AIN Blog: Bias Taints Even Informed Debate about Aircraft Markets

 - February 28, 2013, 11:21 AM
Avolon's portfolio contains Boeing 737-800NGs as well as examples of its planned re-engined successor. (Image: Boeing),

It seems the news media now ranks among lawyers and terrorists as one of the groups anyone can castigate without any fear of repercussion from civil society’s language police. So it didn’t come as a shock when, in explaining why his company produced a so-called white paper on what influence on the market the new Boeing 737 Max and Airbus A320neo will likely exert, the head of Irish leasing company Avolon cited a desire to correct misperceptions perpetuated by—you guessed it—the media.

“Over the past twelve to eighteen months, we became concerned that some of the commentary that was in the media, which I would say was largely anecdotal and in many cases unattributed but nevertheless gained quite significant traction,” said Avolon president and chief commercial officer John Higgins. “So last year we set out an objective for the business that we would issue a series of white papers capturing our views on key topics of interest across the industry and seeking really to establish a framework whereby a good, rigorous debate could happen, but grounded in data and hard analysis rather than loose opinions.”

The white paper, titled Transitioning to Neo and Max: An Investor’s Guide, does a thorough job of setting into context the case for introducing the re-engined airplanes, using historical trend analysis to reach certain conclusions. Avolon, it so happens, has ordered current-generation Airbus and Boeing narrowbodies as well as members of the A320neo and 737 Max families. As one might expect, the white paper endeavors to debunk the notion that the introduction of the re-engined airplanes will unduly erode the values of today’s A320 and 737NG, particularly those built during the last five years of their production run.

But Avolon can’t escape the fact that, ultimately, the actions of Boeing and Airbus—as well as an unpredictable economic climate—will determine supply and demand equilibrium. Although neither manufacturer has announced any rate increases beyond the 42-per-month pace at which Airbus now builds its A320s and Boeing expects its 737 line to reach by mid-2014, both have talked of creating the capacity to go far higher. If that happens before the period in which the transition to the re-engined airplanes occurs, the market environment that Avolon now envisions could materially change, although Higgins asserted the “rhetoric” over rate increases coming from both sides of the Atlantic has moderated in the last year.

“We were concerned when much higher production rates were being mooted [12 months ago],” he said. “We’re not concerned now. We can see sufficient market demand both from the point of view of growth and from the point of view of retirements and replacements to satisfy the currently anticipated levels of production.”

Unfortunately for the leasing company, it can anticipate, but it cannot orchestrate the production rate discipline that it endorses. Boeing and Airbus might, in fact, see things completely differently when the time comes to start building the Neo and Max.

Meanwhile, no matter to what extent it says it based its conclusions on objective criteria, Avolon cannot claim total neutrality. After all, it carries a vested interest in promoting a viewpoint that supports its purchasing decisions. For all its shortcomings, the press can present several perspectives, and perhaps more credibly than any company with an agenda to defend.