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On a Mission for Enthusiasm at Paris Air Show — Q&A with Richard Aboulafia of the Teal Group

Richard Aboulafia Teal Group
June 15, 2015

Beyond the deal-making, advances in aviation technology such as 3D printing to the Industrial Internet could steal the show this year.


The Paris Air Show is the Cannes Festival of aviation — the annual event where top industry players go to see and be seen, whether it’s inking jumbo jet deals or unveiling the smartest technologies rocket science has to offer.

Given ongoing uncertainty about the global economy, this year’s fete may not feature the blockbuster deals of the past, says aviation industry watcher Richard Aboulafia, who forecasts a “softening” in new aircraft deliveries worldwide to 1.7 percent annual growth this year, from a healthy 6.3 percent in 2014.

There will still be plenty of deal-making, of course. But it should make up for in showcasing the types of technological advances that promise a more efficient, sustainable aviation market.

“A lot of the growth is in new product development,” says Aboulafia, vice president of analysis at Teal Group. One key area of interest is the development of smarter, more efficient engines — armed with sensors to enable real-time monitoring via the Industrial Internet — on existing plane models

“There’s just a much greater level of sophistication about what technologies pay their way — and turbine engines pay their way,” he says.

Another innovation transforming the aviation industry is 3D printing, though the challenge will be developing the process so that it goes beyond just a scrap reducer to a game-changer that can provide a significant output boost, Aboulafia says in an interview before traveling to Paris for the show:


What do you see as the big themes of this year’s air show?

There’s a little bit less exuberance. In the past decade, you’ve had almost double-digit growth in the jetliner part of this business. This year, things are softening. I’m not looking for a market drop, but one of the industry’s biggest strengths has been how attractive it’s become to outside investors — whether it’s people who invest in aerospace companies or on jetliner transactions.

Normally air shows are the epicenter of crazy book-to-bill ratios — orders to deliveries. But I don’t think you’re going to see it this time.


What’s the outlook for some of the faster-growth regions? What obstacles need to be addressed these markets to reach their potential?

The growth opportunities of recent history are mostly softening. You’ve had these very strong growth markets in the past few years — India, China and the Middle East. The Middle East is still there, and India and China are important, but it’s not quite what it was.

It’s just a softening of growth really, as well as the fact that they have this tremendous run-up in ordering. It’s no longer the case that you can just put a stick in the ground and watch it grow into a tree.

One of the biggest opportunities now is U.S. carriers — they’re doing very well. They have older fleets and highly profitable businesses.


So where will the growth in the market come from?

A lot of the growth is in new product development. One of the most important trends is the rejuvenation of existing platforms with new engines. They’re  producing new aircraft using the existing model, just putting new engines on it.

There’s just a much greater level of sophistication about what technologies pay their way — and turbine engines pay their way. From an airline customer perspective, it comes down to what improves your cost and revenue per seat mile. If you’re a turbine maker, you’re the only one who is able to offer cost savings year after year. And from a revenue standpoint, that’s more about interiors — how to make a better business class product.


How important will Big Data and the Industrial Internet be in driving the future of aviation, in terms of improving efficiencies and flight safety?

One of the most astonishing things is that so much of the economics of operating an aircraft involves razor-thin margins. We’re one of the best self-policing industries on the planet — we make these remarkable improvements year after year in emissions and fuel burn. It’s motivated by survival, not altruism: if you don’t burn less fuel, you don’t compete as a business.

A lot of these improvements are driven by better ways to build and support equipment using software. You look at the next generation of engines — they’re continuing the trend of 1 percent better a year. Occasionally you get a new product in a decade that’s more than 10 percent better. And we don’t show any signs of stopping


What do you see as some of the more interesting policies being implemented to support the move toward more sustainable flight?

Every so often there will be new emissions targets and regulations, but thanks to this industry’s ability to self-police, they’re completely in line with technology development.

But the biggest thing that could happen to this industry would be at the government level — with next-generation air traffic control, GPS-based flight. You can improve flight times, reduce separation between jets and make better overall use of existing infrastructure. You can do so many things to increase efficiencies and reduce pollution with next-generation air traffic management.

Some countries are way ahead on this, such as Australia and New Zealand. The U.S. and other countries badly lag. FAA reauthorization would help, but they’re taking a long time.


What’s the potential for 3D-printing to transform the aviation industry?

It’s happening right now, and there are certainly potential cost improvements. A lot of the cost savings come from reducing scrap rates, which is great.

But the real challenge will be moving up to higher rates of output with additive manufacturing. That’s going to be interesting to watch.

(This piece also appears on the UPS Longitudes blog.)

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<em>Richard Aboulafia is Vice President, Analysis at Teal Group.</em><br />
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