Are you a Romantic or Analyst?

[smokejumper]

Richard Aboulafia's recent column (RichardAboulafia.com) discusses the role of Roamntics (who love technology) and Analysts (who love business profit) in the aviation industry -- there is a need for both. The column says:

"Dear Fellow Airplane Obsessors,

This is not another letter about Eclipse. Honestly. I have no desire to continue kicking that dead horse. Besides, it’s Christmas. Let’s play nice. But as I reflect back on Eclipse's inevitable collapse, I’ve never seen a better example of the enormous rift between two kinds of aviation people. There are basically two groups. One loves planes and the culture of planes. Perhaps they are pilots, hobbyists, or engineers, a broad and ecumenical group. Let’s call them “romantics.” Then there are folks who have jobs like mine. This group, call them “analysts,” care about exactly one thing: return on investment. Neither group is right. In fact, there is no right or wrong. The two groups just see the world through different lenses.

The difference between the two groups explains a lot about where the industry has come from, and where it is headed. Romantics love new technology, new transportation options, national and regional prestige, and giving people jobs. If a plane looks like it will do any of these things, romantics want it to happen. Analysts, by contrast, don’t want to know about any of this. They only want to know if a plane will make money for the industrial and financial players in this business. The rest is anecdotal stuff, only interesting as a side benefit if it accompanies profitability.

The world is increasingly run by analysts, and by the dictates of the market. Analysts are there to provide needed discipline. Eclipse and DayJet, however, got off the ground largely because of romantics. The utopian vision of small high-tech jets transforming the world and taking people where they wanted to go produced record levels of support from romantics (for a superb view of this ideal, see James Fallows’ Free Flight: From Airline Hell To A New Age Of Travel). But in the end the analysts were right. As the two businesses failed they destroyed considerable value (around $2 billion, but more if you look at the Eclipse suppliers that have to write off their investments). Jobs were lost. Lives were disrupted. If the romantics prevailed this unpleasant story would happen more often.

The A380 is an even better example. From a romantic’s perspective, this plane has it all — national pride, cool technology, grandeur, utopianism, even a delightful children’s book handed out at air shows. But there was no business case. In fact, Airbus never even provided a pro forma business case. Airbus, like the romantics, avoided all carnal knowledge with a P+L sheet. The consequences are painfully obvious. The A380 is something Airbus needs to recover from. The painful restructuring of Power8 is one result. Worse, thanks to heavy spending on the A380 the timetable for the far more important A350XWB is under serious pressure, which will only get worse in the coming jetliner deliveries downturn.

So…hooray for us analysts, right? Nope. Far from it. Analysts face an uncomfortable truth. Most of the great achievements in aviation would never have happened if analysts were completely in charge. Concorde. Comet. Possibly even the 747 (fathered by great romantics like Juan Trippe). The analysts’ mandate is to prevent misinvestment and promote profitable enterprises. That rules out an awful lot of good things.

The first time this hit me was on an A380 demo flight a few years ago. As an analyst, the very sight of the plane somehow signified financial waste, misplaced nationalism, and reckless imprudence. But entering the plane, it was hard not to be impressed. As Oscar Wilde said, nothing succeeds like excess. This was one beautiful interior. The flight itself reminded me of how grand travel can be (and I was back in cattle class). If analysts were completely in charge, this impressive machine wouldn’t have been built.

Don’t get me wrong. I still think the A380 was a bad idea. But that way of thinking is tough to reconcile with my fondness for aircraft. All of my historical favorites — the curious but intriguing Trident, the impossibly beautiful Caravelle, the technologically precocious L-1011 — had one thing in common. They cost people a lot of money and left a trail of write-offs and layoffs in their wake. If we analysts had been in charge a history buff like me would have a bookshelf lined with about ten books, each describing a bland and homogenous series of money making commodity jets.

The damage done by analysts is even clearer on the military side of the business. Many great fighters wouldn't have happened if analysts were in charge. When Robert McNamara took charge at DoD in 1961, one of his highest priorities was to halt the proliferation of combat aircraft programs and replace them all with the TFX (later the F-111), the first major program created by (and arguably for) analysts. Fighter pilots, the ultimate romantics, have been pushing for a return to “pure” fighters ever since. You can see this played out today as the quintessential analyst's aircraft, the F-35, displaces the quintessential romantic's aircraft, the F-22. And if some hardcore analysts had their way, the F-22 budget would be diverted straight to UAVs. If that happened, you would hear the sound of romantic hearts breaking everywhere.

