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Boeing releases new CMO (Current market outlook)

Tue Oct 06, 2020 4:27 pm

Boeing CMO for 2020 released:

https://www.boeing.com/commercial/marke ... t-outlook/

A small cut, but not much.

The most interesting aspect is it shows 2019 over supplied. Hmmmm...

Lightsaber

Late edit:
Basically, re-baselining for 5% growth, down from 6.5% for the last decade.
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Re: Boeing releases new CMO (Current market outlook)

Tue Oct 06, 2020 4:41 pm

I had time to read more and I noticed a few things:
1. If I scaled the graph correctly, a six year time frame to recover to prior demand.
2. About 8 years to return to the new, reduced, 5% growth curve.
3. This CMO highlights how demand will be back loaded (most of the growth in aircraft demand in the 2nd half of the 20 year period).

I didn't expect a CMO more bearish than myself.
Scooby says Rhoo Rhoo...

I cannot recall a CMO being downgraded this much. Did I miss any? Going from 6.5% to 5% growth is staggering! Predicting a slow, I scale 6 years, recovery is just scary.

It does explain Boeing positioning.

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Re: Boeing releases new CMO (Current market outlook)

Tue Oct 06, 2020 5:16 pm

Reuters ( https://uk.reuters.com/article/boeing-f ... KL1N2GW1ZZ ) has posted a summary:

Boeing also for the first time gave a partial breakdown for the first half of the 20-year period, showing steep declines for the coming decade on the heels of the COVID-19 crisis.

It predicted 18,350 deliveries in 2020-2029, down 10.7% from an unpublished forecast of 20,550 embedded in the last report.

“The industry clearly has been dramatically impacted ... by the pandemic,” Commercial Marketing Vice-President Darren Hulst said.

As you suggest the 'dramatic' part is the next year or two. As for 10% decline across a decade, if true it's a big enough thing to those in the industry, but there's time to make the correction if it happens over the span of a decade.

It also says the key metric for passenger growth per year has changed from 5% down to 4%. I guess those in the industry should be glad they are still in a growth industry. Time will tell how good their forecast is.

I downloaded Boeing's PDF ( https://www.boeing.com/resources/boeing ... wnload.pdf ) and the graph on pg 5 is interesting. It should show people that indeed this is different than 9/11, GFC, SARS, etc. It also gives a good indication of how far ahead of even the historical exponential growth curve the 2010-2020 period was.

I was hoping to find some info about the methodology used by their forecast, but did not find such.
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Re: Boeing releases new CMO (Current market outlook)

Tue Oct 06, 2020 6:11 pm

Revelation wrote:
Reuters ( https://uk.reuters.com/article/boeing-f ... KL1N2GW1ZZ ) has posted a summary:

Boeing also for the first time gave a partial breakdown for the first half of the 20-year period, showing steep declines for the coming decade on the heels of the COVID-19 crisis.

It predicted 18,350 deliveries in 2020-2029, down 10.7% from an unpublished forecast of 20,550 embedded in the last report.

“The industry clearly has been dramatically impacted ... by the pandemic,” Commercial Marketing Vice-President Darren Hulst said.

As you suggest the 'dramatic' part is the next year or two. As for 10% decline across a decade, if true it's a big enough thing to those in the industry, but there's time to make the correction if it happens over the span of a decade.

It also says the key metric for passenger growth per year has changed from 5% down to 4%. I guess those in the industry should be glad they are still in a growth industry. Time will tell how good their forecast is.

I downloaded Boeing's PDF ( https://www.boeing.com/resources/boeing ... wnload.pdf ) and the graph on pg 5 is interesting. It should show people that indeed this is different than 9/11, GFC, SARS, etc. It also gives a good indication of how far ahead of even the historical exponential growth curve the 2010-2020 period was.

I was hoping to find some info about the methodology used by their forecast, but did not find such.

That pg 5 graph tells a huge story. As I noted, it scales to about six years for a recovery. Yikes! The slowdown of expected growth resets the last decade away from a new faster growth normal to an mal-investment bubble.

This CMO lacks details, but is the most pessimistic I can recall. Unfortunately, I speculate the total ten year aircraft demand is too high due to the need to unwind another credit bubble.

Lightsaber
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Re: Boeing releases new CMO (Current market outlook)

Tue Oct 06, 2020 6:20 pm

They estimate an average of 378 widebody deliveries per year And 1613 single aisle deliveries per year on average over the next 20 years.

Seems over optimistic to me.
 
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Re: Boeing releases new CMO (Current market outlook)

Tue Oct 06, 2020 6:32 pm

lightsaber wrote:
The most interesting aspect is it shows 2019 over supplied. Hmmmm...


I don't see a discussion of over-supply. Do you mean the RPK graph? That would be demand. It shows the decade ending in 2019 having 6.5% growth, which is above the longer term trend of 5% growth. I recall you or someone else stating that yield fell in 2019, but load factor grew (per DOT for the US and IATA data globally). Overall, the data I see for 2019 shows a 2% improvement in RASM, so if yield fell, it seems it must have been on a RPK basis. Regardless, demand was still very strong in 2019.

It is worth noting that they are not counting on 6.5% or even 5% annual RPK growth, nor were they in last year's outlook. It seems to me they must have been anticipating a pretty significant moderation in the near future even without a pandemic. This matches my thoughts for the last several years that the recent production rates were rather high compared to long term demand expectations.

Here is last year's forecast for comparison. I can't seem to locate the 2019 data spreadsheet, though.
http://www.boeing.com/resources/boeingd ... -final.pdf

I made a quick comparison of how the forecast changed (hopefully this formats correctly). Note the total number of deliveries is not the full story. It appears they are expecting increased retirements (mostly in the first 5 years?), and smaller aircraft on average - fewer widebodies compared to the previous forecast, similar number of narrowbodies, slightly more regional jets.

It still feels overly optimistic to me, but I've said that about every aircraft market outlook I've read, and so far I've always been wrong. Also, it gives almost no insight into the the near term (less than 5 years), which is going to be the most critical to get right - It's easier to adjust to 20 years of flat demand than 2-3 years of 25-50% reduced demand.

Forecast                     2019      2020      Delta
--------                     ----      ----      -----
GDP Growth Rate              2.7%      2.5%      -7.4%
RPK Growth Rate              4.6%      4.0%     -13.0%
Fleet Growth Rate            3.4%      3.2%      -5.9%
20 Year Fleet Size         50,660    48,400      -4.5%
20 Year Deliveries         44,040    43,110      -2.1%
Widebody Deliveries         8,340     7,480     -10.3%
Narrowbody Deliveries      32,420    32,270      -0.5%
Regional Deliveries         2,240     2,430       8.4%
Freighter Deliveries        1,040       930     -10.6%
Pilot Demand              645,000   605,000      -6.2%
 
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Re: Boeing releases new CMO (Current market outlook)

Tue Oct 06, 2020 6:34 pm

lightsaber wrote:
I cannot recall a CMO being downgraded this much. Did I miss any? Going from 6.5% to 5% growth is staggering! Predicting a slow, I scale 6 years, recovery is just scary.


