PILARSKI SAYS… A clear path for the widebody market
PILARSKI SAYS…
A clear path for the widebody market
Adam Pilarski, Senior Vice President at Avitas, says the decision to go for evolution rather than revolution in the widebody market is the right one.
As featured in Airfinance Journal Column PILARSKI SAYS
There is a lot of talk that Airbus may re-engine the A330 fairly soon. In March 2006, at an International Air Transport Association (Iata) conference in front of more than 1,000 people, Steven Udvar-Hazy killed the proposed new Airbus widebody aircraft called at that time the A350. He claimed that the, what I call “A350 classic”, was basically a re-engined A330 and could not be justified as a competitive product to the all-new Boeing 787. Re-engined old technology was bad. Now, less than a decade later, the same Steve Hazy is strongly advocating a re-engined A330 as a great move, and claims there is a huge market for such a product. What gives? How come a re-engined A330 was a terrible idea in 2006 and is brilliant now? Why would new aircraft types be developed? Economists agree that in a monopolistic market there are no incentives for innovation. In markets where there is competition new models will happen only for two basic reasons. One is if there are new developments in the external circumstances and the other when the competitive status quo is being changed. Starting with technology, there have been some significant enhancements in engine efficiency in recent years. Together with another external development, namely persistent high oil prices, this led to a desire of the industry to launch new products. The competitive circumstances also were changing. In the narrowbody market potential new competitors started challenging Airbus and Boeing. Bombardier’s CSeries aircraft enjoyed some initial success on the fringe of a market sector in which Airbus and Boeing have been dominant for a long time. The Russian-proposed MS21 and the Chinese 919 were a potential threat to the existing manufacturers. In the widebody market, though, there are no new producers or products on the horizon. Boeing went for a strategy of gaining a competitive advantage with its 787. Instead of just going for relatively modest advances provided by new engine technology, Boeing bet on a radically new product that would leave Airbus far behind. It is too bad for the US manufacturer reality developed differently. The project was a record three years late, depriving Boeing of the timing advantage, was well over budget and even then it had serious teething problems, which led to the grounding of the aircraft for four months. Airbus, in the meantime, had no choice but to launch a competing product with a similar level of technical sophistication. As a result of Boeing’s action, both manufacturers spent substantial resources to develop revolutionary products in a market where no outside competitive threat existed. On the narrowbody front, where new entrant competitors were making moves to challenge the existing duopoly, Airbus decided calmly to stay with existing technology and just re-engine its A320 without planning a revolutionary improvement in its product. Airbus bet correctly that such a strategy would stop the progress of the CSeries, and trusted that the Chinese and Russian products would be delayed significantly. Boeing had no choice but to follow Airbus’s lead and abandon its dreams of dramatic improvements, relying instead on a simple re-engining programme. The Airbus strategy only works if both duopolists follow similar tactics. In the case of widebodies, Airbus had no choice because the first mover (Boeing) launched a complicated and expensive new product. The outcome is probably not the best for both. They spent a lot of resources in a market where no real competitor is expected to have a decent product for probably two decades. Airbus as first mover went for an evolutionary product in the narrowbody sector where potential competitors are more real and practically forced Boeing to follow suit. This calculated risky strategy of Airbus seems to have paid off. The European manufacturer’s evolutionary strategy is now being implemented in the widebody market, where risks are less severe. The two competitors signalled their willingness to pursue such policies in terms of harvesting their existing widebody lines with minor improvements. The Airbus boss, Tom Enders, remarked at the Berlin Air Show that evolutionary are better than revolutionary developments, saying the industry cannot afford to bet its shirt on game-changing projects and “lead to a crazy game of chicken with the competition and leave nothing to pay the bills”. Boeing’s chairman, Jim McNerney, used similarly colourful language when he said that “moon shots” are a waste of resources and the industry should instead be opting for incremental technology improvements. The bosses of the two duopolists appear to agree there will be evolutionary rather than revolutionary developments, at least in the widebody market, for years to come. While this may disappoint engineers and aviation aficionados, it reflects cold reality. Since the proposed Russian-Chinese widebody product being discussed is most likely at least 20 years away from reality, such a boring conservative approach is probably the most efficient for aviation.
As featured in Airfinance Journal Column PILARSKI SAYS