LYNNWOOD — Aircraft manufacturers face a rosy outlook over the next few years, although there are issues on the horizon including the high costs for producing Boeing’s 787, an industry analyst said Wednesday at the Pacific Northwest Aerospace Alliance’s annual conference.
The industry can count on a healthy demand for passenger traffic, strong airlines needing more planes, high levels of defense procurement and access to cheap capital, said Richard Aboulafia, vice president of the Teal Group.
“The last 10 years, the next 10 years, man we’re on a great trajectory,” Aboulafia said. “Sunshine, happiness and light. If I have the great fortune to be back with you again next year, I have a feeling we’ll have another record year and we’ll still be on this trajectory.”
Oil prices are fluctuating, but there are enough forces in place to continue the momentum for airlines to replace their fleets, Aboulafia told the more than 450 attendees at the second day of the conference. And the airline industry is stronger than it’s been in years.
“This is an industry that in a lot of ways seems to have gotten its act together especially here in the U.S.,” Aboulafia said. “I never thought I’d see the day, but finally we’re not plagued by zombie airlines walking around with zombie pricing teetering on the edge of bankruptcy.”
Boeing and Airbus company executives need to be cautious about assuming that 10-percent-a-year growth will continue indefinitely. He said they shouldn’t build too much capacity despite a backlog of orders.
“I’m really concerned about a self-inflicted bust,” Aboulafia said.
Larger concerns are the future of Airbus’ A-380 program, which has seen slow sales, the future of Bombadier’s commercial air program, and the cost for producing Boeing’s 787.
Boeing is spending $30 million more to produce each 787 than it’s receiving for the planes, Aboulafia estimates. The idea is that the company will become more efficient at producing the plane and those costs will decline over time.
To do that, company management needs to work with its employees and suppliers. He said that if you look at the production costs that it’s really clear that they need to talk to workers, “you know the workers that have been systematically alienated by all of these renegotiations.”
“You learn to control costs on the shop floor working as a team with labor,” Aboulafia said. “Or you can just go back to squeezing, squeezing, squeezing.”
Boeing’s Kent Fisher, vice president and general manager of supplier management, spoke to the conference immediately following Aboulafia.
“I do want to comment a little bit on the word squeeze that I heard a few times,” Fisher said. “The reality is — and Richard touched upon this — we’re in a more-for-less world now.”
The only way for Boeing to remain competitive is to keep costs low.
“What I’m trying to describe is a new reality,” Fisher said. “If you’re in our supply base, if you worked in Boeing supplier management, if you work at Boeing, cost reduction is here to stay. There is no finish line. There is no goal. There is no endpoint.”
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