Cloudy skies ahead

By Tim Wright | August 11, 2008

Airlines are perhaps feeling the effects of the current economic slowdown more than any other industry. The Air Transport Association (ATA) in the U.S. has reported that the U.S. airline industry's fuel bill this year will touch at least $61 billion, compared with $41 billion in 2007 and $32 billion in 2006.

With fuel representing roughly 34% of airlines' operating costs these days, it's no wonder many are in trouble. Profits are falling all around. Twenty-five airlines around the world became bankrupt or stopped operations in the first six months of this year. In the U.S. the ten largest carriers will lose around $750 million in the second quarter on their way to an estimated full year 2008 loss approaching $6 billion. Even Singapore Airlines-the first carrier of the Airbus A380-saw its first quarter profits plummit 15%. Boeing also reported that its net income fell 19% during the second quarter. The pressure high oil prices are exerting on airlines amid cries from passengers for cheaper fares could see airlines cancelling orders if prices don't soften.

However all is not doom and gloom. While U.S. and European airlines are hurting, those in Asia and the Gulf region are booming. As planemakers such as Boeing and Airbus follow new business into these areas so too are their paint suppliers. Growth in these regions is a sign that the airline industry is not going down the drain, but that the industry needs to be differentiated regionally.

For example, AkzoNobel's aerospace business' Waukegan, MI facility was approved late last year as a supplier of aerospace coatings to China by the Civil Aviation Administration of China (CAAC) and Akzo's distributor for China, Argosy International. The commercial aerospace market in China is a key segment of the global aerospace market.

In addition to following their customers into growth regions around the world, paint suppliers have been charged with the double duty of helping airlines cut costs and reduce emissions. The airline industry has come under heavy criticism from environmental groups such as Greenpeace. While the aviation industry has been touting a green agenda while promoting its latest most technologically advanced designs, the truth is that airlines want and need to curb emissions not for the environment's sake, but because it is in their economic interest to do so. If burning less fuel means helping the environment that's great, but more importantly it means cutting costs.

Tim Wright

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