Podcast: How Politics Are Upending Airliner Orders

Is free trade over in commercial aviation, or it is all just smoke and mirrors? Aerodynamic Advisory's Richard Aboulafia joins Aviation Week’s Joe Anselmo, Jens Flottau and Dan Williams to discuss.

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Joe Anselmo: Welcome to the Check 6 podcast. I'm Joe Anselmo, Aviation Week's editorial director. Government-directed jetliner sales are back. Qatar and the United Arab Emirates announced large orders for Boeing jets during President Donald Trump's recent visit to the Middle East, and there's talk that China could place big orders as part of a trade deal being negotiated with the U.S. Meanwhile, Embraer saw Airbus snatch away a big order from Poland's LOT Airlines after politics intervened, and just this week Korean Air ordered more than 100 Boeing airplanes, announcing and signing the commitment in Washington, D.C., of all places. Are we entering a new era where the best airplane for the best price isn't necessarily the winner, or are these highly publicized announcements with world leaders just a lot of smoke and mirrors for orders that would've happened anyway? Joining us to break this all down are Jens Flottau, Aviation Week's executive editor for commercial aviation based in Frankfurt; Daniel Williams, Aviation Week's director of fleet data services based in the UK; and special guest Richard Aboulafia, managing director at AeroDynamic Advisory. He's here with me in Washington, D.C. Richard, for decades, aviation seemed to be largely a free trade industry, maybe a few notable exceptions such as China. Is that era coming to an end?

Richard Aboulafia: It sure seems that way, right? And it all takes me back to the very start of my career when this sort of thing was pretty common with Airbus getting an advantage in certain strategic countries in largely the Indian Ocean rim, I suppose, and the U.S. retaliating. And the last one was sort of the great Bill Clinton, Ron Brown campaign for the Saudi order, 1993 I believe, and then it kind of went away. Yeah, as you say, China was maybe the exception, but everybody else, the market prevailed and now all of a sudden things are changing and I think you have to view it as part of a broader, holistic, massive change against the Agreement on Trade and Civil Aircraft, which is the part of the World Trade Organization that says you can't do any of this. You can't politicize jetliner transactions. You can't impose tariffs on signatory nations and you can't demand commercial offsets work share packages in exchange for orders. You can't do any of this. So all of a sudden we're going back to an era of managed trade, politicized trade, big government, frankly an element of socialism with the announcement yesterday that the U.S. government might even take a stake in defense companies. So the era of the free market would appear to be at least for now coming to a halt.

Joe Anselmo: So you think this is more than just playing to Donald Trump's ego? I mean you think that there's orders shifting from one from Airbus to Boeing or vice versa because of politics?

Richard Aboulafia: So far? Maybe, maybe not. I mean, if you really are a fan of these orders, you're a tourist who's never really been to our industry. He goes, oh cool, you got us an order for this. Alright, you have to believe one of two things. One is that somehow this is going to accelerate growth. Oh, they need these. Yes more now for some reason. Okay, that's dumb. The second is that they weren't going to order the other guy's plans and that includes the other side of course as Jens reported with the Polish LOT order. So there are people who might believe that so far these orders have shifted and in the case of LOT they appear to possibly have shifted, I'll let Jens opine on that. The others so far no. China was going to order Airbus anyway. Korean was going to order Boeing anyway. Boeing has the better wide-body product line. Airbus has the better single-aisle product line, no real mysteries yet. It's the principle of the thing. The idea that an airline shouldn't be free to order the best equipment at the best price is really quite debilitating for the market and for the industry.

Joe Anselmo: Dan Williams, welcome. You heard what Richard just said. You're buried deep now working on Aviation Week's 2026 commercial fleet and MRO forecast. Are current events changing how you're thinking and your calculations for orders?

Dan Williams: I mean political orders, they're not new as Richard said. I mean they still exist in the defense world and have done for many, many moons. They've just made a resurgence in commercial. Now sometimes I got back to the point that you asked Joe, it's like sometimes you are ordering an aircraft not necessarily to curry political favor, but also to do the opposite of that in certain circumstances. China hadn't placed a large Boeing order for nearly a decade. I think it's 2017 was the last time they placed a significant Boeing order. Now they've got an aging fleet, they need some aircraft from somewhere. So as Richard says, they're going to look at Airbus because right now there's less tension, let's say geopolitically between Europe and China and also China trying to do their own indigenous aircraft in the, let's say the ARJ-21, which there's political orders were there with them going to Laos for example, and the C919 which is a Western aircraft in Chinese skin, in Chinese aluminum skin.

