The post-pandemic skies over aviation seemed to clear with this year’s Singapore Airshow, which saw a record trade attendance over four days, nearing 60,000 — a 10% increase from the previous high in 2018.
With the tagline of “where aviation’s finest meet”, this year’s show featured top names of the industry, Airbus and Rolls-Royce, and newcomers Commercial Aircraft Corporation of China (Comac) making the international debut of its narrow-body C919 with both static and flying displays, a step up from the aircraft’s flyby over Victoria Harbour in Hong Kong last December, which was then its first appearance outside the Chinese mainland.
The trade show at the Changi Exhibition Centre ran from Feb 20 to Feb 23, with public days on Feb 24 and 25.
With the show back in “full force”, the focus was to ensure programmes and conferences were relevant to the industry with themes such as sustainability and innovation. “It is to bring back the top global aerospace companies to participate. We’ve done well in this and have over 1000 participating companies and 90% of the top 20 global aerospace companies,” says Leck Chet Lam, managing director of the show’s organiser, Experia.
Air cargo boom
The focus on sustainability and cost-effectiveness at this year’s airshow is largely attributed to the impact of the pandemic. A notable illustration is the increasing demand for passenger-to-freighter (P2F) conversions. In a 2022 report, McKinsey highlighted freight forwarders and air cargo as bright spots amidst the pandemic, contrasting with other sectors that experienced significant setbacks.
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In 2020, profit margins for freight forwarders and air cargo carriers came in at a healthy 4% and 9%, respectively, with strong demand for air cargo initially stemming from the need for protective personal equipment (PPE) and medications and subsequently by challenges posed from the clog up of ocean-shipping supply chains and the growth of e-commerce sales.
As the number of grounded passenger planes increased, corresponding air cargo suffered constraints, leading to reduced belly capacity and higher rates. According to McKinsey, during the heart of the pandemic, global air cargo yields rose by 40% y-oy in 2020 and by an additional 15% in 2021, with load factors up by 10 percentage points (ppts) in 2021 compared to 2019.
The boom in air cargo helped reinforce P2F conversions as a growing business, where aircraft originally built for passengers are refurbished to become dedicated cargo carriers.
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P2F is not a new process, but due to the pandemic, it has become a favoured solution to help address capacity bottlenecks due to its cost-effectiveness and convenience over newly-built cargo planes.
Boeing’s world air cargo forecast for 2022 to 2041 estimates the global P2F market to reach US$5.19 billion ($6.9 billion) by 2029, with approximately 1,300 P2F deliveries globally over the next two decades, which is 66% of the total demand for freighter conversions.
Fellow competitor Airbus echoes a similar sentiment, indicating a demand for around 400 wide-body freighters in the Asia-Pacific (APAC) region over the next 20 years, including new builds and conversions.
“We’re fans of the APAC region, which will grow from about a third or so over time to about 40%. I’m happy that the global market forecast is in good time and remarkably accurate. I’m also happy with the strong momentum that we’ve been able to build last year on our A350 and A330 cargo aeroplanes,” says Airbus’ top executive Christian Scherer, CEO of its commercial aircraft unit, at a media roundtable session at the show.
Despite optimistic outlooks, Airbus faces challenges meeting its delivery targets due to persistent supply chain issues. However, it surpassed its delivery goal last year, reaching 735 aircraft. Earlier this month, the French-German and Spanish collaboration had already cautioned airlines about delays initially slated for 2024 and 2025, extending them by several months.
To cope with this, Scherer says Airbus relies on deploying “a lot of human effort”. He adds: “In principle, we’ve deployed dozens and dozens of supply chain engineers deep into our supply chain, helping to the extent we can provide transparency and visibility to the supply chain on demand. We like to think that we’re best placed in the industrial world to understand how many aeroplanes the airlines need and so we try to give our suppliers as much transparency and substantiation of the orders that we are placing with them.”
