ISTAT Europe 2011

For the second time I had the pleasure to join the european ISTAT (International Society for Transport Aircraft Trading) meeting, this time taking place in Barcelona, a wonderful city! Here are some thoughts about the conference...

A320neo
Last year the conference was "overshadowed"
by the not-jet-launched A320neo and the majority of lessors, financiers, appraisers and airlines were against the idea of re-engining. If you read my posting from last year you will see that I did not agree with the argumentation especially of the lessors, appraisers and financiers back then - they feared that the existing fleet of A320's would loose their residual values and they would have to make write downs of their assets.
There were a lot of journals laying out at ISTAT to take them away for free and I took the with me. Back home I went to read them and in one of these ("Jetrader", the official publication of the ISTAT) one of the ISTAT approved aircraft appraisers shared his thoughts about the A320 and the impact of the A320neo on residual values. And there it is: the same argumentation I used last year- Quote: "With a very large operator base, CKAS does not believe the neo will impinge on the current model's residual values for at least 15 years after EIS."
This is even more optimistic than John Leahy was when he explained that based on the 737Classic/NG experience residual values will only take a hit when the fleet of new generation aircraft reaches 50% of the overall fleet. In the case of the 737NG that was 5 years after EIS...

B737MAX
The first discussion panel was fought out between Airbus and Boeing. The discussion after the presentations focused on the A320neo and the B737MAX. It went the usual way: Airbus showed that their product is more efficient than the Boeing aircraft and vice versa. The reason why they can do that without directly lying is that they are talking about different things, as I explained in an earlier blog about Cash Operating Costs. Talking with several other (and completely independent) conference attendees the overall opinion was that the MAX cannot reach the level of improvements the A320neo will deliver (as of today on paper, to state it clearly). But all the lessors that were represented in the lessors panel were confident that both reengined aircraft will be successful. But Steven Udvar-Hazy from ALC, who is involved in the Customers Panel on the B737MAX design, warned over long discussions with the FAA over the certification and that the common type certificate with all the other B737 versions is not a given. Another statement from him was, that Boeing backed away from some more changes/improvements compared to "last years version of the reengining".

LEAP-X vs. GTF
After the aircraft OEM discussed their aircraft it was on to the engine manufacturers to show off their new products for the reengined aircraft. Rolls Royce's Robert Nuttall had to cancel the meeting at last minute so there were only PW and CFM in the discussion. CFM'S CEO Jean-Paul Ebanga made some comparisons between a giraffe and rhino and wanted to tell the audience that (fan) size does not always matter. Instead the whole aircraft/engine system must be optimized. Obviously he wanted to convince the audience that the LEAP-1B has the optimal fan diameter for the B737MAX (although as of today the diameter is not fixed). Pratt's Paul Finkelstein concentrated on the technical details of the Geared Turbo Fan to promote PW's new engine offering. He also told the audience that PW conducted a Fan Blade Out Test, extracted the Fan Drive Gear System from the engine, ran it for another 15,000 cycles on a rig and showed it then to (potential) customers at this years Paris Air Show. Finkelstein claimed that most of them thought it was a brand new gear...
During the lessors panel the question was raised in which engine they would have more confidence. Both engines have credibility with the lessors, but some interesting comments came from CIT's CEO Jeff Knittel and also from Steve Udvar-Hazy:
Knittel expressed absolute confidence in the Fan Drive Gear System, touting that UTC is (mainly via PWC the world's largest gear manufacturer.
Udvar-Hazy stated that the core of the LEAP engine is larger, yet runs at hotter temperatures (what was known before) and that the GTF would be 1-2% better in SFC than the LEAP. CFM claimed after their redesign of the fan size to 78" and the addition of a seventh LPT stage that the LEAP engine would be better in SFC...

Financing aircraft deliveries
I am not a finance guy, so my understanding of the whole issue is somewhat limited. But what came out of the financiers panel (mainly the banks) is that financing all the deliveries that are in the pipeline for the next years will get more and more difficult and more expensive. Liquidity especially of french banks, which are historically involved in the aircraft financing business is low. Some german Landesbanks like the HSH Nordbank were rescued with government money and are required to downsize their business now, therefore being not able to finance aircraft and ships anymore.