Hot Topic: Oil To Fuel IFE Changes

It should come as no surprise that the aviation vendor business models are in a real state of flux as a result of economic conditions. Not only will high oil prices change the map, the players and the business models, the declining dollar is killing deals based on dollars but paid in local currency. What does this mean for IFE? Both Thales and Panasonic (the Big Dogs) produce in the US so their labor costs will be hedged by the fact that they are headquartered and staffed primarily in the US. The impact of fuel costs and fleet downsizing may be another matter. With the airplane production books full for the next three years, only good things are seen for new sales. Retrofits, the smaller cousin to new sales, will surely take a hit. Also, like the airplane vendors, watch for the Tier 2 and Tier 3 suppliers in IFE to face consolidation and possibly downsizing.

We expect the major IFE players to secure ownership and IP from some of those folks while the impact of rising costs will force some new and unique ways of doing business. For sure, fuel increases will change the way planes are utilized and which ones will win new sales. This has bearing on IFE. For example, Boeing sees more single aisle planes in our future. This will cause IFE to take a smaller, lighter, footprint for these planes and perhaps portables might just be the ticket. Airlines will be competing with pax PEDs unless they find a way to get passengers to interact with their offerings...many of which will cost money. Big iron planes like the A380 will have to get their production rates inline with expectations to keep IFE investment returns sustainable. On the airline side, as amenities are cut, fuel challenged airlines will find ways to charge us for those existing features and any new ones. New technology features such as connectivity will HAVE to contribute to revenue. Period. All those freebies just went out the back end of a high bypass turbofan.

And speaking of high fuel prices, if you noted our previous web article (see archives) on turbofan re-interest, we note that ATR, the European regional aircraft plane maker, has hinted that they are looking at a new bigger plane. It wouldn't surprise us if they adopted some of the engine and aerodynamic characteristics of planes proffered 20 years ago.

Perhaps you noted the recent push by Boeing and Airbus for testing bio-based fuels. This is serious stuff and we hear that it is going to get more serious. The big deal is how to develop and make the stuff economically and in sufficient quantities. Here is one solution in the works - http://www.valcent.net/i/misc/Vertig... - check it out!

If you follow the Boeing Current Market Outlook you should note that the 2008 - 2028 edition is on the streets. You will no doubt note their focus on replacement of older, less efficient aircraft (Think B787) and smaller fleets. Boeing sees more point-to-point travel served by an increase of single-aisle airplanes fueled, at least partially, by an upsurge of low-cost carriers. While Boeing sees the world as bettered by a more balanced dispersion of fleets and traffic, no mention is made of future oil grabs...efforts designed to maintain the viability of individual economies. Winners and losers in the great fuel lottery are still to be determined. Until biofuels come online, there are 5 to 10 years of economic uncertainty ahead while growth could be a crapshoot after the next 3 years of airplane backlogs are satisfied. Stay Tuned!