Noealt Corporate Services

Strategic Perspective..Decisive Edge.

Commercial Aviation

The Global Commercial Aircraft market has crossed the peak demand threshold on the demand curve after a shortened, 12 year full scale demand boom cycle; as reflected by the dismal order intake across key industry OEMs over the past 2 years and their prevailing book to bill ratios. The latest demand boom had been driven by a combination of favorable demand drivers, macroeconomic forces and technological advances by the industry which transpired into record airlines profits over the past few years. The last 2 years, however, have witnessed a stagnation & softening of order intake for new commercial aircrafts, especially wide body jets, across most key industry OEMs amid an uncertain geopolitical environment along with resurgence of classic commercial aviation specific issues, most noticeably, trade protectionism & state subsidies, slowing down of global economy with increasing macroeconomic uncertainty and downward spiraling yield trend across airlines operators with projected, near-term increase in oil prices likely to put further pressure on profitability with some leading global legacy carriers already looking actively at measures to trim cost base. 


The long term demand drivers & fundamentals for commercial aviation, however, remain firmly in place with a strong passenger traffic growth trend projected over the next 2 decades. The strategic focus across industry OEMs & the industry value chain is laser sharp on ramping up production to deliver on the huge accumulated order backlog, estimated to be worth over 7-8 years of production. The global commercial aircraft market, thus, is juxtaposed between two contrasting trends led by a slowdown in market demand, especially, for new large commercial aircrafts by carriers on the demand side while the industry OEMs & value chain ramp up production to accelerate deliveries on the supply side as they prepare to reap the rich harvest over medium term. Further, the year 2017 is going to be significant for the industry with a number of new commercial aircraft programs scheduled to enter service led by A321neo, 737MAX and the 787-10. Further, the rapid rise of Chinese, Russian and Japanese capabilities in the design, development & production of commercial aircrafts is likely to pose significant & serious threat to the traditional Airbus-Boeing duopoly in the LCA space over long term. 


The commercial aviation sector OEMs, thus, buoyed by the record order backlogs and having fine-tuned their medium term product portfolio strategies; are focusing their efforts on & planning ways to increase aircraft production rate over near term to meet original delivery schedules and to harness the long-term visibility of their order books effectively through optimization of industrial footprint and enhanced alignment of capital expenditure and allocation of resources with the order book position & demand trend. All the OEMs are making significant investments towards expansion of their existing industrial base in-line with the planned, significant increase in aircraft production rate over near term and aligning & fine-tuning their strategies with emerging as well as latent industry trends & developments. Additionally, with a significant share of demand projected to emanate from emerging markets, led by the Asia-Pacific region; all industry players are working towards achieving further diversification of their global industrial footprint across traditional & emerging markets over medium term. 


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