Episode 13: The aviation industry encounters an air pocket

Catherine (00:05): Welcome to the Signal, a podcast presented to you by Third Bridge, the world’s leading investment research provider exploring how some of the globe’s most investible industries are facing upheaval. My name is Catherine Ford and I’m a journalist with a 20 year track record of reporting on a wide range of financial topics such as capital markets, developments and M&A. In this episode of The Signal, we are going to give you an overview and an outlook on the aviation industry.

(00:38):Joining me today a Peter McNally Third Bridges global sector lead for industrials, materials and energy. And Earnest Arvai, president and CEO of Air Insight Group, a leading consulting firm specializing in economic and market analysis for the aviation, aerospace, and air transport sectors. Gentlemen, thank you so much for joining me today. I’m really looking forward to having our conversation, but I’d like to ask you to introduce yourself to our listeners first so they can get an understanding of how you fit into this conversation. Earnest, maybe you could tell us first of all about yourself and your background.

Earnest (01:13): Sure. I’ve currently president and CEO of Air Insight, a company I co-founded back in 2009. Prior to that I had spent a career in consulting. I led the Airlines and Aviation unit at Arthur D. Little was a director in their consulting operations. Later went to Patel Memorial Institute and then founded my own firm back in 1991. So I’ve been around the industry for more years than I’d like to admit and specialize really in strategy and market issues.

Catherine (01:51): Fantastic. So a real veteran in the industry, which will come in incredibly handy over the next 45 minutes as we chat about the aviation space. But before we dive in, Peter, tell our listeners about yourself.

Peter (02:03): Sure. So before joining Third Bridge, I spent a year at Deutsche Bank, but prior to that a few decades on the buy side. So I worked at several fund managers including Kingdom Capital the Galling Group, ING, and Banker’s Trust and even at one point along the way helped manage a fund for Batel Memorial Institute. And as you said, today I’m the global sector lead for industrial materials and energy as well as I’m also the global head of sector analysis.

Catherine (02:34): Fantastic. Thank you so much to both of you for joining us today to talk about the aviation industry. Now Peter, can you set the scene for as little and talk to us with some facts and figures about the industry, some of the growth rates that we’ve experiencing and who the key players were in the entire industry?

Peter (02:52): Sure. I mean the decline that we saw in the pandemic was like nothing we had seen before and revenues down 90% passengers down similar numbers or maybe a little less, but whether it was after nine 11, the financial crisis or any other type of event, it was like nothing. We’ve seen, at least here in the US, we’ve now recovered and our are looking ahead other parts of the world, particularly Asia, not yet as lockdown still remain part of life. One of the things that has emerged in the US has been a bit of consolidation. We’ve seen big fight over Spirit airlines, between JetBlue and Frontier, but there was also the JetBlue, American Alliance has changed the structure of the industry, but also one factor that occurred despite this, particularly here in the US is nobody went bankrupt. It survived. Some of it was government funding, some of it was from our clients who provided plenty of capital to this industry to keep it going. So that is something, a major bankruptcy isn’t something we we’ve seen in a long time. Europe’s a bit different, but that is a key thing to understand.

Catherine (04:16): But you make a really interesting point there because the industry has had a huge amount of government support over the course of the pandemic. So my question to you is how much is there an artificial propping up of the industry and how much is there actually there is value in the industry and that is why despite the challenges of the pandemic, we have not actually seen those bankruptcies. So can you give us the gut feeling? Is this something where the ball has been kicked down the line and in a few years time we will see those bankruptcies? Or is that not actually the case?

Peter (04:48): Well, the US airlines couldn’t wait to give that money back to the government because there’s no free lunch. There were strings attached with those funds, so you know, you could not cancel any routes as a result of taking those funds. You were limited in dividend payouts back to shareholders. As a result of that, God forbid that some congressmen who voted for those funds can’t get a flight back to Washington to vote on future legislation. So those restrictions are limited and as we started to emerge, government funding was one part of it, but capital markets provided far more money to these airlines in the United States than the government ever did.

