The Two Big Boys, Or Is It Three, Or Four?

        There are only two airplane manufacturers in the world that can deliver an order of a fleet of aircraft that seat 100 or more passengers, Boeing and Airbus. This effectively makes the two companies a duopoly. Nearly all of each company’s aircraft are in direct competition with the opposite company’s offers, less some variants designed for specific operations. Though born in different circumstances, these companies have a lot in common. Boeing, started by Detroit’s own William Edward Boeing, has origins nearly as old as aviation itself. Awed by the accomplishments of the Wright brothers at Kitty Hawk, Boeing saw aviation as an opportunity for profit and set out to build sturdy and reliable seaplanes (Boeing Aircraft Compny, 2013). Through acquisitions and the successful identification of needs within the aviation industry, the Boeing Aircraft Company has become the powerhouse that is today. Airbus was an idea brought to fruition by the European Aeronautic Defense and Space Company (EADS) in the 1960’s, in response to Boeing’s successful use of the aircraft jet turbine engine in its commercial airliners (EADS, 2013). The increased power and efficiency made available due to the advent of the jet engine was the impetus that made large-scale passenger aircraft viable. The rest is competitive history, and/or future.

            This past week Airbus/EADS did something that had not really ever happened in the Boeing vs. Airbus rivalry, poached one of Boeing’s long time clients. Airbus was able to gain a Lion Air, an Indonesian low-cost air carrier, fleet expansion contract. There is a lot of speculation as to why Lion Air would suddenly switch over to Airbus. The likely cause is that Airbus simply offered a more cost effective deal. In a CNN article, Richard Aboulafia stated that the fact that Boeing has had problems with the batteries in the new Dreamliner was not likely the cause for the switch as most aircraft introductions have some minor, forgivable, glitches (Dubois, 2013). The contract was not a make or break sort of deal, but no company can lose many of its clients to competitors without feeling some backlash. Both companies have their fingers in many pots, and commercial aviation only makes up for about half of either firm’s business. If one were to compare the values conveyed on either company’s web pages, they would find the same sort of ideas, i.e. advancing technologies in flight and aerospace. Military contracts are big in both company’s respective portfolios, with this in mind advancing technologies is the life-blood of both companies (EADS 2011 annual report) (Boeing Company, 2013). It may be a good thing that these firms have the history in technology development that they do, because there are new commercial airline companies popping-up as the market for airliners gets larger.

            The emergence of the regional jet has changed the airline industry in many ways. These efficient smaller aircraft have become the norm for short-distance air travel. As technologies improve, regional jets are becoming more capable of longer distance flights. As these aircraft begin to make their respective manufacturers money, the manufacturers begin to think there is more to be made. In a report issued by Peder Anderson, a member of the United States International Trade Commission, a new development in civil aircraft manufacturing is highlighted, regional aircraft manufacturers are looking to grow into large civil aircraft manufacturers. Companies like Embraer, Bombardier, and the Commuter Aircraft Company of China have begun to plan to build aircraft capable of carrying 100+ passengers (Anderson, 2009). Duopoly no more! What this will mean for the current big cheeses of the industry has yet to be determined, but contract poaching will likely soon be the norm.

-Jay

Works Cited

Anderson, P. (2009). New Civil Aircraft Manufacturers On The Horizon? Retrieved from usitc.gov: http://www.usitc.gov/publications/332/Executive_Briefings/NewCivilAircraftExecutiveBriefing.pdf

Boeing Aircraft Compny. (2013). Boeing History Narrative. Retrieved from boeing.com: http://www.boeing.com/boeing/history/

Boeing Company. (2013). Boeing 2012 Annual Report. Retrieved from boeing.com: http://www.boeing.com/companyoffices/financial/finreports/annual/2012/annual_report.pdf

Dubois, S. (2013, March 19). Boeing vs Airbus: Can't we all just get along? Retrieved from cnn.com: http://management.fortune.cnn.com/2013/03/19/boeing-airbus-lion-air/

EADS. (2013). Airbus History Narrative 1967-1969. Retrieved from airbus.com: http://www.airbus.com/company/history/the-narrative/early-days-1967-1969/

Our Problems Are Not Sequestered

            Federal sequestration will officially take effect. Aviation is poised to take some lumps and bruising as a result. In an industry with an impossibly difficult risk/margin ratio, this federal dilly-dallying could possibly set the aviation industry further behind an already distant “eight ball”. One cannot help but wonder, What? Why? How?

            Sequestration was originally designed as a stop-loss measure back in 2011 when Congress realized that the US needed to raise the federal debt limit, or go over the infamous “fiscal cliff”. The approval to increase the federal debt limit was made under the condition that budget cuts would be agreed to. However, no exact cuts were approved just the sweeping plan to require all government programs to cut roughly 11% of current operating budgets. Congress, at the time, agreed that this sweeping plan was so heinous and damaging that more effective and intelligent cuts would be designed and implemented. Well, these modifications were never realized and sequestration has become reality (Choksi, 2013). Whether this is the result of a bogged-down and sludge filled federal government engine or the lack of ingenuity amongst federal department heads or a combination of the two, the system has failed again. The ramifications of sequestration will not necessarily be too damning for many industries, but for aviation, sequestration could severely stunt growth and business performance overall.

