The global economy has recovered to a large extent since the economic meltdown in 2008. The pace of recovery has been different across regions with developed economies like US and Europe still struggling to find momentum whereas Asia-Pacific regions have recovered at a much faster pace. However, as pointed out in the negative investor sentiment in Emerging Markets, inflation is a major worry especially in the Asia-Pacific region.
However, if the proceedings at the Paris Air Show are anything to go by there is a positive trend in terms of overall economic climate across the globe. The aircraft manufacturers have been notching up big dollar contracts from interested buyers across all segments (defense and commercial).
Here are some highlights from the Paris Air Show showcasing the increasing demand for new aircrafts
- The two largest aircraft manufacturers – Airbus and Boeing together signed over $25 Bn in orders in the very first day of the show. Airbus alone accounted for $15 Bn worth of orders
- Business Jet maker Bombardier secured orders worth more than $1 Bn in the second day and signed up its first Asian client
- Malaysia’s AirAsia has evidently placed an order worth roughly $17 Bn for revamped Airbus jets
- Aerospace technology provider Raytheon secured a ~$23 Mn order from Tata Power Strategic Electronic Systems
A lot many deals have been carried out and the overall deal flow this year has been a significant improvement over the last few years. The sizable increase in demand is all the more heartening since this comes amidst increasing fuel costs, inflationary pressures and so forth.
Going a little deeper into the deals and two more interesting trends shape up,
- Majority of the deals secured by major aircraft manufacturers have been for commercial and luxury aircrafts
- The demand for new aircrafts has come from almost all regions right from USA, Europe, Asia etc. However, Asia is dominating the proceedings right now with the likes of AirAsia, Korean Air and Indigo placing huge orders
What does the increase in commercial aircraft demand has to do with economic growth?
At the onset, linking commercial aircraft demand might appear far stretched but there is a very tight co-relation between the commercial aircraft demand and GDP growth. Still sounds shaky?
Here is a snapshot signifying the relation between air traffic growth and GDP from the Airbus market forecast report. Similar co-relation justification is identified by other major manufacturers as well
The graph clearly represents a high co-relation between the GDP growth and air traffic growth. Larger air traffic growth results in demand for more commercial aircrafts which again could mean a positive GDP growth expectation.
Increasing demand for commercial aircrafts from all regions does signify a potential upswing in the air traffic in the next few years. What this could mean is that GDP growth in these regions could also be slated to increase going forward.
As always, statistics only validate trends to a certain extent and a lot of micro and macro factors could make the co-relation skewed to a large extent. But the aircraft industry has been tracking the co-relation between air traffic and GDP growth for a long time and if historical trends are to be believed, a positive GDP growth across regions can happen even though the exact numbers might differ from one region to another.
Do you think the increased aircraft order activity at the Paris Air Show signals an improving economic climate? Does the close co-relation between air traffic growth and GDP growth make sense?