To clarify, 6.5% was the RPK growth trend for the last decade only. The longer term growth trend has been 5%.

As of last year, they were expecting the long term RPK growth to moderate to 4.6%. This newest forecast is for RKP to average 4% growth.
 
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Re: Boeing releases new CMO (Current market outlook)

Tue Oct 06, 2020 6:49 pm

lightsaber wrote:
That pg 5 graph tells a huge story. As I noted, it scales to about six years for a recovery. Yikes! The slowdown of expected growth resets the last decade away from a new faster growth normal to an mal-investment bubble.

I agree, it is very informative.

lightsaber wrote:
This CMO lacks details, but is the most pessimistic I can recall. Unfortunately, I speculate the total ten year aircraft demand is too high due to the need to unwind another credit bubble.

JonesNL wrote:
They estimate an average of 378 widebody deliveries per year And 1613 single aisle deliveries per year on average over the next 20 years.

Seems over optimistic to me.

Yes, seems over optimistic.

That's kind of why I was hoping to find some info on how they make their forecast.

Otherwise, the old joke "Never ask a barber if they think you need a haircut" comes to mind.

One thing to not neglect in looking at the recovery is p*ssed off customers are about airlines not issuing refunds, both individuals and corporations. Who is going to be willing to give them any money till they are very very sure they will actually be able to travel? Same goes for resorts and cruise operators.
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Re: Boeing releases new CMO (Current market outlook)

Tue Oct 06, 2020 6:51 pm

lightsaber wrote:
Boeing CMO for 2020 released:

https://www.boeing.com/commercial/marke ... t-outlook/

A small cut, but not much.

The most interesting aspect is it shows 2019 over supplied. Hmmmm...

Lightsaber

Late edit:
Basically, re-baselining for 5% growth, down from 6.5% for the last decade.


Interesting note from Jon Ostrower - this is the first contraction ever in the report.

https://twitter.com/jonostrower/status/ ... 00545?s=20
 
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Re: Boeing releases new CMO (Current market outlook)

Tue Oct 06, 2020 7:01 pm

Revelation wrote:
[Yes, seems over optimistic.

That's kind of why I was hoping to find some info on how they make their forecast.


Transparency in forecast model development? No. Does Wal-Mart give a 20-year number for store demand and explain in detail how they arrive at it? Um, no. Boeing/Airbus are outliers in even providing forecasts of this duration and type.

Suppliers should be studying this diligently and preparing a list of questions.
 
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Re: Boeing releases new CMO (Current market outlook)

Tue Oct 06, 2020 7:24 pm

jbs2886 wrote:
Interesting note from Jon Ostrower - this is the first contraction ever in the report.

https://twitter.com/jonostrower/status/ ... 00545?s=20

Sure, if you understand 'contraction' means 'not growing as fast as we thought it would' instead of 'not growing at all'.

For instance on pg 8 of the PDF there are no negative numbers.

The point is, the aviation business is still projected to be a growth business.

MIflyer12 wrote:
Transparency in forecast model development? No. Does Wal-Mart give a 20-year number for store demand and explain in detail how they arrive at it? Um, no. Boeing/Airbus are outliers in even providing forecasts of this duration and type.

Suppliers should be studying this diligently and preparing a list of questions.

Thank you for your comments.

I wonder, will Boeing answer such questions?
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Re: Boeing releases new CMO (Current market outlook)

Tue Oct 06, 2020 7:44 pm

Revelation wrote:
MIflyer12 wrote:
Transparency in forecast model development? No. Does Wal-Mart give a 20-year number for store demand and explain in detail how they arrive at it? Um, no. Boeing/Airbus are outliers in even providing forecasts of this duration and type.

Suppliers should be studying this diligently and preparing a list of questions.

Thank you for your comments.

I wonder, will Boeing answer such questions?


I've done corporate communications work, investor relations work, and strategic planning. IMHO it depends on how specific the questions may be and how important the supplier is (not just size, but irreplaceability) to Boeing. This is going to be some of the most important strategy planning that suppliers have done in a long time.
 
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Re: Boeing releases new CMO (Current market outlook)

Tue Oct 06, 2020 7:54 pm

Revelation wrote:
jbs2886 wrote:
Interesting note from Jon Ostrower - this is the first contraction ever in the report.

https://twitter.com/jonostrower/status/ ... 00545?s=20

Sure, if you understand 'contraction' means 'not growing as fast as we thought it would' instead of 'not growing at all'.

For instance on pg 8 of the PDF there are no negative numbers.

The point is, the aviation business is still projected to be a growth business.

MIflyer12 wrote:
Transparency in forecast model development? No. Does Wal-Mart give a 20-year number for store demand and explain in detail how they arrive at it? Um, no. Boeing/Airbus are outliers in even providing forecasts of this duration and type.

Suppliers should be studying this diligently and preparing a list of questions.

Thank you for your comments.

I wonder, will Boeing answer such questions?

Per my recollection, every CMO increased demand over the prior CMO, this one has less demand...

But the sharp multi year dragons tooth down should give vendors an ulcer. We have another thread on production chicken:

viewtopic.php?f=3&t=1451221

I looked in sharper detail and I think I can discern the per year data points in trillions of RPK per year
2019: 8.4
2020: 4.0
2021: 7.0
2022: 8
2023: 8.4 (match 2019)
2024: 9 (first year of growth).

Then back onto the exponential curve.

I'll comment on the chicken thread to discuss needed production (I am of the opinion production rates, even if based on this optimistic survey, are too high).

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Re: Boeing releases new CMO (Current market outlook)

Tue Oct 06, 2020 8:25 pm

At p.6 of the pdf, I read:
Narrowbody airplanes will lead the way to recovery as domestic and short-haul markets are forecast to recover earlier, followed by widebody fleets as airlines progressively bring their networks back online.


Among the OEMs and the large suppliers, one company that will really feel the pain is Rolls Royce. They will be the last one to see their business recover. What will keep them going until that recovery happens? And how are they going to remain relevant for the next engine generation if they don't have the means to keep investing in new technologies?
 
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Re: Boeing releases new CMO (Current market outlook)

Tue Oct 06, 2020 9:32 pm

lightsaber wrote:
Revelation wrote:
jbs2886 wrote:
Interesting note from Jon Ostrower - this is the first contraction ever in the report.

https://twitter.com/jonostrower/status/ ... 00545?s=20

Sure, if you understand 'contraction' means 'not growing as fast as we thought it would' instead of 'not growing at all'.

For instance on pg 8 of the PDF there are no negative numbers.

The point is, the aviation business is still projected to be a growth business.

MIflyer12 wrote:
Transparency in forecast model development? No. Does Wal-Mart give a 20-year number for store demand and explain in detail how they arrive at it? Um, no. Boeing/Airbus are outliers in even providing forecasts of this duration and type.

Suppliers should be studying this diligently and preparing a list of questions.

Thank you for your comments.

I wonder, will Boeing answer such questions?

Per my recollection, every CMO increased demand over the prior CMO, this one has less demand...

