Turbulence Ahead in Civil Aviation

In 1981 the international airline community reeled through another year of rising costs, despite relative stability in fuel costs, and a declining passenger market. Deregulation through 1978 opened up new opportunities to both new and established carriers, largely in the USA. Brand was even running a Concorde SST into Dallas, claiming grandly that prestige came before load factors’; how the times have changed. The party is well and truly over yet the hangover lingers on.

The fuel hike of 1979 triggered an abrupt end to the passenger boom which along with greatly expanded route structures, additional aircraft and increasing debt to equity ratios signalled doom for many American earners. Combined ICAO losses in 1981 exceeded two and a half billion dollars, the estimate for ’82 stands at two billion, largely as a result of savage frequency cutbacks and widebodies being parked against the fence en masse.

In America, the barometer of modern monetary trends, the PATCO ATC strike was the last straw for many carriers. The larger airlines had more than enough trouble operating through the first few months of greatly reduced ATC control while an unseasonally severe northern winter tore to shreds any hope that time would see the ATC situation improving. The American carriers will be more than ever reliant on a good summer. Perhaps the now-introduced reduction of services will actually lift average load factors to the point where cost efficiency will return. Unfortunately, the spectre of a deepening US recession in the coming year could complicate matters as fewer and fewer business people travel by air and instead opt for the convenience and cost savings of the new opportunities to be enjoyed with the video communications boom.

Ironically the greatest casualty of the PATCO strike were the local commuter airlines which through deregulation had grown like mushrooms. Denied their essential element in on-time scheduled connections with the majors, the small commuter lines lost more than half their passenger traffic overnight forcing many to the wall including relatively large operators such as Air New England, Swift Aire and Golden Gate Airlines. A hub and spoke system that is missing half the connecting flights does not last long and neither do the often financially precarious, heavily indebted commuter airlines that depend so heavily on such connections.

What this means of course is a veritable dirge in airliner orders of all types. From Boeing 747s through to fourteen-seat commuters the airliner order books have virtually stood still since Spring last year. If that wasn’t bad enough, the failure of several carriers and the heavy recurring losses of most have cancelled orders and scuttled options on many airliner types forcing manufacturer order books to look prematurely thin.

The failure of California-based Golden Gate put several DHC Dash 7s in limbo while the number of wide-bodied airliners parked against the fence at present numbers in excess of one hundred. Qantas, who have had three 747s on offer for the past eighteen months have decided that these aircraft will cost around a hundred million dollars EACH to replace by 1986 and so it is more economically prudent to presently retain them in the current fleet with very low utilisation rather than sell them now at an artificially low price and have to replace that same capacity two or three years hence at four or five times the relative price.

In the meantime, to encourage cash flow many carriers are busy selling off their more profitable assets to make ends meet in the short term. PanAm led the way when it sold its corporate headquarters in 1980 and the Intercontinental Hotel chain in 1981. Qantas will be emulating this in 1982 when their Sydney headquarters building is sold along with their equity in the successful Wentworth Hotel chain.

The major problem with all carriers through the past decade is that they simply have not been earning sufficient nett income to ensure they can satisfactorily underwrite the necessary re-equipment programmes of the future. An airline currently operating seventy or eighty jets, largely old DC-9s and 727s will have to build a tremendous reserve in order to finance the new, and necessary, generation of fuel efficient airliners such as the Boeing 757,767 and the Airbus A300 and A310. With most carriers having lost their shirts for the past three years in a row the major lending institutions are beginning to shy away from underwriting such a sick industry. This is a major airline problem that unfortunately won’t go away as rapidly increasing costs coupled with high inflation eat away at each successive fare increase and ultimately turn more and more passengers away from the booking office.

In Australia the entire airline environment lives in a cotton wool cocoon of government protection in comparison to the cut throat world of North America. Fare increases domestically in the region of 30% overall in less than 18 months may keep the airlines profitable, but it hardly encourage traffic growth. A plethora of cancelled services is the result of insufficient load factors which, while going against the advertising of a certain carrier’s emphasis on ‘frequency’, does result in the commuter again being inconvenienced and wondering if modern air travel is all it is made out to be. The domestics will stumble through 1982 nicely despite a reduction in growth thanks to sound overall management and a benevolent government intent on maintaining the status quo.

In the manufacturer’s quarter, Lockheed will ultimately be financially better off without the L. 1011 programme while McDonnell Douglas makes a decision to continue with the troubled DC-10. Only time will tell if the DC-10 makes it as presently so much is reliant on the KC-1O Extender being reordered by USAF. If this latter requirement is dropped by the Pentagon then the Ten will be no more. Likewise MDC will have to launch the MDF-100 with Fokker if they wish to stay in the airliner market. It would be a tragedy for commercial aviation if the name Douglas was to disappear from the world’s airliner environment. This of course would leave only Boeing and Airbus to fight over the remaining large airframe market, something that back in 1972 would have been beyond even the comprehension of Nostradamus!

Airbus is in the box seat for the coming decade with a number of well researched products underway. The A300 is selling well despite the slowing of orders in the past year while the A310 is now ready to fly, the A320 will most probably be launched this year, at Farnborough. Perhaps, while a number of 1990 availability special types will ensure the Airbus Industry is here to stay.

Boeing meanwhile have their 747, which can only improve with age, the 767 is already a success and the 757 is set to become the success story that the 727 was through the sixties and seventies. Down the scale, the little 737 is selling in numbers unheard of just five years back while the -300 variant of this proven airliner will ensure that the Boeing twin will be in production probably till the year 2000 in one shape or another. Boeing are not in a hurry to commit to a 7N7 150-seater programme and this reflects the entire industry’s slow down in enthusiasm towards rushing headlong into the proposed market for 150-seaters. Our guess is that both the A320 and the MDF-100 will become metal but the economic situation will have to improve greatly before either proceed. Boeing will wisely wait and rest on their laurels and probably offer a reduced-length 757 which would logically offer the same advantages of lower relative development costs and proven features that the 737-300 is currently offering potential buyers.

Certainly, 1982 will be another hard year for most carriers and one that the manufacturers will be watching closely as their swollen order books slowly reduce in bulk. Never before in the history of commercial aviation have so many consistent problems been affecting the industry worldwide. Industrial disputes, recession, massive passenger defections, increasing fuel costs and cut throat competition on marginal routes will only ensure that this year’s airline balance sheets will be written in blood.