Jetrader - Spring 2017 - 16

passenger traffic resulting in inflations of
aircraft orders. Aviation is cyclical for many
reasons, one being, "We have to eat. We
don't have to fly," Pilarski said, which makes
the industry rather sensitive to changes in
the economy. Seasoned businesses will most
likely survive, maybe not the new players,
though it will be interesting to see what
happens with all the new Chinese leasing companies, Pilarski said. Interesting,
because the Chinese government owns many
of them. How much money will the government want to spend?
Manufacturing will not be greatly
affected, Pilarski said, because narrowbody changes have already happened, and
wide-body wise, the 787s and 350s and
777Xs are coming. "But the cycle will affect
supply and demand of aircraft, and that
affects trading," he said. "Again, the only
question is when we will have a downturn,
not will we have a downturn."
A down cycle, a trade war, another
depression, World War III - Pilarski said
it's not that difficult for his mind to run
away with negative scenarios. If Hillary
Clinton had won the election, Pilarski said
Jetrader would not be calling. "It would be a
more boring world," he said. "Boring doesn't
necessarily mean bad. I couldn't come up
with the really far-out scenarios that I can
come up with today, because it would be
more boring, so we can thank Mr. Trump for
bringing us excitement."
Thinking positively, Pilarski said global
changes could motivate a return to oldfashioned values of hard work and economic
prosperity. "If there is containment of
Russia, if they are suddenly our friends and
Europe's friends, there will be less conflict,
less defense spending and good things can

happen, which leads to more international
flying and again, globalization," he said.
ISTAT members or not, Pilarski encourages people to keep an open mind:
Richard Nixon established relations with
China. Menachem Begin signed the peace
treaty between Israel and Egypt. Arnold
Schwarzenegger was elected governor of
California and nothing really bad happened.
Jesse Ventura did not destroy Minnesota.
As those in the aviation industry look at
the road ahead - less globalization, less
trade, less aircraft demand - Pilarski said
to prepare for possible dangers, but also
look for opportunities. "Do I have loans in
U.S. dollars? How do I pay for them? Can I
refinance? What will happen if the dollar
gets stronger? What will happen if the dollar gets weaker? What will happen if there's
more inflation? What will happen, which is
very, very likely, if interest rates go up?"
"So in addition to how will the world
economy do and will we have less globalization, you have all the other aspects of
economic life that are becoming more significant now because there are changes,"
Pilarski said. "It's less easy to predict what
will happen."
Peter Morris, chief economist for Ascend
Flightglobal Consultancy, said the fundamental drivers for the airline business
remain the same and have for decades: a
regulatory framework influences the structure of various airline businesses that seek
to meet travel demands of customers -
freight and passenger - and make a profit,
or return, to keep business going. On the
demand side, key drivers are GDP growth
seen in individual economies and the price
charged to customers. Events such as wars,
health scares and political conflicts may

16 The official publication of the International Society of Transport Aircraft Trading

disrupt the trend, creating cycles, but the
underlying fundamentals continue to produce market growth. Future growth expectations tend to fall in the 4 to 5 percent
range, in the context of historical 5 percent
market growth.
"For years the trend has been toward
liberalization and opening up of markets
on both the supply and demand side. For
the first time in recent years we have heard
louder voices arguing against liberalization
and open markets, not just in aviation but
in many business areas," Morris wrote in
an email. "Some examples of this new protectionism include the fierce lobbying that
has taken place to postpone the launch of
Norwegian services under the EU-U.S. open
sky provisions and the lobbying by U.S.
airlines to prevent Ex-Im Bank guaranteeing
finance for Boeing aircraft sales to nonU.S. customers. Added to that, the future
market position of the UK and UK-based
airlines as part of the EU common aviation
area is far from clear, post referendum. It
is impossible to predict exactly how these
various regulatory and protectionist forces
may play out, but it is clear that the global
aviation liberalization trend is now unlikely
to be as smooth as in the past and may
significantly disrupt the evolution of new
and more efficient airline business models
in particular countries."
As far as GDP growth, forecasts suggest
2017 GDP growth in the Asia-Pacific region
will be about the same as 2016; better than
last year in North America, and in Western
Europe, worse. "Overall global GDP is seen
as improving, which would normally drive
higher traffic growth," Morris wrote. "On
the other hand, fuel prices, which are a
key ingredient of airline costs, seem to be

Jetrader - Spring 2017

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