So this political aspects to both sides of this fence, I think there's also an element. You brought up the LOT example really interesting. Yes, the French president traveled to Poland, meet and greeted and resulted in an order for A220s, wonderful. The A220 newsflash is not built in France. It doesn't really benefit France in a whole great skip. Yes, it will help them with some of the aftermarket because Airbus will still look after some of the aftermarket with A220, but that's not jobs onto French soil. That's a good win in respect to LOT are an existing Andre customer. And then conversely, you have these orders that are coming in because if an operator wants an aircraft be the right aircraft at the right price right now is getting any aircraft because if you order an Airbus single-aisle, it's going to be 2030 something.

If you don't pay a bit more to get early slots or you don't lease an aircraft from a lessor that's going on order, it's probably a 2030 something. You get it, you go to Boeing, you might get it in 2020 something, but it's going to be late 2020 something. But you might get it two, three years earlier or you go to Embraer, which in the case of SAS and you will get it in 26, 27, 28. So there's not just politics playing part of this. I think I did a daily memo for our Aviation Daily just before the Paris Air Show, and what's happening is these political orders are actually putting pressure on those large trade events because you mentioned it, Joe, Donald Trump traveled across the Middle East with a swath of announcements. Likewise, Keir Starmer, the British prime minister traveled to the U.S., made the framework agreement for the tariffs and announced a load of orders.

So these have become the chances, just like the Korean Air order, that this is where the orders are going to be announced. Not like the traditional Farnborough, Paris, Dubai, Singapore air shows. They are slowly becoming maybe less so Dubai. They're slowly becoming marginalized as events. And we've talked about the underwhelming number of orders at the last Paris and at the last Farnborough, the Paris before that was a little bit different because it was the big India order. But at the end of the day, politics is in play wherever we look, whether it's nuanced or not.

Joe Anselmo: I want to get to Jens. But one follow-up question for you. I mean after Trump left the Middle East weren't a bunch of orders placed for Airbus airplanes?

Dan Williams: Yeah, it always happens. You get FOMO orders, fear of missing out. You've people placing orders because at the end of the day, Boeing and Airbus have to appease their shareholders and if one does announce a big sway of orders, the other needs to do something pretty similar soon because otherwise the shareholders who have quite a short memory will just pivot from one to the other. So you see constant orders dripping into the order books today. Whereas again, let's go back previously, let's go pre-internet world where these are massive orders at these massive shows, then a little bit different.

Joe Anselmo: Jens, so let's bring you into the conversation. I mean is this just smoke and mirrors or is it truly the end of free trade in aviation?

Jens Flottau: Wow, you're asking difficult questions. So I think you have to distinguish between two types of orders or two types of changes. One is the way orders are announced, as Dan just said, there used to be announced air shows, now they're more announced during state visits or something like that. That's kind of less concerning because these orders would've been placed anyway with the manufacturer that gets the order there. It's just about timing and staging and who really cares. The more concerning change is where it's really political, where the aircraft was chosen based on political considerations and not based on technical or financial or commercial terms. And there are examples of that. The best one that has been mentioned before is LOT. I think to me even months after it's been announced. It doesn't make sense to me at all. I mean they even ordered A220-100, which is about the least popular narrow body in the market.

It's heavy, it's not very economical. If you're going to order 220, you're going to order the 300. And if you look at the LOT case in a little more detail, then you will see that they're replacing relatively small aircraft, even Embraer 170s. So 70-seaters with aircraft that are almost twice as large, that'll have a huge effect on the network, on profitability, on costs and so on. And the backdrop of this is obviously a French-Polish political agreement that was made just two months before the order and that included a corporation in the economy and key industries. So that one is that as a clear one, I want to talk a bit about China. That is really interesting. So China, as Dan said, needs a lot of aircraft and it's clear they will order Airbus to me. It's also pretty clear that they will order Boeing. The question now is in which order and when a lot of people think that the Boeing order might actually come first because as part of a broader trade agreement with the United States, if the negotiations are successful, and then Airbus will have to wait a few months for the dust to settle down for people to think that it's a big win for Boeing and for the president and so on. And then Airbus will come in afterwards.