But the sharp multi year dragons tooth down should give vendors an ulcer. We have another thread on production chicken:

viewtopic.php?f=3&t=1451221

I looked in sharper detail and I think I can discern the per year data points in trillions of RPK per year
2019: 8.4
2020: 4.0
2021: 7.0
2022: 8
2023: 8.4 (match 2019)
2024: 9 (first year of growth).

Then back onto the exponential curve.

I'll comment on the chicken thread to discuss needed production (I am of the opinion production rates, even if based on this optimistic survey, are too high).

Lightsaber


As lightsaber points, this doesn't mean the market is shrinking, but that the anticipated growth is lower than previously anticipated.
 
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Re: Boeing releases new CMO (Current market outlook)

Tue Oct 06, 2020 9:44 pm

lightsaber wrote:
Per my recollection, every CMO increased demand over the prior CMO, this one has less demand...

Seattle Times ( https://www.seattletimes.com/business/b ... us-impact/ ) story by Dominic Gates says it better than I can:

Boeing’s analysis predicts that two decades from now, the world fleet will be 87% larger, numbering 48,400 aircraft in 2039.

The bottom line is that this 2039 fleet projection is almost 4,000 jets smaller than expected when compared to last year’s forecast for 2038 extrapolated with the pre-COVID-19 growth rate for one more year.

That represents a huge loss of business revenue for Airbus and Boeing. And the brunt of that pain will be felt in the next few years and especially in the manufacturing of widebody jets, which Boeing builds in Everett and North Charleston, S.C.

So the fleet is projected to be bigger, just not as big as Boeing's previous projection projected.

Gates says it 'represents' a loss, but what we're really talking about is comparing one uncertain projection to another uncertain projection, so it's no actual loss, it's just a tracking error.

Maybe it's just me, but it seems people put more faith into these projections than is warranted.

None of us knows for instance if between now and 2039 there won't be a different virus with similar or worse characteristics rolling through mankind with similar or worse effect. Given how we're showing a large percentage of the population will ignore science and assume it's no worse than a seasonal flu, it's kind of silly to assume there won't be another impactful outbreak over 20 years, IMO.

Even the eventual return to 5% growth seems dubious to me, for some of the reasons given in the piece, and others. A certain percentage of travel IMO won't return because it is now proven that many (but not all) meetings and conferences can be done via internet and still be effective especially relative to cost. I think for several types of people they'll just want to avoid being confined in airports and metal tubes from now on regardless. I think more people will be concerned about being caught in a foreign country if/when some sort of health or political crisis breaks out and they won't be able to find a way home. As I wrote above, I think many people won't want to pay out a large percentage of their leisure budget if they think the airline, resort or cruse ship company will cancel their vacation and then hold on to their money. I think this crisis has impacted a lot of things in a more permanent way than others seem to think. But hey, maybe I'm wrong. Time will tell.
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Re: Boeing releases new CMO (Current market outlook)

Tue Oct 06, 2020 10:24 pm

Revelation, I do hope you're wrong… However, I am even less optimistic… (therefore, I hope I'm wrong too!).

I believe we've seen the summit of commercial aviation, for quite a long time, if not for good. The other day, there was a news flash on Radio-Canada (in French) about Air Canada having lost something like 90% of last year's turnover in the second or third trimester. Sorry, I can't find the link. That's deeper than normal deep.

Salaries help from governments will only go a certain way towards helping airlines. What I see now is that people can't fly (borders closed, quarantines enforced), can't afford to fly (job losses), are afraid to fly (contagion, being caught abroad without insurance or possibility to come back home) . Admittedly, my close circles are not the high-fare takers, but as far as I understand, corporate travel has been severely curtailed everywhere… Those are heavy fundamentals to fight.
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Re: Boeing releases new CMO (Current market outlook)

Tue Oct 06, 2020 10:33 pm

Aircellist wrote:
Revelation, I do hope you're wrong… However, I am even less optimistic… (therefore, I hope I'm wrong too!).

I believe we've seen the summit of commercial aviation, for quite a long time, if not for good. The other day, there was a news flash on Radio-Canada (in French) about Air Canada having lost something like 90% of last year's turnover in the second or third trimester. Sorry, I can't find the link. That's deeper than normal deep.

Salaries help from governments will only go a certain way towards helping airlines. What I see now is that people can't fly (borders closed, quarantines enforced), can't afford to fly (job losses), are afraid to fly (contagion, being caught abroad without insurance or possibility to come back home) . Admittedly, my close circles are not the high-fare takers, but as far as I understand, corporate travel has been severely curtailed everywhere… Those are heavy fundamentals to fight.

It seems like we can add IATA to the pessimists list, they have lowered their quarterly projections again and warn airline bankruptcies are imminent:

Lowering its estimates for revenue passenger-kilometres, the airline association now expects December traffic levels to be 68% lower than last year, against a 55% reduction that it forecast in July. It does not see sector profitability returning until 2022.
...
At the heart of the problem is that while carriers have seen their revenues fall by around 80%, costs have declined only 50%, as aircraft and staff costs are difficult to reduce. “This is why airlines burning through cash and still making significant losses,” notes Pearce.

Ref: https://www.flightglobal.com/airlines/i ... 93.article

Seems Boeing might want to redo their sums.
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Re: Boeing releases new CMO (Current market outlook)

Wed Oct 07, 2020 2:08 am

Revelation, I think you're working the numbers too hard.

If suppliers are recovering engineering and tooling costs primarily from the sale of parts instead of up-front charges they will want a good-faith estimate of program (not industry) demand. That doesn't mean that we or suppliers should get caught up in 2020's number is xx,xxx and smaller by x,xxx from the last CMO. Instead, look at the last several CMOs and look for trend- inflection up or inflection down.

Numbers out 15+ years don't matter much a couple of ways. One, forecast uncertainty as you mentioned. Two, earnings get discounted away in NPV calcs.

As for perpetual, optimistic growth I'll suggest that national CO2 reduction commitments may be a bigger factor than the fairly small probability of another industry-busting pandemic. Few in this forum have seemed to want to address that. Keep on polluting!
 
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Re: Boeing releases new CMO (Current market outlook)

Wed Oct 07, 2020 3:29 am

MIflyer12 wrote:
Instead, look at the last several CMOs and look for trend- inflection up or inflection down.

Good point. This should be done if not already done. I recall a 10 year forecast by Airbus for India released in the 2000s ended up being way off
 
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Re: Boeing releases new CMO (Current market outlook)

Wed Oct 07, 2020 6:43 am

The long term forecasts may or may not be correct. The key metric is RPK, in how many months will it be to reach the 50% of 2019, 60% of 2019, 70%, 80%, 90% and 100% of 2019's RPK numbers. What is so brutal right now is that there is around 50% of flights, but only 35% (or so) of RPK putting every flight in a loss position, the flights really need to be in break even for the serious losses to end.

Only when RPK returns to around 80% of 2019 will the need for fleets to resume some ordering, lower than that it is just Fire Sales where airlines that still have some capitol (or friends with capitol) can get some great deals on used, NTU's or new.

We already had 100% of RPK in '19, but the airline market was saturated then, in particular WB's. Accelerated retirements were everywhere last year, and at a crazy rate. Yes, there may be 2,000+ excess aircraft right now plus several thousand more that are waiting for better conditions to return.

