Aviation analyst Juergen Pieper of Metzler Equity Research delivered a thoughtful overview on the situation the German aviation industry is facing. His sobering core message at last week’s ‘Aviation Event FRA 2014’: the once influential and sparkling sector slid increasingly in the economic shadow with no u-turn in sight. Many are to blame.
Has anybody heard good news from the German aviation sector lately? Non!, said analyst Juergen Pieper boldly. The virgin flight of the mammoth A380 in 2005 was the last significant positive news produced by the industry. Everything that followed was rather frustrating:
- the financial crisis and its major impact on aviation in Germany, Europe and elswhere,
- the fast gaining of market shares by the state aided gulf carriers, pushing commercially run European airlines aside step by step,
- the successive technical problems the A380 and also Boeing’s Dreamliner programs faced,
- followed by the ban of night flights at Frankfurt caused by growing social resistance to aviation and political sleight-of-hand tricks,
- the still unsolved new BER airport disaster and the one-sided passenger tax levied by the German government,
- Air Berlin’s ongoing struggle for survival,
and, and, and…
Does aviation have a political lobby in Germany?, asked Pieper. An answer to this is superfluous. But who then, if not the Berlin government is to blame for the successive loss of importance of an entire industry? It’s the society, stupid, one might say, with reference to Bill Clinton’s engraving statement on the role of the economy for the well-being of people.
It’s the aging German society and their increasing yearning for not being molested by industrial changes, opposing any growth philosophy. This attitude of self-righteous contentedness will cause social and economic immobility in the long run, if nothing is done to change attitudes and drive development forward.
This necessary change of thinking should mainly be initiated and propelled by politicians. But what do most of them do, across all political parties? Many of the representatives are bowing to the stormy wind of the generation 60-plus in order to be re-elected next time. That’s the decisive reason why big Rhine-Main airport has to shut down the lights between 11 p.m. and 5 a.m. Public and vociferous protest of the nearby dwellers triumphed over the objective needs of Germany as an export nation. “I predict that more airports offering airlines unrestricted traffic will face difficulties to maintain their operating times,” said the analyst.
This despite the fact that the German aviation industry is in a privileged position, he said. The geographical location right between Far East and North America at the cross-road of trade lanes is ideal, exports are booming, an increasing number of people tend to book a flight to get to their tourist resorts, business travel is growing, and – most importantly – the general mood of people is quite positive.
So why by contrast are German airlines belonging to the under performers from the stock market’s point of view? These explanations were delivered by the analyst:
- Lufthansa and Air Berlin, the two major carriers, are increasingly challenged in their home markets by the low cost sector on the one hand and the rapidly expanding Middle East carriers and Turkish Airlines on the other hand, when it comes to competition on intercontinental routes. Without Etihad’s financial infusions – the Arabian carrier holds 30 percent – Air Berlin would most likely be on the brink of insolvency by now, he said.
- The sector is too volatile, highly dependent on seasonal biz, with margins below industrial average.
- Political influence is expected to remain strong, treating the aviation industry as cash cow to fill holes in the state’s budget, seen by the Berlin imposed passenger tax.
Pieper summed up his presentation by urging politics, the aviation industry, the media, and the broad public to get this industrial sector out of the economic off, predominantly the cargo
business. Said Pieper: “For an export nation like Germany, that’s highly dependent on uninterrupted flows of goods to safeguard its leading economic position the negative public awareness of
aviation and air freight in particular has to be turned into positive thinking.” A global economic player is unthinkable without well functioning aviation, he stated. “But are we still hungry
enough to take and support the next steps in technology or too saturated to master new challenges?”
This question raised by Juergen Pieper at the end of his presentation remained unanswered.