Tag Archives: C919

New entrants in the commercial aircraft business

In a previous post, I mentioned the new entrants in the large commercial aircraft business (Bombardier CSeries, Embraer, Russian MS-21, Sukhoi SuperJet, Comac C919, Mitsubishi…). Now that the latest market forecasts both from Airbus (Global Market Forecast) and Boeing (Current Market Outlook) are available, I wanted to briefly note how they are treating the segment that most of these entrants would enter: single aisle jet aircraft.

For example, Boeing in this year’s CMO already splits the single aisle between 90-175 passengers (where new entrants would fall into) and over 175 passengers (still the safe harbor?). In previous studies Boeing didn’t offer such sub-segmentation. On the other hand, Airbus hasn’t published yet such differentiation.

It is even more interesting to compare last year’s GMF and CMO with this year’s ones.

  • Airbus saw a demand for 16,977 single aisle aircraft in 2009 while in 2010 sees a demand for 17,870.
  • Boeing saw a demand for 19,460 single aisle aircraft in 2009 while in 2010 sees a demand for 21,150.

In other words Airbus has increased the single aisle market forecast in 893 aircraft, while Boeing has increased it in 1,690 aircraft… Both have made the forecasted pie bigger before it will have to be shared.

On average, they see ~1,300 more single aisle aircraft than what they saw last year… In the case that these extra aircraft was room made for new entrants, that would leave the new entrants a market share of 6.7% of the single aisle market… not much.

However, those entrants are not yet delivering in that segment and most of their deliveries would come at the second half of the 20-year period. By 2029, it could well be possible that their combined market share is around 10%… still not a big share, but already ~7bn$ yearly business (in 2010 dollars); a ~4.4bn$ after discounts, an amount the size of Embraer revenues (the 3rd company in commercial aviation, reason enough for them to enter the segment).

Boeing even concedes that of the 21,150 single aisle aircraft, 86% of them will be between 90-175 passengers, precisely the market sub-segment that will be ferociously fought.

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Aircraft discounts and new entrants

Boeing has recently unveiled its latest Current Market Outlook (CMO): a commercial aviation market forecast for the next 20 years. It calls for 30,900 new aircraft deliveries worth 3.6 trillion dollars. Today, I wanted to write about aircraft discounts and the possibility of having new entrants.

Boeing Current Market Outlook.

Both Boeing and Airbus give their market forecast and backlog figures in what they call as list prices. If you take figures from CMO, you will reach average list prices for regional jets (31M$), single-aisle (79M$), twin-aisle (230M$) and large aircraft (306M$). These figures are in accordance to the prices published in their website (dating from 2008).

However, if you take their published numbers of deliveries each year and use the same prices, you would come to much higher revenues figures than the ones they publish in the year-end results: this is because aircraft makers actually sell the planes at a much lower price. How much lower?

Discounts

I took the figures of revenues, orders and deliveries of the last three years and tried to reach what would be the corresponding discount Boeing’s customers manage to get on average.

I assumed that new orders come with a 3% down payment in the year of the booking, while the remaining cost I assumed that was paid on the year of delivery (for simplicity I didn’t consider more intermediate payments, the 3% figure was taken from the AIAA paper “A Hierarchical Aircraft Life Cycle Cost Analysis Model” by William J. Marx et al.). I also used estimated figures for Boeing Commercial Aviation Services ranging from 2.2bn$ to 3.3bn$.

With these assumptions, I concluded that the average discount that would best replicate revenues figures for Boeing Commercial Airplanes with a minimum error was: 38%! (being the errors in revenues of: 0.05% for 2009, 3.2% for 2008 and 0.5% for 2007).

Thus, when figuring out the value of those 30,900 aircraft we could rather estimate it at 2.2 trillion dollars (instead of 3.6 trn$).

New entrants?

Randy Tinseth, BCA’s VP Marketing, was quoted in Flight Global saying that he expected at least one more competitor in the single-aisle segment. If there are more competitors, competition is going to be tight.

Today Boeing Commercial Airplanes and Airbus Commercial yearly revenues together approximately account for 70bn$. If their revenues are to grow with Boeing’s forecasted world airplane fleet growth of 3.3%, along the next 20 years the revenues of both companies combined would amount to 1.94 trillion dollars.

Considering that the whole market, factoring in discounted prices, was going to be 2.2 trn$, this leaves the rest of competitors a share of the pie of about 250bn$ for the next 20 years (excluding regional jets), this is just 11.4% of the market.

If we look at it on a per year basis: 12.5bn$ a year for all new entrants (CSeries, Embraer, MS-21, SSJ, C919, Koreans, Japanese…) would mean about 250 aircraft a year (compared to the ~380-400 single-aisle that each Boeing and Airbus are delivering per year).

There is room for one commercial success comparable to the 737 or A320 family, but there is not room for two… maybe this is why Randy says “one or two of those guys into the mix” (despite of the many more new possible players).

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