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ACPC Keynote Predicts that Aviation is Bouncing Back

This year’s Air Carrier Purchasing Conference (ACPC) announced that they were hosting 1093 suppliers and 234 airline representatives.

At the opening ceremony, Gary Shultheis was the ACPC keynote speakers.  Shultheis is DHL’s Senior Vice President Airfreight Americas.  He is responsible for management and operations of DHL Americas.  He’s worked in the Air Freight industry since 1969.

Shultheis learned as a helicopter pilot in Viet Nam that a successful aviation maintenance is based on a sound support logistics.  And, he joked, in Viet Nam It was also based on a lot of safety wire and duct tape.

DHL is the largest air freight company in the world.  DHL is the single largest IATA customer, and they partner with 16 companies globally.  Shultheis gave an economic presentation that addressed the aviation industry generally, but that had a special focus on freight-carrying airlines.

Shultheis began with an exposition of some of the adverse events that have impacted the industry.  He said that in 2000, jet fuel represented 11% of the carriers’ costs.  By 2010, it had risen to 26% (as a percent of total costs); and he showed how the rise in jet fuel prices combined with other events, like terrorism in 2001 and the current global economic trend, to help decrease air passenger traffic.

  • By January 2006, the industry began experiencing a downward trend in premium passenger traffic and cargo traffic
  • By January 2008, this trend had accelerated, and air carriers began to cut back on routes and retire aircraft
  • Aircraft were parked rather than being operated at a loss

Planned commercial aircraft deliveries for 2010 have fallen from 224 to 198.  Carriers have cancelled orders or delayed deliveries.  In the U.S. alone, 11 million people work in the aviation industry, so the health of the aviation industry has a tremendous impact on the economy.

But there is now some good news.  Overall, the airline industry is looking at a positive trend.  Airlines are increasing their pricing with capacity constraints, so net yield is beginning to stabilize.  Airline operating margins have improved and are expected to continue to improve.  Shultheis expects a 3% growth rate for the industry.

Only about 1.5% of all cargo moves by air.  But air is important for transporting cargos for just-in-time needs.

The industry saw a 10 billion dollar loss last year and should break even this year, which is a tremendous increase.

There is uneven recovery throughout the world.  The US fiscal deficit is 1.58 trillion dollars, and the US is faced with record unemployment.  European growth is expected to be uneven, but total European GDP growth this year should be about 2.5%.  China is expected to have a 8.4% growth in the coming year, with India close behind with a 7% growth.  Latin America is showing positive signs of growth in hard goods.  This means that overall international growth should be positive in 2010.

Shultheis opined that cargo volume worldwide is running fairly high; and that is a positive sign for the economy (especially for his air carrier).  He predicted that fuel costs will continue to increase based on environmental standards linking carbon emissions to costs.  There are costs to reducing carbon footprint, Shultheis warned, but he predicted that the long-term benefits of such investment should be positive.

Shultheis warned that there is a great deal of need to make further investments in infrastructure.  Airports worldwide need improvements.  In the US, there is a tremendous need to increase spending on the highway infrastructure.  These investments are necessary to increase safety and efficiency.

Shultheis suggested that while we can continue to beat-up on our vendors for cost decreases, there is only so much that suppliers can do to decrease their costs.  A better strategy is to partner more closely with suppliers.

Shultheis explained that government regulation is another area of serious concern.  Security upgrades have cost the airline industry about $30 billion, and there are still holes in the system.  Lithium batteries represent a good example of the issues associated with government regulations.  The government wanted to impose new regulations on cargo aircraft which would have included retrofit costs that that the US government predicted would have cost $250,000.  The real cost would have been about $11 million.  This sort of discrepancy highlights the failures to realistically assess cost-benefit analyses of new regulations.

ACPC also invited Jason Dickstein to speak in a pair break-out workshops.  The first break-out workshop was on commercial documents.  The second break-out workshop addressed compliance with international trade regulations that affect export of aircraft parts.  Both were very well-attended.  Those of you who would like copies of these presentations can contact MARPA.

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About Jason Dickstein

Mr. Dickstein is the President of the Washington Aviation Group, a Washington, DC-based aviation law firm. He represents several aviation trade associations, including the Aviation Suppliers Association, the Aircraft Electronics Association, the Aircraft Fleet Recycling Association and the Modification and Replacement Parts Association.

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