Boeing, Airbus, Embraer & Bombardier vs Subsonic, Supersonic, and Hypersonic.
In a time where polarizing news stories surface more easily than in the past, we finished the year as one of the safest on record in commercial aviation. There was a flurry of news stories around the proposed merger between Bombardier’s C Series aircraft program and Airbus last fall. Is it well-founded or misguided in light of recent events, global technology ambitions, and shifting global political climates?
A good product never guarantees success. It rarely does. There are many other factors that come into play. In the jet business, size matters. It may or may not affect your landing rights, buying power and your ability to negotiate favourable terms. What lessons, if any can we learn from recent events, and what does it say about matching business opportunities with success?
The Boeing 737 and Airbus 320 are two of the best selling planes for each manufacturer. Boeing’s design was conceived almost 40 years ago while the Airbus 320 was conceived 20 years later. There was a gap in the market that these four plane manufacturers service. Bombardier seized the opportunity to go after that blue ocean, one in which provides airlines with planes that carry between 100 – 125 passengers.
Bombardier reached for the stars, and by most accounts, exceeded expectations. The new aircraft offers better passenger comfort by eliminating one of the dreaded middle seats in a typical 3 abreast configuration going with 3-2 aisle access and delivers better fuel economy than even promised to the airlines as reported back by one of the launch customers Swiss Airlines. But in perhaps the most meaningful measure of all, they fell short as orders and profitability on the development costs ballooned from $1 to $6 billion dollars over the ten years of the program. In short, it ran out of fuel over water. Does the potential tie-up signal ambitions orbiting back to earth, or does this, and renewed merger discussions between Brazil’s Embraer and Boeing signal a desire for the duopoly to play offence against a looming competitive threat from China and others in decades to come?
Bombardier’s order for 75 aircraft with US-based Delta signalled a turning point for the program, as Delta claimed it would make routes that were previously unprofitable, viable. However, both Boeing and Airbus went on the defence updating the engines of the 737 and 320 series that offered better fuel economy while looking to extend the life of those programs and possibly fend off competition from Russia and China by 10 to 15 years. In Canada, much was written this fall that the proposed merger between Bombardier and Airbus for the C Series program for $0 dollars was doomed before even being voted on by shareholders this year. But Bombardier finished the year with a bluebird from Air Egypt. An order for 12 aircraft with a list price of one billion dollars, and the option for another 12. Planes represent big birds in the sky, so to coin another phrase: it may pay not to count the chickens before they hatch.
From 1903 to roughly 1976 aircraft speeds increased from 7 mph to Mach 2, and then stopped. Innovation, speed, and costs. More than anything else, costs have been the biggest determining factor to entice consumers to fly, and airlines have responded accordingly. Consumers lost the ability to fly at supersonic speeds in 2003 when the money-losing Concorde program shut down.
Subsonic air travel is still the norm, but there is renewed interest and investment in supersonic aircraft. Companies like Boom Supersonic are taking advantage of the original Concorde design along with advances in composite materials that could improve margins by 30% from its predecessor. Using a business class cabin that supports up to 55 seats, it would put the available seat mile cost on par with existing wide-body aircraft, while cutting flying time in half at the price of existing business class airfares. Both Japan Airlines and Virgin invested in Boom last month. It will be interesting to watch and see whether they take flight in the coming years.
At the other end of the spectrum, you have hypersonic flight, which would allow one to fly between 5-10 times the speed of sound, and go anywhere in the world under 3 hours. At Mach 5 or higher, it would fly at speeds close to 4000 mph and change the face of national security by making existing air and missile defence systems obsolete. China, Russia, and the US all have programs tackling the complexities of hypersonic flight. Like many things in life, it all boils down to the value that we, the consumer place upon that service. It can be used for good or evil. It will be interesting to see what comes first in future decades: military, defence or civilian use.
The Canadian government is looking in part to technology as a means towards sustainability and prosperity for future generations. Should we go it alone, or look at overlapping complimentary partnerships where we play to win? We can’t ignore the fact that the world is a very different place than it was when the jet age took flight. Developing countries have been able to leapfrog over their western neighbours in areas like telecommunications and wireless infrastructure, as well as with train manufacturing and train travel. What’s to prevent the Chinese from leaving the spoils of commercial aviation orders to Boeing and Airbus for the next twenty years using today’s technologies and then leapfrogging over both by providing an economical and commercially viable hypersonic jet in the span of 20 years?
We’ve heard about the merits of globalization for the past generation, but one man, south of the border was able to weaponize the philosophy behind it to reach the highest office in power. Much like the filter bubble in our social media-fueled newsfeed – whether the facts support it or not are largely irrelevant. In light of recent events between Bombardier, Airbus, Boeing and Embraer who’s to say.
Is this a blip for the Canadian economy, or is it more representative of other sectors as we look to scale ventures and ambitions? Is Canada creating its own distinct path supporting innovation? History isn’t kind to unfulfilled ambitions, and memories are short. As Wayne Gretzky says: “Skate to where the puck is going, not where it has been.”