On the Record with PIERRE FABRE, PRESIDENT AND CEO, CFM INTERNATIONAL
CFM International expects to manufacture about 720 powerplants
this year, and projects that while an upturn in the transport
business is unlikely before 2006, the company should continue
to deliver no fewer than 600-650 engines a year for the foreseeable
future.
"We have a strong 2,500-engine backlog, and momentarily lower
sales are not a real concern, although the plan before 9/11 was
to deliver 1,000 engines per year during the next three years,"
said Pierre Fabre, president and CEO of CFM International. "Today,
the real issue is to make sure we deliver what we have sold,"
he added, referring to the growing weakness of major airlines,
the risk of order cancellations and rescheduling of aircraft deliveries.
"The worst-case scenario right now, barring a catastrophe,
is that we would produce 600-650 engines per year, and plateau
there for several years," Fabre explained. Even though that's
a substantial drop from the company's recent high of about 1,080
engines in 1999, it doesn't even begin to approach the business
downturn that developed in the wake of the 1991 Persian Gulf war.
For example, CFMI produced around 350 powerplants in 1995, and
orders plateaued from 1991-95 at roughly 300 engines per year.
In contrast, the company booked about 600 orders in 2002.
Despite the declining fortunes of many of the world's airlines,
CFMI's business remains relatively strong because of its orientation
toward short- and medium-range narrow-body aircraft that serve
domestic routes. As a result, the economic troubles now plaguing
so many international carriers are not affecting CFMI as much
as other manufacturers. Moreover, since the company's markets
are spread throughout the world, falling sales in the U.S. and
Europe are being offset by steady business in other regions, particularly
Asia, where CFMI recently won competitions at China Southern and
China Eastern.
Another bright spot is the rise of the low-cost carriers. CFMI
views its competitive wins at Ryanair and easyJet as important
triumphs. Both orders were for engines to power more than 100
aircraft. "For the next two years, low-cost carriers will
be a significant market for CFMI and may account, perhaps, for
as much as 30% of its orders," Fabre said. At the same time,
however, "we will be just as happy to supply the traditional
airlines."
Nonetheless, Fabre says it's clear there are just too many airlines
in the world these days for all of them to survive. Consolidation
is needed, not only in the U.S., but also in Europe. "Europe
has to get away from the notion of one country, one airline,"
he noted.
In the meantime, CFMI executives will seek to support customer
airlines' wide-ranging efforts to weather the crisis, Fabre said.
For example, Ireland-based Shannon Engine Support (SES), CFM's
spare engine support unit, plans to offer leasing agreements to
cash-strapped operators. Furthermore, troubled airlines are now
being offered the option to sell and lease back spare engines.
In the next few months, SES expects to invest $50 million in such
leasing contracts, Fabre said. Demand, however, is much greater,
he acknowledged.
By CFMI's count, its engines now power 5,181 aircraft at 445 operators,
and the company has a global fleet of 13,193 engines. "We
power 50% of the 100-plus passenger aircraft around the world
and about 80% of the narrowbodies," he observed, but those
figures also include aircraft now parked in desert storage.
CFMI attributes its success to a steady stream of new products
and continuous improvements to its installed fleet. Given the current
economic climate, the emphasis in the short term will focus on improvements
and upgrades to increase customers' revenues.