Yes, airplane production could just stop for 2 years to return to more of a balance. Producing at half of previous might mean 5+ years where supply still exceeds demand on the best models, far longer on the less desired ones.

Society is learning to do its Business Transactions virtually, because it is the only way now, will business travel ever return 2/3 of previous? Will a big chunk of what business travel happens moving to the back of the plane from the front? Will the Cruise and Resort travel return to 2/3 of previous within 5 years? will Sports come back? Most answers right now are gloomy
 
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Re: Boeing releases new CMO (Current market outlook)

Wed Oct 07, 2020 7:28 am

It is still on the positive side.

Imagine no working vaccine is found or only one that has to be renewed every 6-12 months. In addition companies are moving to business meetings to the digital world and are investing serious money into that right now. I can not see them going back to flying as much as before either.
 
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Re: Boeing releases new CMO (Current market outlook)

Wed Oct 07, 2020 7:40 am

lightsaber wrote:
Revelation wrote:
Reuters ( https://uk.reuters.com/article/boeing-f ... KL1N2GW1ZZ ) has posted a summary:

Boeing also for the first time gave a partial breakdown for the first half of the 20-year period, showing steep declines for the coming decade on the heels of the COVID-19 crisis.

It predicted 18,350 deliveries in 2020-2029, down 10.7% from an unpublished forecast of 20,550 embedded in the last report.

“The industry clearly has been dramatically impacted ... by the pandemic,” Commercial Marketing Vice-President Darren Hulst said.

As you suggest the 'dramatic' part is the next year or two. As for 10% decline across a decade, if true it's a big enough thing to those in the industry, but there's time to make the correction if it happens over the span of a decade.

It also says the key metric for passenger growth per year has changed from 5% down to 4%. I guess those in the industry should be glad they are still in a growth industry. Time will tell how good their forecast is.

I downloaded Boeing's PDF ( https://www.boeing.com/resources/boeing ... wnload.pdf ) and the graph on pg 5 is interesting. It should show people that indeed this is different than 9/11, GFC, SARS, etc. It also gives a good indication of how far ahead of even the historical exponential growth curve the 2010-2020 period was.

I was hoping to find some info about the methodology used by their forecast, but did not find such.

That pg 5 graph tells a huge story. As I noted, it scales to about six years for a recovery. Yikes! The slowdown of expected growth resets the last decade away from a new faster growth normal to an mal-investment bubble.

This CMO lacks details, but is the most pessimistic I can recall. Unfortunately, I speculate the total ten year aircraft demand is too high due to the need to unwind another credit bubble.

Lightsaber


Agree, while Boeing argues market is resilient and will recover as it has been before, the picture shows we never saw this before. There's tons of hope, but nobody knows.

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Boeing market outlook 2019-2039
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Re: Boeing releases new CMO (Current market outlook)

Wed Oct 07, 2020 7:53 am

Concerning that graph: The return to normal is only hoped for until further notice.

What does the CMO tell us about NMA and NSA? If the narrowbody market will be so strong something new is needed sooner than later isn't it?
 
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keesje
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Re: Boeing releases new CMO (Current market outlook)

Wed Oct 07, 2020 8:38 am

Noshow wrote:
Concerning that graph: The return to normal is only hoped for until further notice.

What does the CMO tell us about NMA and NSA? If the narrowbody market will be so strong something new is needed sooner than later isn't it?


Nothing, only that NB will double, growing from 64% to 70% of total fleets. A220 and F100 are NB's in Boeing assumptions.
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Noshow
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Re: Boeing releases new CMO (Current market outlook)

Wed Oct 07, 2020 8:42 am

They should have married Embraer. Maybe there is a second chance?
 
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Re: Boeing releases new CMO (Current market outlook)

Wed Oct 07, 2020 8:45 am

MIflyer12 wrote:
As for perpetual, optimistic growth I'll suggest that national CO2 reduction commitments may be a bigger factor than the fairly small probability of another industry-busting pandemic. Few in this forum have seemed to want to address that. Keep on polluting!


You´ve two interesting points:

1. Within the past 20 years there have been to pandemic, albeit on a smaller scale than today (SARS in 2002, pig flu in 2009/10). It isn´t too far fetched that there will be another major event of this type within the next 20 years with respective influence on demand, be it global, be it regional. I think for risk purposes it would serve well to have one such event included into a 20 year rolling forcast, simply to remind everyone that this is not a linear 20 year growth trajectory.

2. CO² reductions can be both: pressure to the industry or relieve to the industry. Taking a look on the overall global political behaviour it looks pretty clear that there will be more pressure on all industries - neither shipping nor airlines being excluded - to reduce the carbon footprint even further - and faster. This will only work with 20/30 year old planes (not mentioning the older ones...) being replaced by A320neos, 737maxs etc. on larger scale, and that fast.

The complexity of this situation is that there is clearly demand for "brand new and efficient" and today even the chance exists for quick roll-overs from old generations to new ones. Problem is: where shall the money come from?

IMO the market forecast bets on a very fast replacement cycle with even modern planes being broken up for good after 10-15 years (nothing uncomming in shipping these days...), with money being found at one point.
Flown: A319/320/321,A332/3,A343/346, A359, A380,AT4,AT7,B712, B732/3/4/5/7/8/9,B742/4,B752/3, B762/763,B772/77W,CR2/7/9/K,ER3/4,E70/75/90/95, F50/70/100,M11,L15,SF3,S20, AR8/1, 142/143,... 330.860 miles and counting.
 
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Re: Boeing releases new CMO (Current market outlook)

Wed Oct 07, 2020 8:46 am

Safe to say the coming 6-10 years majority of new aircrafts are for fleet renewal, not expansion.
 
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Re: Boeing releases new CMO (Current market outlook)

Wed Oct 07, 2020 8:50 am

keesje wrote:
lightsaber wrote:
Revelation wrote:
Reuters ( https://uk.reuters.com/article/boeing-f ... KL1N2GW1ZZ ) has posted a summary:


As you suggest the 'dramatic' part is the next year or two. As for 10% decline across a decade, if true it's a big enough thing to those in the industry, but there's time to make the correction if it happens over the span of a decade.

It also says the key metric for passenger growth per year has changed from 5% down to 4%. I guess those in the industry should be glad they are still in a growth industry. Time will tell how good their forecast is.

I downloaded Boeing's PDF ( https://www.boeing.com/resources/boeing ... wnload.pdf ) and the graph on pg 5 is interesting. It should show people that indeed this is different than 9/11, GFC, SARS, etc. It also gives a good indication of how far ahead of even the historical exponential growth curve the 2010-2020 period was.

I was hoping to find some info about the methodology used by their forecast, but did not find such.

That pg 5 graph tells a huge story. As I noted, it scales to about six years for a recovery. Yikes! The slowdown of expected growth resets the last decade away from a new faster growth normal to an mal-investment bubble.

This CMO lacks details, but is the most pessimistic I can recall. Unfortunately, I speculate the total ten year aircraft demand is too high due to the need to unwind another credit bubble.

