This time you can see it at the Aircraft Interiors Expo in Long Beach, a design from the Italian company Aviointeriors. The “SkyRider” is Michael O’Leary’s dream and passengers nightmare. Media outlets around the world are picking the story as one of the highlights of this trade show.

These 23” pitch seat would be the perfect tool to turn A320s and 737s into cattle transports. Fortunately it is more than unlikely, they will make it from the drawing board into the real world. The reason is simple; an airliner’s maximum passenger capacity is not defined by the floor space available, but by the number of emergency exits. People need to be able to leave the airplane within 90 seconds. That’s the rule and that has to be demonstrated.

So if you want to go beyond 189 pax in a 737 you would have to cut additional holes in the fuselage. Boeing had to do this exercise when it made the 737-900 with its 189 seats limit the 737-900ER with 215 seats. Even if you find the place where you can put those exits you have to strengthen the airframe. All together you will add some four or five tons of structural weight to the airplane, which will ruin its performance and economics. A high price for beeing able to sell a few 29 Euro tickets more.

I am wondering, whether the seat designers, who are proposing those ideas, don’t know the basic rules of airplane certification. That would be bad. Or they don’t mind looking stupid, because it’s just about publicity. Wouldn’t be much better either.

Heinrich Grossbongardt 
h.grossbongardt@expairtise.com 
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Stop casting blame on each other, sit down and talk - finally

When Airbus and Boeing gave their interpretation of the WTO ruling on European Airbus subsidies on June 30th, 2010 , it was hard to believe that they were talking about the same document. I bet you dollars to doughnuts, it won’t be any different, when we finally get the ruling on the United State’s financial support for Boeing. Lots of word, but no victory nowhere.

It’s about time, that the U.S. and the Europeans finally end this fruitless game and agree on a new set of rules with significantly lower subsidies – or even better no subsidies at all. Everything beyond basic research and the development of basic technologies should to be industry funded. 

Don’t tell me, that it’s impossible to launch a new airplane program like the A350XWB or the 787 without subsidies and generous tax breaks when you have orders worth five or six times times the expected development cost long before you start building the first airplane. Especially when you have a duopoly and a market so big that no one of the two competitors can serve it alone.

Subsidies reduces the economic risks of an aircraft program. Good for the shareholders, you might think. But state money tends to raise white elephants. Or does anybody believe the Airbus A340-500/-600 program would have been launched on purely economic terms? We won’t even have an A380. Both programs have been a huge cash drain and have undermined Airbus’s competitive position for years to come. The attempt to counter Boeing’s innovative 787 with a low effort A330 makeover has been proof of that fundamental weakness.

While Europe and the U.S are loosing years and years in exchanging accusations, others have started  pouring billions of tax money in their aerospace sectors. They are creating competitors, which are going be even heavier subsidised.

But who can demand playing to the rules who doesn’t stick to them himself?

Heinrich Grossbongardt 
h.grossbongardt@expairtise.com 
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Don’t look behind the shiny storefront

A couple of days ago Lufthansa CEO Wolgfang Mayrhuber used an interview in Frankfurter Allgemeine Zeitung  to complain about unfair competition from  by Emirates & friends. Whenever European airlines do so, they claim subsidized fuel, state money for aircraft financing and tax breaks. This may or may not be true; at least they won’t be able to prove it. Plus it misses the most important point.

The strongest competitive advantage comes from the framework conditions the Sheikh’s airlines enjoy. Emirates can undercut the prices of European airlines, because it runs a hub operation which is virtually free of social and environmental standards. There are no communities around World Central who have delayed the project by endless lawsuits or who oppose a 24hrs operation. 

And there are no unions the management has to deal with. The guys in the front row and the ladies in the restaurant behind them may be well paid (however are unprotected), but don't take a look behind the shiny storefront. There you will find, that a 21st century airline is being run with 19th century conditions of work. The thousands of unskilled workers on the apron loading and unloading the airplanes, sorting luggage, cleaning everything or cooking the meals for the passengers are from Pakistan, Bangladesh and the Philippines. Payment and labour conditions are below any standard including virtually no social security. It’s the sweatshop of the airline business.

 

That's a point nobody talks about, but it's a competitive advantage which is worth hundreds of millions a year.

Heinrich Grossbongardt 
h.grossbongardt@expairtise.com 
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