Jens Flottau: I think that's quite a likely scenario. It's also a concerning scenario, not necessarily because Boeing would've gotten more than otherwise with no political interference. Some of the concern is simply timing. This has been dragging on for years, literally this particular campaign, this particular campaign. And there aren't many slots left in the short term or in the medium term, even in the medium term. And the longer this drags on, the more difficult it gets becomes for Chinese airlines to get access to this extra capacity. So a lot of unknowns here.

Joe Anselmo: Richard, what are your thoughts on that?

Richard Aboulafia: Yeah, the China case is indeed the most interesting because of course it's the biggest export market in the world and they kind of have a unique status in that they're this huge market, but they were never ATCA signatories, never full signatories to the Agreement on Trade and Civil Aircraft. So they had observer status, whatever that means. So that meant they were free to screw around. You had this weird dynamic for many years where the airlines were fairly professionally run in terms of fleet planning and whatever else. They would specify the jets, they wanted best equipment, best value, and then they would be boxed up, wait for central committee orders and then the central committee would present them at some state banquet and make them look political even though the origins were maybe more commercial. So I think what you have here is kind of a metaphor for the best case scenario moving forward where airlines really do make their preferences known in advance, but then politicians take credit for the whole process of checking the box, filling in the forms and whatever else. But yeah, I mean the most interesting aspect of this is whether the shift towards Airbus in China will continue because there's a lot at stake there. And it used to be 50-50, it's now, well since 2017 it's basically been 100 to nothing in favor of Airbus. So we'll see whether Boeing can claw back to at least an acceptable sort of a gentleman's one third or something like that.

Joe Anselmo: Although Boeing really needed China back in 2017, 2018, and they're not so much relying on China anymore, are they? They've weaned themselves off that.

Richard Aboulafia: Yeah, I think everyone has, but that's of course almost a function of supply chain constraints you can't deliver. Anyway. I think Dan made the point just the slots just aren't there one day there will be, right? I mean one day people will have all they need and China will be again the biggest single export. At their peak, they took 350 aircraft in a year, and that was for several years about 22, 23% of total global jetliner output. So you want to be part of that and whether you need political backing to make that happen or however, whatever means you can't lose it.

Jens Flottau: If I was Boeing, I would be almost more worried about India at this point because India obviously, as we all know, is also part of it involved in a trade dispute with the United States and is much less dependent on exports than China is. So they could play this the tough way and just go with Airbus and the potential of India for aircraft orders, as we all know, it's huge.

Richard Aboulafia: Yeah, that's right. And it's also Boeing does not have the latitude to offer a FACO, a final assembly checkout line there countries, because of union agreements when they launch a new jet, if they launch a new jet, they will have that latitude. But in the here and now obviously Airbus has them in a number of countries, most notably China. Nothing's stopping them from putting one in India, whereas Boeing simply can't.

Jens Flottau: I would argue overall that for the OEMs, that's really, it seems like it's good news if the U.S. government comes in behind you and pushes for the Qatar to buy Boeing and so on. But actually I think it's really bad news. It doesn't work that way if this is rolled out globally. It just adds a huge amount of uncertainty. You cannot rely on people ordering your aircraft based on commercial terms anymore, based on technical specifications on advantages that you've developed them for. You're just exposed to whatever political dynamics are in place at a certain point in time. And then those dynamics can also change, right? If five years down the roads you're very exposed to a certain market and then there's another trade war or whatever, you suddenly don't have access to that anymore. You're, you are being exposed to factors completely outside of your control.

Whereas if you're developing a good aircraft, it'll sell. If you've got the 737-8, we've complained a lot about the MAX, but look at the 737-8, the MAX 8, it's a very good aircraft. It sells well on the other side outside the A321neo. I mean who would be so stupid to not order it? If you need an aircraft in that category, it's just the best aircraft. So I think Boeing and Airbus have to be really, really careful to subscribe to that or to buy into that logic and support it in any way behind the scenes. And I happen to know from the Airbus side that people high up in the management are extremely concerned about it, even though they are, in the LOT case they benefited from it in a bigger scheme of things. It's not been the biggest order of all times, but they benefited in this case, they're still worried that this is a trend that will have bad ramifications down the line down the road.