Lightsaber


Agree, while Boeing argues market is resilient and will recover as it has been before, the picture shows we never saw this before. There's tons of hope, but nobody knows.

Image
Boeing market outlook 2019-2039


Looking at the graph shows how optimistic they are. The lowest point is around 4 while 2019 ended with a little above 8. Only 50% reduction, while in reality it is -64% year to date while getting worse with every month that is passing by. See: https://www.iata.org/en/iata-repository ... gust-2020/. With the current trend it will end up around -70%.

And the real recovery seems much slower than the graph of Boeing is portraying. We are definitely going up, but at a much slower pace. I can't fathom an RPK that is higher than 2019 in 2022.
 
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Re: Boeing releases new CMO (Current market outlook)

Wed Oct 07, 2020 8:57 am

The proportion of westerners in this forum is too high...hence maybe some over pessimistic comments.
3/4 of the world population is from "emerging" countries or "to emerge" (hopefully). More people are educated (speak English) and have access to internet which stimulates demand for travel.
For the next few years air travel will be cheaper, which should have huge stimulation effects on a demand which is increasingly price elastic.
Probably the business class will suffer but travelling for business will come back strongly, first because videconferencing is not new, second because business opportunities across the globe are more spread out rather than just focused on a few cities or countries. In particular during time of crisis every corporation should look at expanding their customer base - and eventually diversify their supply chains.
These are strong rationales for air travel growth, and the covid crisis may accelerate some of these trends (providing vaccines/cure are found)
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Re: Boeing releases new CMO (Current market outlook)

Wed Oct 07, 2020 9:32 am

Aither wrote:
The proportion of westerners in this forum is too high...hence maybe some over pessimistic comments.
3/4 of the world population is from "emerging" countries or "to emerge" (hopefully). More people are educated (speak English) and have access to internet which stimulates demand for travel.
For the next few years air travel will be cheaper, which should have huge stimulation effects on a demand which is increasingly price elastic.
Probably the business class will suffer but travelling for business will come back strongly, first because videconferencing is not new, second because business opportunities across the globe are more spread out rather than just focused on a few cities or countries. In particular during time of crisis every corporation should look at expanding their customer base - and eventually diversify their supply chains.
These are strong rationales for air travel growth, and the covid crisis may accelerate some of these trends (providing vaccines/cure are found)


Hi Aither, generally agree. On business travel, companies are going through a crash course of doing business without F2F. Conferences, audits, consultancy, sales, chatting, friday afternoon drinks, tense strategic meetings, everyone has been involuntarily trained, experienced, has learned. The likes of Google, Cisco, Microsoft, Marriott and Dell are learning.. Expect a wave of new, improved, integrated doing business on distance products, services to emerge. Making it harder to justify all the $2000-3000 pp business trips to return.
"Never mistake motion for action." Ernest Hemingway
 
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Re: Boeing releases new CMO (Current market outlook)

Wed Oct 07, 2020 9:34 am

I’m of the opinion that 2022/23 will see a massive growth in flying; domestically within regions, as well as international travel. I’m basing that assumption on recent results from CoVid vaccine trials (University of QLD) as well as potential travel bubbles between Aus, NZ, Fiji, Singapore, et al.

Obviously time will tell but I think we’re on a favourable path at this time.
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VV
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Re: Boeing releases new CMO (Current market outlook)

Wed Oct 07, 2020 9:53 am

Chipmunk1973 wrote:
I’m of the opinion that 2022/23 will see a massive growth in flying; domestically within regions, as well as international travel. I’m basing that assumption on recent results from CoVid vaccine trials (University of QLD) as well as potential travel bubbles between Aus, NZ, Fiji, Singapore, et al.

Obviously time will tell but I think we’re on a favourable path at this time.



I agree. The only thing is that governments need to cease these travel restrictions and remove the incoherent quarantine rules.
 
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Re: Boeing releases new CMO (Current market outlook)

Wed Oct 07, 2020 9:54 am

Lower prices for travel, that will have to be seen. With airlines falling and all airlines reducing their fleet size, a lot of capacity has been taken from the market. In addition when the crisis is over all airlines will have burned through their cash reserves and most will have a huge burden of new outstanding debts, that they will want to reduce quickly. So imho we will see a lot less capacity in the market, for prices to be low the demand would nerd to be lower than this already strongly reduced capacity, but then we are far away from a quick recovery. And for the emerging markets, do not underestimate the time if will take to roll out any vaccine to the population and the costs to do so.
Add that governments have also added new debts like never before, we can be certain that tax reductions are out of the question and tax increases are likely, which will also reduce available income.
 
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Re: Boeing releases new CMO (Current market outlook)

Wed Oct 07, 2020 12:37 pm

seahawk wrote:
Lower prices for travel, that will have to be seen. With airlines falling and all airlines reducing their fleet size, a lot of capacity has been taken from the market. In addition when the crisis is over all airlines will have burned through their cash reserves and most will have a huge burden of new outstanding debts, that they will want to reduce quickly. So imho we will see a lot less capacity in the market, for prices to be low the demand would nerd to be lower than this already strongly reduced capacity, but then we are far away from a quick recovery. And for the emerging markets, do not underestimate the time if will take to roll out any vaccine to the population and the costs to do so.
Add that governments have also added new debts like never before, we can be certain that tax reductions are out of the question and tax increases are likely, which will also reduce available income.

Airlines were already struggling in 2019. Many did not have their costs in line with their pricing.

It isn't just government debts. IATA notes airlines are losing $13 billion per month (link above) and will still lose money into 2021. Airlines will need money to pay down debt which means letting fares rise.

I agree vaccine distribution will effect demand. That will be brutal, but is off topic, other than to note it will cut demand.

Lightsaber
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Re: Boeing releases new CMO (Current market outlook)

Wed Oct 07, 2020 12:43 pm

It's not the airlines deciding the fares, it's the market...
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Re: Boeing releases new CMO (Current market outlook)

Wed Oct 07, 2020 12:58 pm

lightsaber wrote:
seahawk wrote:
Lower prices for travel, that will have to be seen. With airlines falling and all airlines reducing their fleet size, a lot of capacity has been taken from the market. In addition when the crisis is over all airlines will have burned through their cash reserves and most will have a huge burden of new outstanding debts, that they will want to reduce quickly. So imho we will see a lot less capacity in the market, for prices to be low the demand would nerd to be lower than this already strongly reduced capacity, but then we are far away from a quick recovery. And for the emerging markets, do not underestimate the time if will take to roll out any vaccine to the population and the costs to do so.
Add that governments have also added new debts like never before, we can be certain that tax reductions are out of the question and tax increases are likely, which will also reduce available income.

Airlines were already struggling in 2019. Many did not have their costs in line with their pricing.

It isn't just government debts. IATA notes airlines are losing $13 billion per month (link above) and will still lose money into 2021. Airlines will need money to pay down debt which means letting fares rise.

I agree vaccine distribution will effect demand. That will be brutal, but is off topic, other than to note it will cut demand.