“We also help them through our experience because we see thousands of suppliers and know the best practices. We help them organise themselves and, in turn, their supply chain. Occasionally, we chip in to enable their supply chain and unlock bottlenecks so it flows,” adds Scherer.
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Comac’s potential competition
Another challenge for Airbus could arise from a potential competitor, Comac. Scherer amusingly likened Comac’s C919 aircraft to resembling “a bit like an Airbus narrow-body.”
The Chinese aviation manufacturer has similarly identified the APAC region’s need for aircraft, noting projections that the region’s market for aircraft will grow from 3,314 to 9,701 in the next two decades.
China Eastern Airlines, based in Shanghai, is the sole customer for Comac’s C919, with four in service and over 1,000 orders received, primarily from Chinese airlines. GallopAir, backed by Chinese investors and based in Brunei, stands as an exception with 15 orders for the aircraft.
If established manufacturers fail to meet deadlines, this could potentially allow Comac to capture more orders, particularly in its native Chinese market. “Comac is still in its infancy. The C919 aircraft has just been put into route operation and there is still a long way to go for subsequent industrialisation development. The entry of the C919 into the civil aviation market will inject new vitality into the global commercial aircraft industry, provide more choices for global airlines and customers, bring more opportunities to global suppliers and partners and will also better serve global air passengers,” stated the Chinese company in an official press release outlining its position against Boeing and Airbus.
Airbus executive Scherer, welcomes Comac’s entry into the space, viewing it as healthy competition. “The market in China and regions around is large enough to cater for competition, which is a good thing and we fundamentally consider Comac as a competitor as it grows and we welcome that competition,” he says.
“As I joked earlier on, the C919 is an aeroplane that looks very much like something that we or arguably Boeing is offering to the market today and it’s not bringing any particular differentiation to the market, so we’re not anticipating that this is going to rock the boat in a significant way from a strategic perspective,” continues Scherer.
The green focus
The airshow’s extensive showcasing of original equipment manufacturer-heavy (OEM) vendors underscores major manufacturers’ challenges in promptly fulfilling orders.
Aviation lawyer Paul Ng of Rajah and Tann has observed the buzz surrounding environmental, social, and governance (ESG) practices. The topic has taken centre stage in Singapore following the Civil Aviation Authority of Singapore’s (CAAS) Feb 19 announcement to introduce a sustainable aviation fuel (SAF) levy on passengers departing the city-state starting in 2026.
He says: “The aviation industry has been considered polluting even though its carbon footprint is only 2% of all human-induced CO2. Right now, technology continues to be used to look into lowering its environmental impact.”
“Everyone, from airports to airlines to manufacturers, is trying to reduce their carbon footprint. Although much more has been said than done, more money is now going into ESG-related projects as the industry shifts back to the pre-pandemic status quo.”
The narrative was expectedly present at the airshow through the organiser’s partnering with the recently-established Hyundai Motor Group Innovation Centre Singapore (HMGICS) to provide a fleet of IONIQ 5 electric vehicles for delegates attending the event, as well as with New Zealand-based tech company, CarbonClick, to enable attendees to offset the environmental impact of their travel through purchasing carbon offsets to fund climate projects.
Exhibitors Airbus displayed their commitment to sustainability via the flying display of their A350-1000 aircraft, which used a 12.8-tonne blend of regular jet fuel and SAF, of which the latter was 35%.
“We’re happy to demonstrate it here. When we ask ourselves why Airbus is so vocal about SAF, it’s because we’re determined to play a pivotal role in the transition of this industry towards decarbonisation. We view it as a social mission and we put our money where our mouth is,” says Airbus’ Scherer, whose sustainability goals include ensuring all Airbus aircraft are operationally ready to fly with 100% SAF by 2023.
British aircraft engine manufacturer Rolls-Royce, whose Trent engines are on many planes across Singapore Airlines C6L ’ fleet, is similarly resolute in adopting SAF compatibility amongst its components.
