The aircraft manufacturing business is moving beyond its cyclical nature, according to Airbus COO John Leahy.
Speaking at the International Society of Transport Aircraft Trading (ISTAT) Americas 2016 in Phoenix, Arizona, Leahy said the commercial aerospace market, which has long been a roller coaster ride of ups and downs in production and demand, is moving beyond its cyclical nature.
“People who are looking for the cyclical industry to return shouldn’t look, at least, here,” he said. “It’s very important for us not to have a cyclical industry and at least for the last 20 years we’ve been managing that pretty well to keep the cyclicality out.”
Since before the 9/11 terrorist attacks, original equipment manufacturers (OEMs) have learned to flatten out production during economic downturns, Leahy said. After 2001 and 2008, Airbus did this. Traditionally what Airbus was delivering every year was one fifth of its backlog, under a five-year backlog. Now Airbus has an “excess backlog” with 6,800 aircraft to what it produces, even at a planned production rate increase to 60 narrowbodies per year.
“So, basically, somebody better come to me and want to reschedule; somebody better go out of business,” he said. “Otherwise we’re going to have to go build all of those airplanes.”
Leahy called out unidentified forecasters who once predicted that “production was going to have to be cut by half, we’re just not sure which year” —some of whom possibly were in the audience listening to him here—as well as those who said around 2008-9 that production had to fall 40%.
“It didn’t fall by 40%, it didn’t fall at all,” he notes. “I think we’re a little bit more sophisticated in order book management. This is no longer a cyclical industry, it really isn’t. My biggest fear is being able to produce everything we’ve sold.”
Airline traffic doubledevery 15 years since 1975
He further stressed that airline traffic has doubled in size, measured by revenue passenger kilometers (RPKs), every 15 years since 1975, on average. In China and other parts of Asia specifically, it is every decade, Leahy said.
Plus, travel is correlated with gross domestic product (GDP) increases, and few forecasters are calling for national GDPs to plummet worldwide. Better yet, demographic trends show the middle class emerging en masse in Asia-Pacific, Latin America and some parts of Africa even as the stay the same percentage of populations in Europe and North America—and with overall population booming by the middle of this century, “the pie is bigger,” he said.
“People who never dreamt before of flying are flying,” Leahy said. “It’s opening up new markets; it’s opening up new demand for aircraft around the world. And that’s one of the reasons things are going so well for the aircraft manufacturers, and, of course, all of the suppliers.”