Lightsaber


I meant airlines will have a huge amount of debt to reduce, but governments will also have a huge amount of debt to reduce. One means that airlines will need to make money, the other means that a market stimulation through tax cuts or reduction of current taxes on flights won´t be an option to stimulate demand.
 
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Re: Boeing releases new CMO (Current market outlook)

Wed Oct 07, 2020 4:54 pm

keesje wrote:
Agree, while Boeing argues market is resilient and will recover as it has been before, the picture shows we never saw this before. There's tons of hope, but nobody knows.

Image
Boeing market outlook 2019-2039

Yes, that is the 'dragon tooth' that LS and I mentioned earlier, thanks for posting it.

chonetsao wrote:
Safe to say the coming 6-10 years majority of new aircrafts are for fleet renewal, not expansion.

Seems like COVID19 has done a great job of taking A380 and 744 out of the market, just like 9/11 removed the 742, 727, etc.

Really the main hope from manufacturers is that their most recent products (A350, 787, 777X) raise efficiency expectations to the point where a lot of the old stuff (767, A330-not-neo, 777-not-X) get permanently retired sooner rather than later.

JonesNL wrote:
Looking at the graph shows how optimistic they are. The lowest point is around 4 while 2019 ended with a little above 8. Only 50% reduction, while in reality it is -64% year to date while getting worse with every month that is passing by. See: https://www.iata.org/en/iata-repository ... gust-2020/. With the current trend it will end up around -70%.

And the real recovery seems much slower than the graph of Boeing is portraying. We are definitely going up, but at a much slower pace. I can't fathom an RPK that is higher than 2019 in 2022.

Agreed, that's why I wrote that Boeing might want to redo their sums based on the lastest IATA data.

seahawk wrote:
Lower prices for travel, that will have to be seen. With airlines falling and all airlines reducing their fleet size, a lot of capacity has been taken from the market. In addition when the crisis is over all airlines will have burned through their cash reserves and most will have a huge burden of new outstanding debts, that they will want to reduce quickly. So imho we will see a lot less capacity in the market, for prices to be low the demand would nerd to be lower than this already strongly reduced capacity, but then we are far away from a quick recovery. And for the emerging markets, do not underestimate the time if will take to roll out any vaccine to the population and the costs to do so.
Add that governments have also added new debts like never before, we can be certain that tax reductions are out of the question and tax increases are likely, which will also reduce available income.

It's not just the emerging countries. The same people who refuse to wear masks will refuse to be vaccinated, and they'll keep sending their kids to the same playgrounds and schools as everyone else does. I personally know some such people. They're already telling me the vaccine will do more harm than good and won't let the gubmint give it to their kids, yet they send their kids to public school.

Point is, I think the CMO is too optimistic.
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Re: Boeing releases new CMO (Current market outlook)

Wed Oct 07, 2020 6:39 pm

I would say it is a best case scenario in which we have working vaccine in early 2021 and one that gives a long time of protection. However it is easy to imagine that even we see a working vaccine (or more than one) that it turns out similar as the flu vaccines and you need a shot every 6-12 months with countries checking your vaccination status on entry. And I do not even wish to think about the troubles for domestic services, as airlines will hardly be allowed to deny service to people not vaccinated. So we will still have the mask wearing and probably lots of fights for the airlines.
 
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Re: Boeing releases new CMO (Current market outlook)

Wed Oct 07, 2020 7:01 pm

I am still doubtful on the return of business travel being strong enough, or enough of a revenue driver. Video Conferencing is becoming more entrenched and software is being developed to enhance business transactions. Sure the good old handshake can't be replaced, but at the end of the day. People like being closer to their families.

Perhaps I am wrong and we will see a rebound in business travel, but that will be mid to late 2021 at this point.
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Re: Boeing releases new CMO (Current market outlook)

Thu Oct 08, 2020 2:43 am

For 20 years, 15K to 20K aircraft seems ballpark. The real question is how many deliveries in the next few years for Boeing. For passenger deliveries thus far this year I see two 777 and 42 787. What does 2021 hold? Will they deliver 12 777, 72 787, or 300 737s, or is that too optimistic?
 
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Re: Boeing releases new CMO (Current market outlook)

Thu Oct 08, 2020 4:09 am

Revelation wrote:
keesje wrote:
Agree, while Boeing argues market is resilient and will recover as it has been before, the picture shows we never saw this before. There's tons of hope, but nobody knows.

Image
Boeing market outlook 2019-2039

Yes, that is the 'dragon tooth' that LS and I mentioned earlier, thanks for posting it.

Point is, I think the CMO is too optimistic.


No one knows the depth of that tooth, nor the width, added snaggle tooth peaks and valleys, that is what is worrying. What happens if it just stalls for a year at 5% growth from this low level - or things get far better in a few months. Virus histories usually fade over a number of months, but is it 10 or 30 months to that point in this case.

Yes, too optimistic but they usually are by a bit, mainly by assuming no future 'episodes'. What isn't mentioned is all the excess frames already built, be it lease returns, distress sales, fleet consolidation, etc. It's like 2 years of production. To be healthy, supply and demand needs to be in balance, if it takes 5 years to get to balance it means production should be below half of previous rates, quite painful.
 
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Re: Boeing releases new CMO (Current market outlook)

Thu Oct 08, 2020 2:45 pm

JayinKitsap wrote:
No one knows the depth of that tooth, nor the width, added snaggle tooth peaks and valleys, that is what is worrying. What happens if it just stalls for a year at 5% growth from this low level - or things get far better in a few months. Virus histories usually fade over a number of months, but is it 10 or 30 months to that point in this case.

Yes, too optimistic but they usually are by a bit, mainly by assuming no future 'episodes'. What isn't mentioned is all the excess frames already built, be it lease returns, distress sales, fleet consolidation, etc. It's like 2 years of production. To be healthy, supply and demand needs to be in balance, if it takes 5 years to get to balance it means production should be below half of previous rates, quite painful.

Well, if I am reading the various stuff posted here and in Seattle Times correctly, wide body build rates will take a 10% hit relative to projection over 10 years but catch up in 20 years, and narrow body build rates will stay more or less as predicted, and the way this will all happen is that airplane retirements will advance. In particular 777x may be a bit slow up front but will be fine due to all those 744, 748, A380 and 77W retirements. Seems sketchy to me, like the barber telling me I need a haircut right shortly after I just got one.

The only way I see that happening is there are so many airline bankruptcies that we end up with forced liquidations of old fleets. But that wouldn't be a win for Boeing either, since re-emergent airlines aren't known for buying large fleets of new aircraft.
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Re: Boeing releases new CMO (Current market outlook)

Thu Oct 08, 2020 3:03 pm

Revelation wrote:
The only way I see that happening is there are so many airline bankruptcies that we end up with forced liquidations of old fleets. But that wouldn't be a win for Boeing either, since re-emergent airlines aren't known for buying large fleets of new aircraft.


Oh, there are going to be airline bankruptcies. That's not to say I'm predicting a slew of liquidations.

