A little information can be a dangerous thing - Emirates24|7

A little information can be a dangerous thing

The way that companies reveal information about themselves often says much about the character of the organisation. Some companies are bold and trumpet even bad news at maximum volume, while others prefer to sneak out information just before
the weekend.

Over the past couple of years there has been a noticeable trend in London towards more pre-weekend announcements, which we reporters suspect is an attempt by companies to bury real news amid the sport and lifestyle features of the weekend editions. This is a trick that has been learned from the occasionally devious British and American governments, who have long deployed the tactic of rushing out potentially negative or embarrassing stories at the weekend, on national holidays or during a diverting crisis.

But sometimes a bit of information slips out of a government or a company that has not been planned or carefully scheduled (either for maximum or minimum attention). This usually happens when the media managers responsible for controlling newsflow in an organisation fail to realise the significance of what is being said. Just such an event occurred last week when one of China's vast army of faceless bureaucrats made a statement that has rocked one of the world's most important industries.

Yang Guoqing (no, I'd never heard of him either) told a conference that China's airlines should cancel or delay all their new plane orders this year. This simple pronouncement was, I imagine, accompanied by the sound of screaming executives leaping from windows at the headquarters of Boeing in Seattle and Airbus in Toulouse.

China is supposed to take delivery of an estimated 240 to 280 aircraft this year, which is the equivalent of about one quarter of the world's total. Boeing and Airbus, the dominant aircraft manufacturers, therefore risk losing this huge chunk of their order book just as the rest of the world's airlines are also struggling to survive.

There appears to be no "lost in translation" moment here. As deputy head of China's civil aviation authority it is reasonable to assume that Guoqing's comments reflect the mood in Beijing. The bureaucrat really does appear to have quietly ordered the country's domestic airlines to slash their expenditure.

The reason for this drastic action is that the Chinese Government has been forced to offer its airlines loans and a tax bailout worth about $26 billion (Dh95.42bn) because of falling demand for air travel, which has left carriers with empty seats and high overheads. They are losing money at such a rate that the government has had to step in to save them – and clearly new aircraft are a luxury the government plans to do without.

Unfortunately for the aerospace companies, Chinese airlines are not alone in feeling the pinch and few carriers will want to add supply when demand is falling. As a result, many airlines are said to be considering deferring or cancelling their new plane orders this year. Even those airlines that are in a position to take on new planes may have difficulty doing so because financing has dried up. The three biggest aircraft financing companies are ILFC, GCAP and RBS Aviation. ILFC is owned by AIG, which has effectively been nationalised by the US Government, and RBS has effectively been nationalised by the British Government. Needless to say, neither is expected to be generous in their lending this year.

The long aerospace boom appears to be over – a milestone confirmed last week when Boeing revealed that its 2008 order book was half the size of the previous year. Orders in 2009 are likely to be almost non-existent and sales may actually go into reverse if carriers cancel or collapse, leaving Boeing and Airbus with dozens of unwanted aircraft.

Both companies have told me that they are well placed to weather such a storm because their total order books are still enormous.

Boeing said last week that its order book stood at more than 3,700 aircraft worth $275bn at list prices. In theory that should provide a lot of resilience, although it will be of little help if all the orders are put back to 2015 because the company will have gone bust by then.

Of course, many companies will suffer this year as financing and consumer spending dries up. However, what does concern me about the looming crisis facing the aerospace market is that it could slow or completely derail research and development into the next generation of aircraft. That means the hoped for gains in efficiency, reduced fuel consumption and reduced carbon dioxide emissions may not be achieved during the next decade.

Such a failure would be bad for the whole world and it is a story that does not deserve to be quietly slipped out, while everybody's attention is elsewhere.



- The writer is a business correspondent with the Times of London

 

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