            The most obvious place to look to for an understanding of how sequestration will effect aviation is to look to the FAA. In a statement issued in October, FAA Chief Michael Huerta identified some of the more pressing program problems that could result from sequestration, “..these cuts would impact air traffic control services, NextGen implementation, and aircraft certification…” (National Business Aviation Association, 2013). NextGen air traffic systems are already nearly a decade behind original implementation goals. This proposed system would greatly improve the efficiency of the aviation industry as a whole, and save operators millions of needed dollars. Secondary air traffic control towers will likely become unmanned at non-peak hours, something that the National Business Aviation Association is very leery of. At the 38^th annual FAA Forecast & Policy Summit held March 6 in Washington D.C., NBAA COO Steve Brown voiced his concerns saying, “We’re very concerned about sequestration, and the effect it will have on economic growth.” He went on to say that it is his intent to offer alternatives to tower closings at future meetings (National Business Aviation Association, 2013). The idea that secondary tower closings could negatively affect business aviation is not unfounded. Business aviation is unique in that many different types/sizes of aircraft are used. Different types of aircraft need different conditions for a safe landing. If an airfield tower is unmanned, conflicts between smaller aircraft and faster jet aircraft could prove to be catastrophic. The results of increased incidents is a perception of a lack of safety, and let’s be honest with ourselves here, unmanned towers is dangerous. The effects on commercial aviation, aside from the NextGen impacts, will likely be limited to some delay as the result of slower security screening and some possible congestion problems as the result of fewer controllers being on staff (Patterson, 2012). These delays could result in some ticket price increases as well. There are some aviation insiders that are not even slightly upset about sequestration.

            The people in aviation who stand to benefit from sequestration are the minority, but they exist. In an article published last week by Government Executive magazine, author Eric Katz was able to identify a few beneficiaries of the sequestration in aviation. First mentioned was the airport concessions industry, these companies stand to see an increase in sales as the result of the masses of people who are delayed and trapped inside the airport terminal. Not exactly a wonderful business story, though this could lead to the emergence of new airport terminal amenities like “pay’n lay” sleep cots. Katz also mentions that currently overworked government employees will now be afforded a much-needed day off in many cases (Katz, 2013). Anyone who knows an FAA employee or two knows that he/she could work 24/7 and still be behind. Although, does this not really just create an even worse backlog for the bewildered government employee?

            The reality of sequestration for aviation appears to be wholly negative. Reduced operating efficiency, delayed infrastructure updates, and potentially unsafe airspace is a recipe for trouble. What aviation professionals have to ask themselves is, “How do we let this happen?” If there was anything that could have been done to prevent these cuts, or to prepare planned cuts ahead of time, it should have been done. This was a risk, which was predictable and mollifiable. At least if there had been some planning, we could have been prepared for, and accordingly limited, the effects of sequestration. It seems that whenever a program fails to meet expectations, we are quick to let everyone else know about how Congress or Lawmakers let us down. Perhaps, what we need to do is look at what our role in the failure was. I hope that we will be able to ramp-up the professionalism and find ways to make the automatic cutbacks have minimal effect on our industry.  

-Jay Dankoff

Works Cited

Choksi, N. (2013, February 28). What is Sequestration and What Does It Mean for Me? Retrieved from nationaljournal.com: http://www.nationaljournal.com/congress/what-is-sequestration-and-what-does-it-mean-for-me-20130226

Katz, E. (2013, March 14). Not Everyone Hates Sequestration. Retrieved from govexec.com: http://www.govexec.com/pay-benefits/pay-benefits-watch/2013/03/not-everyone-hates-sequestration/61858/

National Business Aviation Association. (2013, March 11). Business Aviation Works to Mitigat Sequester's Impact. Retrieved from nbaa.org: http://www.nbaa.org/ops/20130311-business-aviation-works-to-mitigate-sequesters-impact.php

Patterson, T. (2012, November 27). Will Potential FAA Cuts Hurt Fliers? Retrieved from cnn.com: http://www.cnn.com/2012/08/16/travel/faa-budget-cuts