Boeing’s 787 fiasco is the most recent example of how analysts can do as much harm as good. The discipline of the market ensured that Boeing, unlike Airbus with its A380, made only smart product launch decisions. The 787 came with a brilliant business plan that guaranteed strong sales, strong pricing, and strong profits. That pleased analysts. But the same discipline induced Boeing to do something shortsighted with their in-house engineering capabilities. Analysts loved the idea of outsourcing enormous volumes of design work to industrial partners, offloading costs and risk. But neglecting tribal knowledge to provide better investment leverage and returns was, in retrospect, a really bad idea. (By the way, if you think the fourth 787 schedule is any more believable than the first, please send me $1,000 and I’ll triple your money in a week. You can trust me, too.)

I’m not abandoning my viewpoint and position as an analyst (although I am a closet romantic). But it would be great to reconcile the analyst and romantic viewpoints, and find a balance. Returning to the vile subject that began this letter — Eclipse — I think about the jobless workers who find themselves looking for employment in the midst of an economic crisis, and how that could have been prevented if analysts were in charge. But Warren Buffett, the ultimate analyst, the echt-analyst, once joked that airlines have been such bad investments that someone should have saved the world a lot of money and shot down Orville and Wilbur Wright before they pioneered manned flight. You know what? If that kind of analytical thinking had prevailed, I would not have my job…as an analyst.

December aircraft updates include a new World Aircraft Overview, the F/A-18, AH-64, Su-27/30, Falcon, A.109, B-2, E-8 JSTARS, E-3/E-737 AWACS, and the Mitsubishi Regional Jet. I’ll be on vacation until January 12th. If you need anything logistical, please contact Tim Storey at tstorey@tealgroup.com. Have a great new year. Or any kind of new year that isn’t 2008.

Yours, Until I Retire And Become A Romantic,
Richard Aboulafia"

[RC20]

An interesting perspective.

However, I would add, that what separates the categories ultimately is success.

The 747 is a business success, even if it had romantic heritage. The A380 is never going to archive break even, let alone financial success. There will be no new orders for at least two years, maybe 4.

He mixes a lot of stuff up. Fighters are not romantic, they are machines.

Maybe the better term would be visionary. The good ones see what the analysts do not.

The bad visionaries keep the analysts in business case they can say, ah hah, we told you so.

Ultimately its a mix of the two that keeps things on a more even keel (though often enough people fool themselves about the business end)

Me, I am a technician/analyst, and it would be a much worse world if people like me decided on things, we need the visionaries and artists to create the ideas and machines and beauty.

[achace]

Very well put RC20.
I agree with most of it, but I feel you are a bit harsh on the A380.
Without the wiring SNAFU it would have been fine.
The MOU signed this last week with Austral for two birds with 840 seats is interesting, although I certainly wont be planning to be on them. It proposes or perhaps even confirms one of the business cases for the A380, which is for mass transit.
The operation is simply based on just one route and nothing else, not unlike a point to point ferry.
Personally I think it will work, and we could see similar operations elsewhere.

[Desert Rat]

I heard that Air Austral has placed an order for 2 380 full economy config at 840 pax for their La Reunion_Paris route...

[RC20]

acahce,

thank you for the nice comments.

As for the A380, I think we have to agree to disagree, though I think you have the visionary side of this and I have the bean counter side.

More or less the Airbus contention was that they could create an aircarft

1. like the 747 that they could price at a premium (I remember the complaints for years that Boeing did that with the 747). That proven to be patently untrue, the original orders had huge discounts (50% plus when you can get the actual figures). It still seems true that sales are only being made on at least 40% discounts. When your business model is justified on full price, and then you have to discount it even more than your single aisle, you are in deep trouble in competing in the future.


2. A freighter version would sell, and sell well. Even initially that did not work as only two entities found it fit their operation profiles (though sold in good numbers to those two if you count options) . Those were canceled (much to Airbus relief as it was adding a money looser to a project that will never pay a return).

With delays, penalties and all incorporated into it, they need to sell 500 minimum (and it could be higher) to break even. Other than one here and one there, they did not sell well even at the height of the financial insanity. I expect to see cancellation from Thai, and Malaysia for sure before this is over.

Conjecture: The wiring debacle actually saved their bacon! First it got rid of the freighter that will never sell, and second, it delayed orders, that would have been canceled in droves in this climate.

As a technician, I view it as an amazing machine and stand in awe.

As a realist, it looks to be a drain on Airbus when that money was badly needed to move them into the next manufacturing technology (and the A350 is an interim move that may or may not work out, that’s still to be determined).

Good news for Airbus is Boeing shot itself in the foot, and continues to do so on the 787.

What happens if Boeing actually gets the next one right (777 or 737 replacements?) Nah, looks like Airbus can count on ineptness. Darn.

The interesting this about Boeing is that this is the time to drive a deep stake into Airbuses heart and come out with a 737 replacement, but like the 9/11 era, they will not. This is the time to have it ready to do it, and have it rolling out when cancellations are at maximum, A320 is really old technology vs new and they can produce in numbers. Now that is visionary (ooops)