Joe Anselmo: Dan, your internal nickname here is the numbers guy. You're the guy we turn to for the numbers. I wanted to get slightly off course before we wrap up today because Jens reported a story this week that the Airbus A320 is about to take overtake the Boeing 737 in deliveries, which is rather astounding considering the Boeing 737 program had a 20-year headstart.

Dan Williams: It certainly is. I mean Airbus and I say this, but Airbus is second to everything. 737 came first. Airbus learned the not mistakes, but because technology moved on and allowed them to develop the A320, 20 years later that had longer legs because you could load bags, not just by hand. You could load them using U conveyor, which then subsequently helped them with what is today's neo. They were very lucky where Airbus, when things like that happened, Boeing has been market leader forever and a day in pretty much any market category. You care to choose. However, we are at the point and the total delivered aircraft is possibly as we speak, the aircraft could be in the air right now on delivery. It is within a day or two of us recording this that it's going to happen. However, that is a momentous sea change doesn't really come as any surprise.

Our last year's forecast, you look 10 years into the future and nearly almost 24, 23, 24% of all future deliveries, new build deliveries of any aircraft size will be an A321neo so of all aircraft. So it doesn't come as any surprise that it is shifting more to towards Airbus in terms of the utilization. I did again, did some analysis recently actually Airbus in the narrow body market, when you compare the standard utilization, monthly utilization of these two, they've been in the lead for a long time. They've been at 54% of market share of utilization for the past six years. So yes, it's momentous terms of a delivery landmark or whatever, a delivery date, a delivery high level. However, it's a case of there's just more of them in service because the 737, like you said, is 20 years older. So yes, they've taken 20 years to deliver this many aircraft.

Dan Williams (continued): However, a lot of those have retired now and moved on, but they were groundbreaking. They are groundbreaking. And going back to what Jens says, the 737 MAX 8 is a perfectly good aircraft for most operators around the globe, especially if you have Next-Gens. The MAX 10 when it comes to market will be a perfectly good aircraft. As long as you don't need to have an A321 in your fleet, then it's perfectly fine. If you are a U.S. legacy carrier, you want to go from cross country, perfect. If you are a Ryanair who wants to stick even more passengers, probably triple deckers, whatever they want to put on them inside or standing up. If you can get 400 on one of those things, Mr. O'Leary would love it, but it's going to be a perfectly good aircraft for flying up to four hours around Europe.

Great but it's not an A321. So it is a time for that baton is being passed over from the 737 to the A320 family. But it doesn't mean to say that this is the end of the 737 by any stretch of the imagination because right now nobody is really investing in a new narrow body aircraft. So we're going to be stuck going to the airport looking at A320 family and 737 family for the foreseeable future. Because right now, because no one's making any more, the tube and wing design is what it is and we're going to be stuck with them for a little while longer.

Joe Anselmo: Richard, I want to wrap it up with you. You heard the numbers, Dan said if I heard them right, he just said basically a quarter of all deliveries will be of commercial aircraft will be A321s. I remember you on stage 10 years ago talking about when Boeing was looking at a mid-market, new mid-market airplane. Did Boeing blow it by not moving forward?

Richard Aboulafia: Yeah, I think again, numbers are dead on. I mean, having said that the new mid-size airplane design might've had a bit of a disadvantage in that it was a wide body and I got any number of technical briefings back a decade ago or so about the NMA and why they could compete with the narrow body using a wide body. I never quite bought it. I think the real opportunity was a couple of years later they began to realize this and they started mooting the idea of a new mid-size narrow body. I think those concepts are still with us. I would urge them to consider watching it because quite frankly, it's such a strategic disadvantage to not have something that is 4,000 plus nautical miles in 220 to 240 passengers. It's what the market wants with single aisle economics. And first of all, Dan, yeah, you're right. It's a perfectly good plane, worst marketing tag of all time. It's a perfectly good plane. That's really not a good way to market airplanes that what's the one recurring theme in airline buying decisions that has baffled, dissolve? People pay for range, they probably don't need. So yeah, the MAX 10 is going to have great economics and 1,000 to 1,500 nautical miles less than A321. That'll sell for a few people, but for the most part it won't.

Joe Anselmo: Okay. Well, on that note, we're just about out of time, but I wanted to thank you, Richard for joining Jens, Dan and me and for all of you for a great conversation. That is a wrap for this week's Check 6. A special thanks to our podcast editor in London, Guy Ferneyhough, and to our audience, we thank you for your time. Have a great week.

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