Catherine (05:35): So a big vote of confidence for the industry from you then Peter? Hopefully, I would hope given the position that you’re in, you want to be confident about it.

Peter (05:42):And being optimistic is more fun than being <laugh>. But a certain amount of reality does have to set in like is this happened in the past? This is an industry that is very dependent on labor, has high fixed costs as prone to cyclical demand. But we, we’ve been at this for a century now. People are getting better at running airlines and not always making repeated, repeated mistakes that have been done the best.

Catherine (06:10):

Thank you very much, Earnest. I’d like to bring you in and get you to talk to me about some of the key challenges that the industry is facing. We’ve heard about the growth rates that were very, very impressive. Were they sustained? Are they sustainable? What are the challenges that the industry is facing going forward?

Earnest (06:28): I think there are a number of challenges going forward and to add to Peter’s optimism, the fact that we’ve got 31 new airlines emerging in 26 different countries right now gives a sense that innovation is not done in the airline segment. People who have started airlines before, David Neman with Bre, who was formerly the founder of JetBlue and Zuel and Brazil has started the new airline. There are quite a number of startups that are being exciting, but the challenges facing the industry I think are really threefold. One is shortages of labor, and we’ve seen this in general in the economy and there’s a particular pilot and mechanic shortage as some of the people left the industry during the pandemic. And replacing them is proving difficult because of their experience. And the second is a challenge in getting airplanes. The supply chain constraints that have hit Boeing and Airbus have made it difficult for them to push out the airplanes as fast as they’d like to, and we’re in a regrowth environment, so people are bringing airplanes back into their fleets, trying to replace older aircraft with new aircraft where they can afford it for better efficiency and better environmental performance.

(07:47):So that’s a problem. And of course traffic in Asia has not come back the same way it has in North America and even western Europe. So we’ve got the constraints from the pandemic that have been hanging on in China and other places, and we still haven’t fully recovered with the patchwork quilt type of global recovery if we look at it from that perspective. So those are the challenges.

Catherine (08:14): Thank you very much, Earnest. If I can dig a little bit deeper on one of the challenges that you mentioned, because if we think about the labor shortages that you mentioned in relation to some of the challenges of the industry, my question, where have all these people gone and why haven’t they come back? Because it was one thing to say, okay, fine, when we don’t have the pilots during the pandemic when no planes are there, but the planes are flying again now. So where are the pilots, where are the mechanics? Where have those baggage handlers, where have they gone? What is so much more attractive than coming back to the job that they already had?

Earnest (08:44): Well, I think for some of them and what airlines did in terms of cutting staff was to take the many of the oldest and most expensive people and offer them buyouts to retire. And many, many did. But we don’t have the pipeline coming in and in the US we have a particular problem in that we require 1500 flight hours for an air transport pilot certificate whereas other countries are back at the 250 level that we used to have here before a regional airline accident caused an overreaction in Congress and new legislation, legislative requirements. So these people that want to become pilots have to spend a lot of money in training, and this can be in the hundred to $200,000 level of just building your time to become a pilot. And often it’s the wrong type of training because you can develop some bad habits flying a small sussna that won’t do you very well in the cockpit of a jet.

(09:52):So we’re not sure we’ve got it right yet from a regulatory perspective, but Congress appears unwilling to change and is permanently gridlocked in many regards, <laugh>. So it’s a shortage that we need to work on as an industry. And there are a number of programs that are coming up to expand opportunities and to pay for training. But essentially the regional airlines are being hurt because they’re the building ground for the major airlines. People move up from a regional to a major and then move up within the size of aircraft as they move in their career. And the regional airlines is where the shortfall really occurs, and that’s regional airlines account for about 40% of the flights in the US, which is an extremely high number when compared with the rest of the world. So the shortfall at the regionals is critical, and some carriers have been forced to cancel flights and curtail curtail some operations.

Peter (10:52):I was gonna add to that Earnest, the pilot shortage in was a decade in the making. One of our experts had pointed out that a key source had been the military in the United States, and about a decade ago, the military started paying people more money to keep them around instead of going to a commercial airline. But at the same time, the emergence of unmanned emissions is that you could spend a number of years in the Air Force and not have enough hours to go right to a commercial airline. You needed additional training because manning an aircraft even in the military is expensive too. So it has compounded this situation and as Ernie said, the regionals are the ones that are really suffering.