Ewen McDonald, chief customer officer of civil aerospace at Rolls-Royce, explains: “Rolls-Royce believes SAF is an essential lever in the short to mid-term and we actively support the ramp-up of its availability to the aviation industry. We have met our commitment to test all our in-production Trent and business aviation engines on 100% SAF.”
The company is investing more than GBP 1 billion ($1.7 billion) in a programme to further improve the Trent engine family. “The focus of the improvements is on performance, reliability and efficiency, incorporating technologies from existing development programmes, including UltraFan,” adds McDonald.
Despite the aviation industry’s push towards environmentally friendly fuel, SAF has made slow progress in Asia, which is surprising considering the technology has been available for over a decade.
Pratheepan Karunagaran, executive director at Apical, member of the RGE group of companies that is building a 2G biofuels JV plant in Spain, says that the key constraint preventing uptake is the large price premium gap between fossil-based jet fuel and SAF. Due to limited supply and viable feedstock, this leads to high production costs compared with conventional jet fuel.
He continues: “The SAF supply chain also grapples with a ‘chicken-and-egg’ dilemma where the interdependence of supply and demand exacerbates the issue.”
Ultimately, Karunagaran views Singapore’s recent initiative as a step in the right direction for herself and the surrounding region. “As a mega airport hub, Singapore’s announcement indicates to all other regional hubs that the aviation sector’s decarbonisation is necessary and the only meaningful short-to-medium term solution is adopting SAF. Singapore’s move will comfort all other regional hubs who were sceptical of losing passengers due to increased ticket prices for SAF adoption,” says Karunagaran.
It’s a bull, it’s a bear, it’s a..?
Amid sustainability trends, the global aviation industry is poised for continued growth. In a Jan 19 report from DBS Group Research analysts Jason Sum, Tabitha Foo and Paul Yong, they anticipate global passenger traffic to reach 105% to 110% of 2019 levels by the end of 2024 and to rise further to 115% to 120% by the end of 2025.
“A key factor in this recovery is the anticipated rebound in international traffic to and from the APAC region. This rebound largely hinges on how travel to and from China returns to normal, which we expect to happen in the second half of 2024. Despite some lingering uncertainties in the broader economic landscape, airlines possess sufficient flexibility to reduce passenger yields to stimulate demand, particularly for international flights,” write the analysts.
Although Sum, Foo and Yong note that global air cargo volumes, measured in cargo-tonne-kilo-metres (CTK), experienced significant stress amid sluggish trade growth and lacklustre economic activity for the majority of 2023, a positive shift was observed with the first y-o-y growth recorded last August and the trend has since continued in subsequent months.
They continue: “While the significant 8.3% y-o-y increase in global cargo volumes in November 2023 was partially due to a low base effect from the prior year, it also points to robust air cargo demand, as evidenced by the simultaneous increase in cargo load factors.”
While the analysts opine that yield compression and ongoing inflation will likely compress operating margins for airlines in North America and Europe, Asian airlines are expected to perform strongly from reduced unit costs as capacity increases and operational efficiency improves, although this varies across the region.
“Airlines in countries that were among the first to reopen, like Singapore and Australia, are likely to face greater margin pressure as yields have already started trending lower,” says the trio at DBS.
Sum, Foo and Yong conclude: “We lift our FY2024/FY2025 core earnings estimates for Singapore Airlines by 15% to 20%, reflecting our expectations of higher passenger load factors and yields following its strong operating performance thus far.”
The analysts’ estimation of the status of aviation in 2024 has been reflected in the record attendance and topics of conversation at this year’s airshow.
While the pandemic’s weighing effects have seemingly been cut loose, the threat posed by the supply chain and recent geo-political challenges continues to cause worry.
For Experia’s Leck, a successful show provides a comprehensive conversation space, even for just a few days. He adds: “The Singapore Airshow is a platform that we provide for the market, exhibitors, trade visitors and businesses and activities or discussions that happen at the Singapore Airshow stay within its boundaries.”
