Those headwinds on air transport

The International Aeronautics and Space Exhibition in Le Bourget, just outside Paris, is taking place at a most opportune, though not necessarily propitious, time for this crucial sector for the world's political and economic system. There are in fact many phenomena affecting it, some related to current events, others to changes of a structural nature.

The Ahmedabad tragedy, which with 279 fatalities is the heaviest since 2014, not only revives the debate on the safety of air transport (which remains the safest mode, once distances travelled are taken into account), but also raises new questions about the reliability of Boeing aircraft. The black boxes of Air India's 787 Dreamliner have not yet been examined, but it is immediate to think of the many accidents that have affected the Seattle and Chicago-based company in recent years, and in particular the two 737 MAX crashes in 2018 and 2019 in which 346 people died. Under the leadership of Kelly Ortberg, an industry veteran recalled from retirement last August, Boeing had begun to reassemble the inclined plane, with the medium-term goal of fundamentally changing the corporate culture, long dominated by a toxic mix of indiscriminate cost-cutting and pressure to meet increasingly demanding production schedules. An exploit, also from the stock market point of view - admittedly still partial and uncertain, celebrated by the 'Financial Times' (How Kelly Ortberg is piloting Boeing from crisis to cash, 9 June). just three days before the events in India caused a new thud in the share price (-6.4%) and forced Ortberg to give up his Parisian trip.

While everything concerning the largest exporter in the United States receives considerable echo, on New Year's Eve the announcement by the Commercial Aircraft Corporation of China (Comac) that a C919, hitherto operating only on domestic routes, served an international route, albeit sui generis, from Shanghai to Hong Kong for the first time, went almost unnoticed. Yet in highly concentrated global markets, the arrival of a new player is a rare enough event to be highlighted on the calendar. Thus only three new jet manufacturers have entered commercial aeronautics in half a century: Airbus in 1974, Canada's Bombardier in 1992 and Brazil's Embraer in 1997. Once certified to sell in the West, the 176-seat C919 would (indicatively) compete with the Airbus 320 and Boeing 737, the most successful aircraft in the history of the aviation industry, as well as the 200-seat model that Embraer seems set to develop.

Moving from a duopoly (in which, moreover, one of the manufacturers, namely Boeing, is subject for safety reasons to a ceiling on the number of aircraft it can produce) to an oligopoly with three or four players would be well received by the airlines, which have been forced in recent years to wait long periods for the delivery of aircraft. As far as prices are concerned, buying an aircraft has probably become more expensive, although the figures are confidential. Another headwind - necessitated by the high environmental impact of air transport - is the use of sustainable aviation fuel (SAF), which is three times more expensive than conventional fuel and, according to IATA, will add USD 1.6 billion to airlines' energy bills in 2024. Although profitability, as measured by net profits, improved in the last financial year, EBIT remains low at 6.4%.

The risks on the horizon are largely the same as for other industries and primarily related to global geopolitical tensions. Airlines and aviation companies had managed to adapt their strategies to the pandemic, the war in Ukraine, and the crumbling of subcontracting chains. In recent months, new shocks have arrived: the trade war has caused a sudden freeze in Chinese orders for Boeing aircraft, the conflict between Iran and Israel has forced yet another change in routes between Europe and Asia. Against this backdrop, orders are announced at Bourget for a few hundred aircraft, a fraction of the 1303 concluded in 2023.