Catherine (11:36): We’ve taken a real deep dive already into some of the challenges that the industry is facing. Let’s just take a step back and talk about some of the challenges that the pandemic posed. Talk to me about the effects that the pandemic had on the industry overall, Peter.

Peter (11:51): Well, it was a massive collapse in revenues. There are all these people, people are the biggest expense for these airlines. So as we talked about, the oldest, most experience and most expensive people were let go or convinced to be let go through retirement package and maybe different from some other industries, demand didn’t come back right away. We had seen things, let’s say e-commerce as example. It turned out to be like a boom as people stayed home and ordered goods to be delivered that accelerate because of government restrictions. And until people were vaccinated, we really limited the demand. But one thing then we did see is that as soon as people did get vaccinated, they wanted to fly and then there weren’t enough people to handle all of the demand that came back, particularly as people get vaccinated in the spring of 2021. And that’s where we first started to see the struggles with labor and the lack of revenue also led to a lot of curtailments in investments and some of these operational problems have started to emerge as well. So it was sort of a slow recovery then in accelerating recovery and then being limited by these factors that we’ve talked about before.

Catherine (13:20): One of the challenges I think must also be that while the return to flying has been strong in the US and in western Europe, as you mentioned both of you earlier, we haven’t seen that recovery in Asia because Asia’s still suffers from frequent and at times not necessarily comprehensible lockdowns of specific areas, specific countries. How difficult does it make planning for the airline industry when they don’t know which airports they can actually service and which they can’t? How do they go about planning for that? Earnest, maybe you can go on that one first.

Earnest (13:56): Well, I think the planning for that is it’s basically done well in advance because you’ve got to sell tickets for a period of time before beforehand, and while they like to store routes as soon as possible the uncertainty and the ability to count, the ability for countries to just shut down areas shutting down Shanghai would cancel a number of flights into and out of China. China’s been very restrictive with their zero covid policy, so that’s almost a separate market that is effectively disappeared for a lot of international flights and is just now beginning to come back. But Asia is down probably 45% from where it was and is still not coming back whereas North America and Europe are in the 90 and 84% levels respectively. So we’ve got the continuing issue of uncertainty there. So airlines are simply not planning and it also takes a while to bring an airplane back from the desert. This is not something you fly it out of the desert. You’ve got maintenance to perform, you’ve got checks to perform, you need the mechanics to check over the airplane. There are a number of things that if you store an airplane long, long term have to be replaced. For example, rubber seals that might deteriorate in the desert heat have to be inspected and replaced. It’s not easy bringing an aircraft in and out of the desert. So that’s something that the airlines are particularly concerned about.

Catherine (15:40): If we look towards Asia, what are your expectations, Peter, going forward? When do we think that things will normalize and traffic between Asia and say the US or Asia and Europe will recover to the levels that we saw pre pandemic?

Peter (15:54): Well, I think it’s the answer to the question is in a bigger issue that we are struggling with or we’re trying to explore further, is that government intervention in industries, not just talking about airlines like we’re seeing it in European energy markets and electric power that have occurred in other areas in these strategic industries, it makes it more difficult. If you were talking about for planning, I think there is some encouragement maybe this over the course last month, that China is indeed potentially emerging from some of these lockdowns when we know the prison she’s gonna be around for another five years. But the policies there make it very difficult to forecast exactly when things are going to improve, but we’ve seen this week some of the quarantine restrictions have been eased and the number of tests and it seems to be getting incrementally better. But I think we see this in every country. Government policy can change pretty quickly and it is reacting to events in real times, not just there but everywhere.

Earnest (17:12): If I can add to that, we don’t see a full recovery in Asia until 2025. And one of the additional factors that’s impacting the Europe to Asia flight droughts is the Ukraine war because Russia is the main gateway over which people fly. And if you remember during the 2004 era when the Malaysian aircraft was shot down over Ukraine, that’s one of the flight routes main flight routes to Asia. So with that down, European airlines will have to fly further south down towards Dubai and up that way and add a couple of hours to a flight, which makes it more costly that raises prices and depresses demand.

