Ex. 6. Prepare a general discussion on problems the world’s aircraft faces now
More than 1,000 aircraft – about 10% of the world’s entire commercial aircraft fleet – are now idle. Many are parked in deserts or at the edges of civilian airports. The newest jets, like Air Canada’s 747s, will be the first back into service when air travel picks up again. But many of the parked aircraft are more than 20 years old, and their final flight could be to the breaker’s yard. At least, than is what aircraft manufacturers hope.
In 1990 the world’s airlines lost a combined $2.7 billion on their scheduled international services alone, not counting millions more lost on many domestic routes. Last year the loss on international routes was closer to $4 billion. For the first time since 1945, air travel actually declined worldwide.
America’s Boeing, the biggest supplier, which usually accounts for about half the market, is cutting production of its 737, the world’s best-selling jet, from 21 aircraft a month to 14. But, like Europe’s Airbus Industrie and California’s McDonnell Douglas, its two biggest competitors, Boeing is soldiering on without changing its production plans for any other models.
Indeed, ambitions still abound. Both Boeing and Airbus are discussing with airlines the possibility of making a gigantic aircraft, with 600-800 seats. Both are also trying to lure Japanese aerospace companies to joint them in these multi-billion-dollar projects. In addition, McDonnell Douglas is talking to Asian companies about taking a stake in its commercial-aircraft business and jointly developing an aircraft to rival Boeing’s 747.
Despite the ranks of idle aircraft filling deserts airfields, aircraft makers insist that lots more aircraft will be needed in the future. Boeing published its long-term market forecast, which predicts that airlines will take delivery of nearly 6,000 new jets (of all makes) between now and 2000.
Such rosy forecasts assume that world air travel will grow by 5% a year for the next 20 years. Steady growth at this rate would more than double the size of the air-travel market by 2005. This may not be optimistic as it sounds. Air travel grew by 7%a year between 1970 and 1990. Even if limits on airport capacity restrain growth in America or Europe, new markets such as Asia, which Boeing expects to grow by 9% a year from now until 2010, could pull up the world average.
Even if passenger volumes grow as rapidly as the aircraft makers predict, it is unclear on present trends who will provide the gigantic sums of money that airlines will need to buy all the aeroplanes the aircraft makers hope to sell them. Lots of financial institutions piled into the market, especially Japanese investors encourages by tax breaks. But now there is a glut of aircraft. The willingness of Japanese institutions to put their money into anything with wings has evaporated with the fall in Japanese share and property values.
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Boeing says there will have to be changes in the way aircraft purchases are financed. It reckons there will be a switch away from banks to international capital markets to raise the money and that more innovative financing will be developed. Compared with other industries, such as property, airlines have been slow to employ the plethora of financing techniques designed by clever brokers and investment bankers.
Ex. 7. Read the text and exchange opinions on the following problems: (a) the possible after-effect of the construction of the Channel tunnel on the competition of various modes of transport in the region; (b) recoupment period of the project and its worthiness. Make use of current press material.
Signposts on the road to Calais already offer a choice: drivers are directed to the ferries, the hoverport or the catamarans. Another set of signs remains covered. These points to the almost-complete tunnel under the sea between France and Britain. This will be officially opened on May 6th next year. Once its novelty wanes, the tunnel could face a perilously lean time.
Eurotunnel, the Anglo-French company with the franchise to operate the link until 2042, has been forced to do its sums yet again. It revised downwards its estimate of revenue while increasing its projected costs. The group now needs to raise at least another $1.5 billion from its banks and shareholders, taking the total cost of the project to $15 billion by 1998, when the tunnel is expected to start to break even. The cost is now more than twice the original estimate given in 1987.
The project has been mired by rows with construction companies and by disputes with the suppliers of the shuttle trains that will be used to carry both passengers and cars through the rail-only tunnel in about 35 minutes. Through-trains running from London to Paris and Brussels will also use the tunnel. An extension of the French high-speed railway has already been completed to Calais. But, at the other end, the trains will have to share the line to London with slow commuter services until a controversial route for a new high-speed link can be agreed on – and financed.
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Being late and over budget is hardly surprising for such a huge civil-engineering project. The first plans for a tunnel under the English Channel were drawn up in 1802 by one of Napoleon’s engineers to invade England while a fleet sailed above. Unfortunately for Eurotunnel, another fleet is now gathering at the ports of Dover and Calais. Far from being frightened and switching their ship to other routes, the ferry operators are concentrating their resources to complete directly with the tunnel.
Eurotunnel’s chief executive, has cut the estimate of Eurotunnel’s revenues in its first three years by $141m to about $2,25 billion. What those earnings eventually turn out to be will depend on how Eurotunnel sets its prices.
In theory, the Channel tunnel should wipe the ferries out in any price war. The strongest argument in Eurotunnel’s favour (although hardly one it is likely to talk about) is that a price war is not in the interests of the ferries either. If the tunnel went bust, it would not be put out of business. It is confident the ferries could retain half the market, partly because in its first year Eurotunnel’s own capacity will be limited. When the real battle for market share begins, the ferries might be allowed to team up.
This would not help to make Eurotunnel rich. Unlike the ferries, Eurotunnel will be able to tap the air-travel market. A three-hour journey by train from central London to central Paris will be a big attraction to people who would otherwise fly between the two cities. There is a snag with that – as hundreds of Britons every day learn of their cost. To take on the airlines. Eurotunnel will have to wait for British Rail to get its act together. Even with the government sharpening British Rail up for privatization, that could be a long wait.
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