Watching industries can be interesting – especially when you’re not financially caught up in them. My favorite industry to watch is aerospace. I’ve been an air and space buff since I was a child, watching developments and the ebb and flow of business fortunes in the industry. Right now is a great time to look at what’s going on, especially since politics is a major factor, and political decisions can cause us all to have “skin in the game.”
Every ten years or so, airlines and airframe manufacturers go through a scramble to restock airline fleets. New technology, fuel prices and airliner age cause airlines to examine closely what older aircraft will cost to maintain and fly and whether new planes will save them money. There’s also some “Wow” factor, as passengers will tend to migrate to carriers that offer competitive prices with shiny new equipment. It’s a major decision, with costs for large airliners running into the hundreds of millions of dollars.
Such a time is right now. New offerings from Boeing and its sole major competitor, Airbus, are now entering service. But there’s a spin-off effect, plus some side factors that are affecting airline decisions, and they can’t be ignored. For one thing, the regional carriers are affected as well by main carrier decisions, since they’ve been serving as “feeders” into the large airlines at their hubs. Another major factor is the availability of pilots to fly the planes.
About six months ago I had a conversation with an airline pilot during one of my volunteer shifts at the Columbia Airport USO. He also flies a very large transport plane for the USAF as a Reserve pilot. He told me that the number of available pilots will be shrinking soon, since mandatory age retirement is approaching for many of the current pilots. At the same time, the high cost to achieve and maintain the training and certifications required for airline pilots has been keeping young people from going into the field. The track for pilots who want to fly with the major airlines has run through the regionals, and those smaller carriers have been notoriously low in their pay for flight crews. My pilot acquaintance said, “What parent wants to lay out over a hundred thousand dollars for a job that will pay $25,000 a year?”
So: how will the airlines cope with the shortage? Well, hiring military pilots isn’t an answer, since the Air Force is also short of over 3,000 pilots, and they’re offering pay and sign-up bonuses that are very attractive. The answer, he says, lies in the regionals: “The majors will cut back on flights with the regionals, bring in their own larger planes that carry more passengers per flight, cut back on the number of flights, and make up the difference by raising fares. They’ll justify it with higher demand for seats.”
Bingo: there’s some of our skin. Add to that the fact that South Carolina is now home to a Boeing plant, and there’s potentially a bit more of our skin.
Now, Boeing and Airbus have both focused on large, medium to long-range aircraft. The closest thing Boeing has to a regional jet is the 737, and it’s not the best fit, especially since the basic design is several decades old. What’s worked best in the regional markets has been the smallish Bombardier CRJ series from Canada, and planes built by Brazilian manufacturer Embraer. Delta was looking seriously at Bombardier’s new replacement jet for its CRJs – and Boeing wasn’t happy.
Here’s a summary of what’s happened since:
– Boeing asks the feds to slap a “small” tariff on Bombardier, claiming the Canadians are dumping planes in America at less than production cost.
-The feds respond by slapping on a 300% tariff, surprising even Boeing and thoroughly incensing the Canadian government, who respond by buying used F/A-18 fighters from Australia, rather than shiny new ones from Boeing.
– Elsewhere in the world, governments start thinking “tariff wars” and wondering if their exports to the U.S. will be hit next. (More potential US skin.)
– Meanwhile, Bombardier and Airbus sign an agreement to build Bombardier planes at Airbus’s plant in Mobile, Alabama. (I have to wonder whether the Trump administration’s move with the 300% tariff didn’t have something to do with the recent special election in Alabama, by way of currying favor with local voters with bringing in more jobs. Either way, it didn’t work.)
– Boeing claims that Bombardier is still dumping planes in the U.S., even though they’ll be built here. They still don’t have anything substantive with which to compete in Delta’s regional markets.
– Boeing goes outside the company and the US to find something competitive; i.e., they approach Brazil’s Embraer about a deal, maybe even a buy-out.
– Brazil’s government says the local equivalent of “No thanks; we’re not giving up a lucrative business we struggled to create!”
– Boeing comes back with “OK, let’s still work a deal, and we’ll throw in military business to boot! And keep in mind, Lockheed’s C-130 transports are getting mighty long in the tooth these days.” And guess who’ll be paying for new transports?
And you have to wonder: Where would those Embraer planes be built – and by whom? Oh – By the way – United responded by buying up a bunch of used Airbus A319s from overseas.
Stay tuned! The corpulent diva still ain’t even warmed up her vocal chords on this one!
John Sukovich is a Newberry County resident and a retired professor of business and other IT courses from Midlands Technical College.