Advert (18:02): Hi, my name is Erica Gomez and I’m an analyst at Third Bridge. If you’d like to know more about the subjects discussed today, our forum team have over 30,000 company and sector transcripts available on demand. They offer extensive insight into spirited airlines and North America’s regional airlines, airline pilot dynamics and much more. Each transcript features a one hour interview between an unbiased analyst like me in an industry executive. You can find this content at signal.thirdbridge.com. And now back to the podcast.

Catherine (18:36): Now both of you have touched on the role that governments are playing in this space. Can we take a step back from the financial support that the industry was getting throughout the pandemic and just generally talk about government involvement in the sector. Peter, you spoke about that we’ve seen government involvement, not just in the airline space, we’ve seen greater government involvement in a variety of industries. Can you give us your take on that that we’re seeing at the moment, but also your expectations for the future?

Peter (19:05):Well, I mean, government has always been involved in this industry for two reasons. One’s critical, right, transportation, and two, the other aspect is safety. And the 737 crashes that Boeing had prior to the pandemic were really, really important now. And that has limited the recovery in the industry broadly is like there’s a lot more scrutiny going on with Boeing and its flowing back through the supply chain in lots of different ways. I don’t think that this is gonna change time soon that you’re just gonna need to have to deal with governments of all kinds.

Catherine (19:47):Now one of the things as we were preparing for this podcast, we were looking at where there’s been uncertainty how things have changed over the course of the pandemic and business travel is definitely one of those things that hasn’t come back the way that I guess leisure travel has come back. Peter, talk to us why you feel that has happened and what your expectations are with regards to the future.

Peter (20:11): Well, look, as was said earlier, it’s more fun to be optimistic, but there’s a certain part of business travel that is just not gonna come back. The idea that half of it will never come back is, I think Bill Gates postulate a couple years ago don’t believe that, but there’s a certain amount of internal business travel that we would say just it’s not efficient to fly to another city. Quick meetings can be done more efficiently with Zoom and G meets and other types of technology, just like we’re doing this here today, we don’t have to gather it in the same spot. But there is a fundamental underlying demand for travel that exists not just in business but also on the ledger side. So personal relationships do matter, and we’ve seen those kinds of things emerge pretty quickly in lots of industries that business travel is covered.

Earnest (21:16): If I could add to that, I think the one day business trip is dying, but the road warriors who are out there visiting a round robin of their customers in the sales function are still going to be the same way. But the quick trip in and out to speak with someone, particularly someone who or have a relationship with, is going to be replaced by Zoom. And I think that’s the big difference we’re seeing right now is the one day business trip is dead.

Catherine (21:44): And some might argue that’s not necessarily a bad thing. Now talk to me about the winners and losers in this space as we explore the current status quo, Peter, winners on your front. Well,

Peter (21:55): We’ve seen low cost airlines in the United States to Ernies earlier point about the number of IPOs. These are disruptors and the battle for spirit is, it was fascinating on a lot of levels. It’s like who really thought that the airline that could jam more people into a plane than anyone else would be the target of so much industry. Interesting because it really has been disruptive. The other thing that we have found again is there’s this fundamental underlying demand for travel, particularly among consumers. We’re not really sure how it’s quite gonna end, but I thought one of the great stats that one of our experts had given to us is a pre 9-11 that passenger travel revenues were about 90 to a hundred basis points of GDP. And then after 9-11 it dropped to 60 to 70 basis points because travel became a hassle, particularly on short trips with all the security stuff that you have to go through.

(23:00): But we’re seeing post pandemic that people really do wanna get out there and do things while the business travel area is uncertain. We saw how quickly people got vaccinated and got on planes and it doesn’t seem to be stopping. Really the only thing that seems to be stopping leisure travel is getting the number of people and the number of aircraft out there. So we think that these low cost airlines in the United States are pretty interesting. They’ve been able to raise capital. It’s not just government, it’s our clients, investors who have provided a backstop to continually develop businesses that are successful. Companies do need to adapt over time, but we’ve seen how companies like JetBlue and Southwest in particular were not the lowest cost providers in that you could find. There’s kind of this mid tier that has emerged. So that’s what we see as among the winners.