Disappointing Emissions & Omissions

           There is little doubt amongst anyone that burning fossil fuels is detrimental to the environment. There is, however, great debate on what the correct way to address the issue. Since the 1970’s, the US has begun to implement progressive programs aimed at protecting earth from destructive pollution created by industry and everyday citizens. The Clean Water and Clean Air acts have both been continually updated as technologies and pollutions/polluters have changed. As a young man who claims be raised by the woods of Michigan, who studied environmental science at Michigan State University, and who has a genuine love for nature I can really sink my teeth into the topic of responsible use of fuels. I can report that global warming, as the result of greenhouse gasses, is nearly universally accepted as scientifically proven fact. There is another scientifically proven fact, even though we are aware of the issue and are improving our policies and technologies related to fossil fuel emissions, we continue to increase the amount of pollution created every year. Projections of global warming’s effects have accounted for an increase in drought, flooding, storming, crop failures, and starvation that many believe are beginning to become more obvious every day. Though the reported and estimated numbers vary, it is believed that the aviation industry, internationally, contributes between 2%-12% of all greenhouse gasses produced annually. This number is expected to rise quickly in the coming years, due to the growth of the international aviation community. If 10% is a reasonably accurate educated estimate, there is definitely a need to structure an emissions policy that will help ensure that aviation’s greenhouse gas contributions will be limited. How this regulation will be accomplished is being determined currently, and everyone on earth has a stake in the outcome.

            As is often the case, aviation once again finds itself in the position of the guinea pig on new regulatory policy. This “lab test status” is the result of being an industry that is constantly pushing boundaries on a global scale. The European Union has come up with a cap and trade approach to limiting aviation industry emissions called the Emissions Trading Scheme (ETS). This type of program works by giving individual companies/corporations an allotted number of pollution credits annually in the form of a tradable bond, and any amount of pollution above or below the allotted amount is rewarded accordingly. If a company does not use all of its allotted pollution, credits/bonds it can sell its remaining allowance to companies that have gone over and will require more. Conversely, a company who goes over its allotment will be required to purchase more pollution rights/bonds or pay a steep penalty to the organizing governing body. In theory, this allows for regulation by rewarding good conservation practices. However, this type of program is only as successful as the market in which it is based. If the surrounding market suffers, then the program’s efficacy is undermined by the fact that the bond value is very low, resulting in companies having little motivation to closely watch consumption (Reed, 2013). A successful cap and trade program needs to have provisions that allow for adjusting of bond rates with a fluctuating market. The European Union, however, believes so strongly in its cap and trade program that it had decided that any operator of airplanes in the EU would mandatorily participate in its program, even operators who are not based in Europe. The EU actually passed a law that required such participation beginning in 2012. American aviation companies have accordingly refused to participate, citing the requirement as being unlawful. As it turns out, these US companies may have been correct.

            An interesting House of Representative meeting in the US concerning the EU required participation law was forwarded to its members by the international airports council. In the House meeting minutes representatives and pundits respond to the imposition of the ETS as being illegal on both the World Trade Organization level, as well as an attack against US sovereignty. The point is true in that the EU collects all of the monies raised by the ETS and, then, has sole say in where/if the monies are invested. A US pundit is also quoted as saying that the word “scheme” fits the description of this program quite well. Requiring other nations to participate in the ETS program looks to simply be a money grab by the EU (US House of Representatives, 2011). This has led to the stopping of the mandatory participation for the near future. However, the EU has/does openly invite the world aviation community to come-together with them and design a program that the global community can agree upon and benefit from, and the US has consistently failed to rise to the occasion (Neslen, 2012).

            The reality is this, the EU is trying to force the issue of raised awareness of pollution created by the aviation industry, the US and other countries are reluctant to invest the time or money into a formal program outlining the future of aviation emissions controls, and it is embarrassing. The US has very recently proposed some ETS program suggestions in response to the EU’s program, but these programs overlook a large portion of the actual fossil fuel usage and undermine the point of the program by not including emissions released in oversea transit (Reuters, 2013). This response would appear to indicate that the US Aviation Community is missing the point of the program all-together, and is blinded by the need to save dollars.

            Currently, ICAO is tasked with negotiating a program that the international aviation community can agree upon by fall of this year. If all goes smoothly there will be an international emissions program that everyone is participating in by the end of the year. If well constructed, this program will include strict emission reduction goals, effective motivators for reduced emissions production, and an international committee that will determine the best way to invest the program’s monies. These are the preliminary and painful steps to an overall positive change in the international aviation industry. For an industry that prides itself in being on the cutting-edge of world growth, these initial spats related to emissions controls are a bit out of character and disappointing.         

Works Cited

Neslen, A. (2012, November 13). Hedgegaard stops clock on aviation emissions law. Retrieved from euractiv.com: http://www.euractiv.com/climate-environment/hedegaard-stops-clock-airlines-e-news-515994

Reed, S. (2013, February 20). In European Union, Emissions Trading Is Sputtering. Retrieved from nytimes.com: http://www.nytimes.com/2013/02/21/business/energy-environment/21iht-green21.html?_r=0

Reuters. (2013, February 23). US considers limited scheme to curb aviation emissions. Retrieved from theage.com: http://www.theage.com.au/business/carbon-economy/us-considers-limited-scheme-to-curb-aviation-emissions-20130223-2extv.html

US House of Representatives. (2011). House Hearing on EU Emissions Trading. Retrieved from aci-na.org: http://aci-na.org/content/house-hearing-eu-emissions-trading