Just using the American framework of Chapter 11, carriers will terminate leases and/or return secured aircraft to lenders. That doesn't mean all those returns go on the secondary market, though: when carriers (established or startup) can get perfectly good 15-20 year-old A320/738s at low prices it will drop the bottom out of the market for 25-year old A320s. They'll be scrapped rather than returned to use. Same thing with A319s, 737-700s, A330-200s... anything where the operating economics are a little iffy will suffer premature death -- no matter how low the acquisition cost goes (it can't below zero). There will be plenty - PLENTY - of more compelling used aircraft. (For anybody who wants to come back in a few years and tell me eight A319s went to someplace in Africa that lacks money but has cheap labor... that doesn't make a market, not when there are hundreds, hundreds and hundreds of surplus aircraft.)

For current production rates the projections beyond years 5-7 really are meaningless. There's too much time to change course; there's too much uncertainty in passenger demand. There's too much uncertainty in new money finding its way to support leasing companies.
 
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Re: Boeing releases new CMO (Current market outlook)

Thu Oct 08, 2020 4:06 pm

MIflyer12 wrote:
Revelation wrote:
The only way I see that happening is there are so many airline bankruptcies that we end up with forced liquidations of old fleets. But that wouldn't be a win for Boeing either, since re-emergent airlines aren't known for buying large fleets of new aircraft.

Oh, there are going to be airline bankruptcies. That's not to say I'm predicting a slew of liquidations.

Just using the American framework of Chapter 11, carriers will terminate leases and/or return secured aircraft to lenders. That doesn't mean all those returns go on the secondary market, though: when carriers (established or startup) can get perfectly good 15-20 year-old A320/738s at low prices it will drop the bottom out of the market for 25-year old A320s. They'll be scrapped rather than returned to use. Same thing with A319s, 737-700s, A330-200s... anything where the operating economics are a little iffy will suffer premature death -- no matter how low the acquisition cost goes (it can't below zero). There will be plenty - PLENTY - of more compelling used aircraft. (For anybody who wants to come back in a few years and tell me eight A319s went to someplace in Africa that lacks money but has cheap labor... that doesn't make a market, not when there are hundreds, hundreds and hundreds of surplus aircraft.)

For current production rates the projections beyond years 5-7 really are meaningless. There's too much time to change course; there's too much uncertainty in passenger demand. There's too much uncertainty in new money finding its way to support leasing companies.

Sorry if I wasn't very clear, I was speaking of fleet liquidations in the same way you are, airlines shedding older unwanted planes during bankruptcy, with the end result the oldest and least desirable frames being permanently retired.

The real issue is airlines emerge from BK with the finances to operate hopefully long enough to return to profit and eventually buy new aircraft, but that process usually takes a long time. The creditors are agreeing to take a big haircut in the hopes of getting the airline back into the black, but of course they'll want to minimize that haircut so the airline is not given a big margin for success coming out of BK. In their recovery time, as you suggest it's relatively easy for nimble competitors or new startups to either pick through the used aircraft market and cobble together a fleet at very low cost, or for them to take advantage of desperate manufacturers to get a great bargain on a new fleet. At the same time the newly elected board of the post-BK airline is not going to sign up for a big spending budget to buy new aircraft. Also the passengers are the ultimate variable, if they don't have spending money the whole industry shrinks.

I agree that everything can change in the 5-7 year window, for the better or the worse.
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Re: Boeing releases new CMO (Current market outlook)

Thu Oct 08, 2020 5:01 pm

Revelation wrote:
MIflyer12 wrote:
Revelation wrote:
The only way I see that happening is there are so many airline bankruptcies that we end up with forced liquidations of old fleets. But that wouldn't be a win for Boeing either, since re-emergent airlines aren't known for buying large fleets of new aircraft.

Oh, there are going to be airline bankruptcies. That's not to say I'm predicting a slew of liquidations.

Just using the American framework of Chapter 11, carriers will terminate leases and/or return secured aircraft to lenders. That doesn't mean all those returns go on the secondary market, though: when carriers (established or startup) can get perfectly good 15-20 year-old A320/738s at low prices it will drop the bottom out of the market for 25-year old A320s. They'll be scrapped rather than returned to use. Same thing with A319s, 737-700s, A330-200s... anything where the operating economics are a little iffy will suffer premature death -- no matter how low the acquisition cost goes (it can't below zero). There will be plenty - PLENTY - of more compelling used aircraft. (For anybody who wants to come back in a few years and tell me eight A319s went to someplace in Africa that lacks money but has cheap labor... that doesn't make a market, not when there are hundreds, hundreds and hundreds of surplus aircraft.)

For current production rates the projections beyond years 5-7 really are meaningless. There's too much time to change course; there's too much uncertainty in passenger demand. There's too much uncertainty in new money finding its way to support leasing companies.

Sorry if I wasn't very clear, I was speaking of fleet liquidations in the same way you are, airlines shedding older unwanted planes during bankruptcy, with the end result the oldest and least desirable frames being permanently retired.

The real issue is airlines emerge from BK with the finances to operate hopefully long enough to return to profit and eventually buy new aircraft, but that process usually takes a long time. The creditors are agreeing to take a big haircut in the hopes of getting the airline back into the black, but of course they'll want to minimize that haircut so the airline is not given a big margin for success coming out of BK. In their recovery time, as you suggest it's relatively easy for nimble competitors or new startups to either pick through the used aircraft market and cobble together a fleet at very low cost, or for them to take advantage of desperate manufacturers to get a great bargain on a new fleet. At the same time the newly elected board of the post-BK airline is not going to sign up for a big spending budget to buy new aircraft. Also the passengers are the ultimate variable, if they don't have spending money the whole industry shrinks.

I agree that everything can change in the 5-7 year window, for the better or the worse.


This discussion makes me think that a lot of public money has been wasted to save airline jobs in an environment affected by an oversupply of aircraft (although I take the point from the all the returns are not going on the secondary market with the older ones going straight for scrap). Indeed, if on one hand, airlines are restructuring and get rid of aircraft which on the other hand will end up in the fleet of new competitors, the oversupply will persist for a long time on the air transport market. That's an unhealthy environment. The public money would be better spent in scrapping significant portions of the current fleets so that all the markets (air transport, aircraft leasing and aircraft manufacturing) can be rebalanced as quick as possible.

Of course this approach would permanently squeeze the capacity to a point that it would be detrimental to the economy when the air travel demand would be back. An alternative to this would be to use the public money to auction temporary reductions of capacity, both from the airline fleets and from the leasing companies. This approach would solve the oversupply issue without impairing a quick return of the supply when the demand would be back. It would be up to the airlines to adjust their headcount accordingly.

Thinking of it, I now remember that scrappage schemes have been discussed in the last few month.

https://www.flightglobal.com/farnborough-2020/would-scrappage-scheme-help-keep-airbus-and-boeing-afloat/139100.article
 
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Re: Boeing releases new CMO (Current market outlook)

Thu Oct 08, 2020 5:18 pm

tomcat wrote:
This discussion makes me think that a lot of public money has been wasted to save airline jobs in an environment affected by an oversupply of aircraft (although I take the point from the all the returns are not going on the secondary market with the older ones going straight for scrap). Indeed, if on one hand, airlines are restructuring and get rid of aircraft which on the other hand will end up in the fleet of new competitors, the oversupply will persist for a long time on the air transport market. That's an unhealthy environment. The public money would be better spent in scrapping significant portions of the current fleets so that all the markets (air transport, aircraft leasing and aircraft manufacturing) can be rebalanced as quick as possible.

