Why the only way is up for Boeing
Boeing's top man in Africa, Van Rex Gallard, talked with Victoria Moores about the continent's growth prospects as the US manufacturer celebrates its 100th birthday.
“There is a lot of meaningful history between Africa and Boeing. We have more aircraft in Africa than anybody else. Why? Because of our history,” Boeing VP for Africa, Latin America and the Caribbean, Van Rex Gallard, said.
Boeing claims more than a 70% market share of the 150-seat plus segment in Africa. Gallard said this is because of relationships. “They go deep into the organisation, so the longer you have been working together, the deeper the relationship. Relationships mature and grow. People who were engineers 20 years ago are now running the airline, VP operations, or VP technical. They have learned to trust us. They know we deliver. That’s key to being successful, the continuity of strong relationships at all levels of the airline. We don’t really care if you buy an aircraft from us, if you lease it, find it, or win it in a raffle, we’re going to be there to support you.”
These relationships are essential to Boeing as Africa looks to invest $170 billion in 1,150 new aircraft between 2016 and 2035. “If you were to do the numbers, you’d be impressed by how many new aircraft are coming into Africa. It may not be 100 aircraft at a time, like some other regions, but there’s much more activity than people are aware of. People think Africa is a destination for old, unsafe aircraft. It’s not. I don’t see that all. That perception of Africa should be erased because it doesn’t exist.”
Things may be tough right now, with economic growth slowing from 3.4% in 2014 to 3% in 2015, but Boeing believes the gross domestic product (GDP) decline will ease in in 2016, followed by a rebound in 2017.
“The only way is up,” Gallard said, pointing to 6.1% projected annual growth over the next 20 years. “Once you liberalise, Africa is going to be a different continent. It won’t be recognisable. Once Africa becomes a free market, the airlines will be able to fly freely and grow. It’s not only going to increase number of aircraft needed, it’s also going to open a lot of possibilities for African travellers and affect trade within Africa. Liberalisation is going to help us bring a new market to the world.”
However, even though intra-Africa is expected to open up in 2017, this major development is not included in Boeing’s forecasts, meaning that the anticipated demand for 1,150 new aircraft could be very conservative. “It has to be in effect for us to be able to account for it,” Gallard said. “It’s like me counting a million dollars in my bank account, based on the hope that I will win the lottery.”
Traffic flows are also likely to change. Today, Africa-Europe is the continent’s largest market, but this will decline over the next 20 years, as Africa-Middle East and intra-Africa – which are tied for second place – grow in importance. Together, these three markets will make up 86% of total capacity.
This is reflected in the aircraft numbers. Over the next 20 years, the African fleet will more than double from 690 to 1,460 aircraft. The majority of these – 810 aircraft in total – will be single aisles, as intra-Africa becomes the fastest growing market in terms of capacity. “Based on the analysis we’ve done with the airlines, the 737 MAX 8 or -800-sized aircraft is the right size for the near future,” said Gallard.
The newly launched MAX 7 is also likely to see some popularity in Africa. “The MAX 7 is a little bigger than the -700 and it’s going to provide more range, especially for hot and high airports. It has the large wing and efficiency of the MAX 8 and it’s going to have the ability to go across Africa, even from the most difficult airports. It’ll also have more seats than the traditional -700. I think that one is going to be extremely important to a number of African operators.”
Meanwhile, 787 operations are likely to “grow at a much faster pace”, especially for Asian, European and US routes. In 2025, Boeing’s new middle-of-the-market aircraft will enter service and this could also be a strong performer on longer intra-Africa routes. “If you ask me what it will look like, we don’t know, but it’s going to replace the 757. It is going to have less capacity that the 787 when it comes to range, but it will have the economics to make those routes extremely efficient.”
Yet this market overview masks a lot of important detail. “We talk about Africa as a single land mass, but it’s very diverse,” said Gallard. “There are many Africas within Africa, many regions: north, east, west, south, central. I see every one of those areas differently with different potential, with different requirements and different complications. Right now, even within east Africa, you have two very experienced airlines – Ethiopian Airlines and Kenya Airways – behaving differently because of the unique circumstances of those two countries.”
The success factor, according to Gallard, is passion and a supportive political backdrop. “There’s no need to say anything about Ethiopian, because right now it is the darling of Africa. Their government has identified aviation as a key industry for Ethiopia. That, by itself, is significant. If any country in Africa wants to have a successful airline industry, they need to make sure they support the growth of their airline. One of the reasons for Ethiopian’s success is the passion of the Ethiopians. It came about because these people work seven days a week, 24 hours a day towards the success of that airline. You need that commitment, that passion. Then you will find the routes, you will create the hubs, you will promote your brand and you will buy the equipment to support that.”
So what is Gallard passionate about right now? “What makes me drool? South Africa Airways (SAA). There is so much to be done there. I would cut my little finger off to be given the opportunity to be able to work with SAA, to help them reach the level of success that I think they have the capability to have. They have the traffic, they have the country, they have the GDP, and they have the know-how, the pilots, engineers and technicians. The only thing that they lack is the willingness to make it happen.
“Every time I think about SAA, it gets me teary-eyed because there’s so much that can be done there. I don’t think they’re getting it wrong; I just don’t think they’re trying very hard. Everything is at a standstill. They’re only making mistakes because they’re not doing anything. They’re just letting time go by. They should be replacing those inefficient wide-bodies. The potential is almost limitless. You don’t even know how badly I want this.”
Boeing often helps airlines with their business planning, verifying conclusions and making sure that they are on the right path. “Something that we don’t do any more is oversell. We try to sell, place or recommend the right number of aircraft and the right product to make sure that you’re successful. If the airline says I’d like to have 50 aircraft and we believe that the right number is actually five, we will tell you five because it’s not to our advantage to have an airline over-order and fail. What Africa really needs from a manufacturer is a straight answer.”
When quizzed on his favourite memory of working with Africa, Gallard replied: “Meeting Africans. If you haven’t experienced Africa, you think it is homogenous, that there is one Africa. When you go to Africa, you discover the people of the different countries, different cultures, different tribes, and different traditions. To me, that is the most fascinating part of Africa, it’s people. That’s the truth. It’s just fascinating.”