I wanted today to describe my amazement for an industry which is coming up this year with a major innovation that will propel it further forward. You most certainly have been the beneficiary of the products of this industry at least once in your life and for a few of you on a regular basis. Let me describe it to you in a few sentences.
This industry is an oligopoly – it is dominated by four firms exclusively and there are no signs of any potential entrant. Each product cycle lasts around 20 years and each new product requires billions of dollars of investment in research and development. Having a fortress balance sheet is therefore an imperative.
One of the 4 players is introducing this year a brand new technology, which it had initially wanted to launch at the beginning of the 1990’s! This is a 25 years delay due to the complications the new technology generated. The total research and development expense was a massive $10bn, to be compared with profits around the $1.3bn mark, around 8 years of those. This will represent probably a good third of total sales going forward so quite a commitment.
The technological content of the product beggars belief. Parts are manufactured with atomic precision and must resist massive variation of temperature (from minus 70 to 1,400 degrees Celsius, pressure and operating speeds. Reliability is to the highest standards, one of the leading range of products from a French-American competitor having achieved a 99.65% dispatch reliability factor over the past 20 years.
The dispatch reliability factor computes how on time the product is delivering on its specifications. If the product was required to be used continuously, a 99.65% reliability factor means it will not be available on time for operations only 4 hours per year or 8 seconds per day. Imagine your local metro/train/bus with an average daily delay of 8 seconds.
This product is the modern jet engine.
The 4 companies are Rolls-Royce of Britain, Snecma of France and the Americans General Electric and Pratt & Whitney. We have become accustomed without noticing to the extreme reliability and effectiveness of jet engines. The CFM56, powering all the Boeings 737 (the ones used by Ryanair or Southwest Airlines) and half the A320s, are capable of handling more than 50,000 cycles over a lifetime. That means they will allow 50,000 flights. Imagine you use your car everyday to commute to the office and also on week-ends. This is 14 trips per week or 728 per year. To use your car engine as much as a 737 jet engine, you would need to keep that driving for more than 68 years. The first large maintenance round for a CFM56 is usually after 12,000 cycles. There again, it means around 16 years of car driving before the first service.
Can you imagine not servicing your car for 16 years? How bad is an engine failure on your car? On your next flight?
Pratt & Whitney is introducing this year its new type of civil jet engine range called Pure Power. It is based on a novel design called the Geared Turbofan (GTF) . If you want to know more about the new engine, you could try a few Internet links such as here or here. This engine was originally meant to power the then-brand new Airbus A340, which launched late in 1993 because it had to find an alternative (they used the CFM56 if you want to know but the plane still flopped as it was under-powered despite all the great attributes of the CFMs). The GTF advertised goals are to reduce noise by 50% and fuel burn by 15%. The first noises I managed to hear about the second goal is that it will exceed this target by 2-3pp and even 4-5pp by 2020, when performance improvement packages are delivered.
I hope, for your next journey by airplane, that you will be able to also marvel at the amount of human knowledge that has gone into producing the engine powering the aircraft taking you to the next destination. In its infancy, air travel was reserved to the favoured classes but thanks to these motorists, and soon the Pure Power, the world will continue to become smaller.