Commercial Aviation and Economic Bubble

Does the article appear to be making a clear point, expecting the reader to draw a particular conclusion? If so, what is that thesis or main conclusion?

The article by Thompson (2011) appears to make a valid argument on why there is no bubble in the aviation industry globally. There is a clear point that the conditions for forming a bubble in any economic situation are yet to emerge in the airline industry, specifically for the airplane construction industry, the aircraft leasing business, and the aircraft replacement demand by the existing airlines.

The author also moves the reader away from a section of the industry that would be very vulnerable to a recession in the global economy. Even then, the author provides reasons why a recession and the maintenance, repair, and overhaul business should not be used as reasons to justify a bubble.

The author uses facts about the demand for aircraft over the last few years to bring out a trend. Afterwards, the author presents several scenarios of demand changing on the leasing business side or on the airlines side to show the possible effects on the manufacturing companies, such as Boeing.

Even then, the article offers information to show that in the current state, such disruptions in demand for any economic reason are unlikely to cause a significant bump in production. The presentation of the facts helps the reader to draw the conclusion that supports the thesis of the article.

The thesis of the article is that fundamental assumptions and forecasts for the aviation industry remain reasonable and going with a disciplined approach to rate increases in whatever production or operation parameter will ensure that no bubble occurs. Its conclusion is that the aviation industry will absorb any turbulence that emerges in the global economy (Thompson, 2011).

Does the author appear to have a particular point of view or approach to the topic? Does this seem to be persuasion or does the author seem to be making a relatively objective effort to answer reasonable questions readers may have about the topic?

The authors have a point of view and an approach to the topic. The article is presented in a way that first shows the potential of a bubble and the reasons that cause an economic bubble. It then relates the criteria for a bubble to the aviation industry and displays the vulnerabilities in the aviation industry that can lead to a bubble. The authors then describe the issues that would be most devastating in case a bubble happens.

The manufacturers of aircrafts will have production schedules and resources interfered with, while leasing companies could find themselves with large fleets that are unsustainable. After presenting these facts about the bubble, the authors then move on to present the article’s point of view that a bubble is yet to occur in the aviation industry, and is unlikely in the coming few years.

The conditions of the bubble introduced earlier in the article are quashed with new facts, where the authors present facts that promote a sustainable demand for aircraft such that there would be no slump in production or leasing business. The authors give information about risk and the sources of risk that players in the aviation industry would consider as part of their business planning. Adler and Gellman (2012) have supported these facts about the need to consider both persistent risks and the emerging risks such as competition barriers.

Based on this discussion, the authors make a relatively objective effort to answer questions that readers might have relating to the sustainability of growth in the aviation industry.

What are the key issues or topics that make up the article? What conclusions does the author draw concerning each?

The key topics that make up the article are the increase in demand forecasts for new aircrafts, the potentials of a bubble should there be economic turbulence on a global scale, and vulnerability of manufacturers of planes. These topics combine to form a concern for the aviation industry’s growth.

A number of sub-topics emerge in the respective topics, such as the need for replacement of the old fleet in the next decade and the change of forecast by major manufacturers in the aviation industry. The topics highlight the working of the supply chain in aircraft manufacturing and the market forces’ effect on pricing and production schedules.

Supply chain’s efficiency should arise from better collaboration and information management with supply chain partners. An example highlighted in the article is the reliance of the aircraft leasing companies on the demand forecast of the global airlines to determine their demand in aircraft. Since the two levels of the industry work in partnership, the forecasts by one party influence the decisions made by the other party.

After highlighting the topics, the article concludes that the increase in demand for new aircraft is sustainable when looking at it from the manufacturer’s point of view. Manufacturers have a backlog of 7 years and there are aircrafts that need replacement annually. An economic turbulence globally can occur, but even if it does, the aviation industry will not wither as long as currently disciplined production decisions and strategies are maintained.

On the last topic of the vulnerability of manufacturers, the author concludes that the manufacturers are vulnerable, but only to a small extent when they significantly increase their production capacity beyond the current levels. It is unlikely that they will eventually expose their businesses to the harsh realities of an economic bubble because they relate their investment and production decisions of supply chain risk-management frameworks.

Such businesses are integrated throughout the supply chain, such that they can conduct production planning precisely to take care of increases and decreases in demand and alter their forecasts accordingly, without losing too much business competitiveness (Harms, Hansen, & Schaltergger, 2013).

What sorts of evidence and reasoning does the author use to support each of his/her main conclusions? Note specifically, all facts the author cites in the article. Can you determine if they are accurate?

The author presents the leasing business orders for new aircraft as a source of demand that manufacturers use to forecast their businesses. On the other hand, the article uses the current forecast demand for aircraft at 1600 annually against a supply of 1200 annually as numbers showing no evidence of a bubble (Thompson, 2011). The author also justifies the increasing demand in new aircraft because of cost advantages that airlines have with new models that are efficient.

The volatility of the oil process is also presented as another impetus for increasing demand. The author has also touched on the issue of double counting, where lease companies could be ordering more airplanes to meet the demand of airlines while manufacturers count the leasing demand and the airline demand as separate. However, other authors have pointed that leasing companies also consider the business segments that need smaller aircraft, and these numbers are unattached to the major airlines (Esler, 2006).

What kind of general impression(s) would you expect the typical reader to take away from the article after reading it?

After reading the article, the reader gets a general impression that the aviation industry is well cushioned against a bubble. Any skeptical outlook of the industry is misplaced. On the other hand, turbulence in the economy is average, and investments in the aviation industry have to take considerations of a global economic turbulence. The reader is convinced of the conclusion by the author.

References

Adler, N., & Gellman, A. (2012, July). Strategies for managing risk in a changing aviation environment. Journal of Air Transport Management, 21, 24-35.

Esler, D. (2006, July). Business aircraft. Business & Commercial Aviation, 99(1), 32-42.

Harms, D., Hansen, E. G., & Schaltergger, S. (2013). Strategies in sustainable supply chain management: An empirical investigation of large german companies. Corporate Social Responsibility and Environment Management, 20, 205-218.

Thompson, S. (2011, October 3). Is there an aviation bubble? Aviation Week and Space Technology, 173(35), 70-70.