London – Despite an International Air Transport Association (IATA) warning that manufacturers might ship no more than 50% of this year's production, Boeing refuses to take such a short-term view, preferring to look toward the horizon, assured that overall, long-term growth will continue. Unlike IATA, Boeing’s monitoring of the market and managing backlog feels certain things will stabilize and return to growth. And, of course, it is right considering the industry’s six decades of consistent growth.

The silver lining to the delivery deferrals and cancellations, according to Boeing Commercial Airplanes (BCA) Marketing Vice-President Randy Tinseth, who spoke with Aviation Today’s Daily Brief in London, is a vastly compressed lead time for new customers, prompting the company to enhance communications on all fronts.

“The lead time now is to late 2010; a year ago it was 2015,” Tinseth told ATDB. “We are working with customers on a daily basis. Every Friday morning we meet [internally] to discuss deliveries over the next 12 months. Every month we talk with production." Boeing has learned from past mistakes. "The benefit of this cycle is that we can take a very thoughtful approach to [change] to avoid 'yo-yo-ing' suppliers. That's what we learned in 1997 and 1998 [after ramping up 737 production too quickly].

Tinseth believes operators will continue adapting to market developments. He predicts a 1.4% drop in global domestic product this year, and falls in passenger and cargo traffic of 3-5%, and 5%, respectively – "the largest decline ever seen in the market,” he noted. With that background to customer funding needs, the US manufacturer predicts a modest $1 billion gap that it will address from its own sources.

But Tinseth is impressed by airline response to the downturn: "I've never seen operators so fast to react; adjusting capacity and schedules, and parking aircraft." Tinseth says North American airlines led a general reduction in short-term capacity on all major routes (except Middle East service to Asia and Europe). These latter sub-markets are currently expanding capacity at 12-14% a year, with intra-Asia the only other area with growth (+1%).

Within North America, ASMs are 9% down on 2008's first quarter, against lesser declines on routes linking Asia-North America (–8%), Europe-North America (–7%), and intra-Europe (–6%) sub-markets. Overall, capacity is 3% lower, according to Tinseth.

Historically, cycles in global revenue passenger miles on international scheduled services have followed closely (but exaggerate by about a half) world GDP trends. Generally, peaks and troughs have lasted two or three years before the cycle reverses – that is until the boom in the past mid-decade, which saw record orders placed over an extended period.

Those fat years prompted BCA CEO Scott Carson to speculate in early 2007 that the established pattern might be about to change, but Tinseth suggests the jury is still out: "We must wait: [the present downturn] confirms the market is [still] cyclic. There is no empirical evidence to de-link gross domestic product from airline traffic."

What has changed is Boeing's overall market approach, which these days relies much less on domestic business. "In 2001, 61% of our backlog was American; now it is 11% – more diverse, more global." The latest boom has seen that backlog increased constantly for five straight years, but growth has stopped. "We expect our 'bill-to-book' [ratio] to be less than one this year," concedes the marketing executive, who also acknowledges another change. "Record orders give a new flexibility in how we look at [new business]. Managing our backlog has now become the priority."

Improved communications has made Boeing more sensitive to the market and customers' needs. "You can almost detect a change in the market over just two or three weeks," concludes Tinseth. "That's why daily conversations are so important. We must remain close to customers, improve production, and cut costs."

Doom-laden IATA remarks notwithstanding, Tinseth remains optimistic: "We'll stay close to the market and ensure our backlog stays sold." Meanwhile, IATA’s warning may prove to have no firmer foundation than the guess and perception, which the airline organization acknowledges it brought to the problem.

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