Of course this approach would permanently squeeze the capacity to a point that it would be detrimental to the economy when the air travel demand would be back. An alternative to this would be to use the public money to auction temporary reductions of capacity, both from the airline fleets and from the leasing companies. This approach would solve the oversupply issue without impairing a quick return of the supply when the demand would be back. It would be up to the airlines to adjust their headcount accordingly.

Thinking of it, I now remember that scrappage schemes have been discussed in the last few month.

https://www.flightglobal.com/farnborough-2020/would-scrappage-scheme-help-keep-airbus-and-boeing-afloat/139100.article

The various aid programs were always based on speculation of the 'V' shaped recovery, quickly in and quickly over, with out much evidence to show that this is what would happen.

Instead they ended up providing some time for airlines to sort out how to make the inevitable cuts.

I am not a fan of public funding of scrapping schemes.

Isn't the whole point of capitalism that the market itself is the best way to heal all wounds?

Or are we going to continue to capitalize profit and socialize debt?

I think international travel has played a big role in the spread of CV19 and we need better protocols to shut down air travel when an outbreak has been detected before we even consider taking more measures to aid the air travel industry.

Like it or not, this will not be the last viral outbreak the world will face.

Now is the time to make changes to try to limit damage of the next one.
Wake up to find out that you are the eyes of the world
The heart has its beaches, its homeland and thoughts of its own
Wake now, discover that you are the song that the morning brings
The heart has its seasons, its evenings and songs of its own
 
tomcat
Posts: 616
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Re: Boeing releases new CMO (Current market outlook)

Thu Oct 08, 2020 5:28 pm

Revelation wrote:
tomcat wrote:
This discussion makes me think that a lot of public money has been wasted to save airline jobs in an environment affected by an oversupply of aircraft (although I take the point from the all the returns are not going on the secondary market with the older ones going straight for scrap). Indeed, if on one hand, airlines are restructuring and get rid of aircraft which on the other hand will end up in the fleet of new competitors, the oversupply will persist for a long time on the air transport market. That's an unhealthy environment. The public money would be better spent in scrapping significant portions of the current fleets so that all the markets (air transport, aircraft leasing and aircraft manufacturing) can be rebalanced as quick as possible.

Of course this approach would permanently squeeze the capacity to a point that it would be detrimental to the economy when the air travel demand would be back. An alternative to this would be to use the public money to auction temporary reductions of capacity, both from the airline fleets and from the leasing companies. This approach would solve the oversupply issue without impairing a quick return of the supply when the demand would be back. It would be up to the airlines to adjust their headcount accordingly.

Thinking of it, I now remember that scrappage schemes have been discussed in the last few month.

https://www.flightglobal.com/farnborough-2020/would-scrappage-scheme-help-keep-airbus-and-boeing-afloat/139100.article

The various aid programs were always based on speculation of the 'V' shaped recovery, quickly in and quickly over, with out much evidence to show that this is what would happen.

Instead they ended up providing some time for airlines to sort out how to make the inevitable cuts.

I am not a fan of public funding of scrapping schemes.

Isn't the whole point of capitalism that the market itself is the best way to heal all wounds?

Or are we going to continue to capitalize profit and socialize debt?



I agree with you but since public money has been spent and is still being spent in some parts of the world (among other Europe, I don't know about the USA right now), I was just questioning if it had been put to the best possible use. Could we have achieved better results (in terms of market balance) with less public money? For example, the idea of introducing competition to benefit from the public money should help minimizing the amount of subsidies spent by the governments.
 
MIflyer12
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Re: Boeing releases new CMO (Current market outlook)

Thu Oct 08, 2020 5:41 pm

Revelation wrote:
Sorry if I wasn't very clear, I was speaking of fleet liquidations in the same way you are, airlines shedding older unwanted planes during bankruptcy, with the end result the oldest and least desirable frames being permanently retired.

The real issue is airlines emerge from BK with the finances to operate hopefully long enough to return to profit and eventually buy new aircraft, but that process usually takes a long time. The creditors are agreeing to take a big haircut in the hopes of getting the airline back into the black, but of course they'll want to minimize that haircut so the airline is not given a big margin for success coming out of BK. In their recovery time, as you suggest it's relatively easy for nimble competitors or new startups to either pick through the used aircraft market and cobble together a fleet at very low cost, or for them to take advantage of desperate manufacturers to get a great bargain on a new fleet. At the same time the newly elected board of the post-BK airline is not going to sign up for a big spending budget to buy new aircraft. Also the passengers are the ultimate variable, if they don't have spending money the whole industry shrinks.


Thanks for coming back. I'm going to outline two scenarios although there's an infinite number between these two poles: Did you want long-lingering pain or quick, sharp pain?

1. The U.S. government keeps shoveling money at this (loans, payroll support, UI supplements) but without demanding retention of 100% of staff. The industry has pain as a long, slow, burn: furloughs of junior staff, retraining of senior staff, middle age aircraft replace old aircraft which are scrapped, the weakest carriers go Ch 11, a few leasing companies go Ch 11, banks eat large losses. B/A don't sell much until the economics of a new MAX or NEO are superior to a ten-year-old NG or CEO. (A350 vs. 333, 787 vs. 77W, whatever match ups you want to make.) It might take 5-7 years for the markets to chew through the excess capacity, business/service models to develop and prove their success, labor contracts to accept a new reality.

2. The U.S. govt. pulls the pin and lets everything go in a free-market maelstrom. Carriers with just a little cash hope to survive long enough to see carriers with less cash be liquidated. Banks eat huge losses. Maybe 200K direct U.S. airline employees loses their jobs within a year. Numerous leasing companies are liquidated. More than a thousand aircraft with useful life are parked. Carrier market concentration reaches new heights, inhibiting start-ups.

It's completely unreasonable to expect U.S. taxpayers to maintain current carrier employment at 100% of wages. (If you're unhappy with the max unemployment benefit of $275/week in Florida or Alabama, pay attention in the next state elections.) It's completely unreasonable for taxpayers to prop up carrier shareholders, bondholders, and banks: they're big boys - they put money at risk. It's completely unreasonable to ask taxpayers to prop up commercial aircraft businesses indefinitely. (See two cases where the WTO agreed.) Begging for more free money - the Parker move - isn't really running the airline. Any way you look at it, carriers need to shrink in the persistent absence of demand. That puts pressure on the used aircraft market and on new aircraft deliveries.

Subsidizing carriers to buy new aircraft when (many) nations are looking to reduce carbon footprints is beyond ridiculous: the lowest carbon output isn't from an old plane or a new plane -- it's from the plane that doesn't fly at all.
 
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Re: Boeing releases new CMO (Current market outlook)

Fri Oct 09, 2020 1:10 am

The question this leaves me with is, how is Boeing going to respond to its own outlook?

Boeing's current strength is in widebody aircraft, which is not where it's projecting demand.

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