Catherine (24:01): Fantastic. Earnest, talk to us about the losers in the space,

Earnest (24:05): The losers in the space. I would say as much as I hate to say it, I think Boeing is one of the losers in the space because the Max crisis has cost them dearly. The 787 was a debacle in its development and really since the McDonald Douglas merger, Boeing has been unable to deliver a new airplane on time and on budget, and their business is delivering new airplanes on time and on budget. So they’ve had their difficulties internally in managing and developing new airplanes, perhaps as a result of cutting too many of the engineers who knew all the secrets of building airplanes. But they’ve gotta rebuild and restructure, and right now they’re having difficulties. The 787 was grounded for more than a year. They have quality issues. The FAA has taken back some of the regulatory responsibility under their production certificate and actually was inspecting each aircraft individually before they were allowed to be released rather than use the Boeing quality system. So Boeing has a lot of work to do and with their announcement that they’re not building a new airplane in the near future from Dave Calhoun they’ve got themselves at a potential competitive disadvantage to Airbus for the next decade.

Catherine (25:36): Thank you very much there. Now we want to make the content of this podcast as sort of investible for our listeners as possible and give them real insight into the industry. We’ve spoken about some of the challenges that the industry is facing, shortage of labor getting planes, so the actual hardware there. We’ve talked about the traffic into Asia being very uncertain at the moment. Talk to me about things like the recession, the impact that will have, the environmental concerns that people have when it comes to flying ESG and the overall uncertainty that the sector is facing. How should investors approach these considerations when they look at the aviation space? Peter?

Peter (26:19): Well, the recession certainly is one, but we would put the western aviation industry in a category of unmet demand that there have been restraints in meeting all the people who wanna fly. Pricing as frankly kept up, not quite to the degree that costs have, but people do wanna travel. There’s a case that could be made that a recession might not be as bad in the past for the airline industry. Given those factors, if supply chains can ease and they can get more aircraft and the availability of labor from other industries transitions over to the airlines. But the economy is always something that has to be considered with this industry. The environmental concerns I think is less of an issue, I would say in the US than in Europe. And even in Europe. It varies by country. So it depends on what value I think that people really feel like they’re getting for it. I mean electric cars existed in this country for a long time before the Tesla came around. It was just that Tesla made a car that people really wanted to buy. And we do think people do care about the environment. There’s probably other ways to solve it rather than flight shaming people on commercial planes. Private aviation might be a different category, but in terms of what that impact is in terms of the number of passengers that actually fly around is pretty small.

Catherine (28:07): Earnest, talk to us about the opportunity the space provides to investors.

Earnest (28:12): I think the opportunity it provides to investors is particularly right now, the airline stocks got beaten up pretty badly during the pandemic and dropped considerably. And we’re seeing demand come back. We’re seeing profitability come back. We’re seeing airlines repaying government loans. We’ve seen a great deal of savings during the pandemic by individuals who simply because of lockdowns and restrictions didn’t have anywhere to go. They were able to save some money and now they’re ready to spend that money. And so the demand for travel is up, particularly in the US and in western Europe, it’s there. The question is can we supply enough capacity to meet that demand? And that’s part of the problem we have recovering from the pandemic overall is we don’t have the capacity in many areas to meet the demand. So the supply demand balance has gone toward the demand side, which means we’ve got higher prices and inflation that’s impacting the ability to get airplanes. It’s impacting the ability to get the airlines ramped up to the same level that were, we’re getting close in the US we’re at 94% of traffic through September and October and we’re looking at even though we’re looking at a shorter season, we’re doing well Europe is about 84% with the Euro control forecast that was just issued a couple of weeks ago and now looking for a full recovery in 2025 instead of 2024 with the Ukraine war causing difficulties in Eastern Europe. But we’re looking at a pretty strong recovery.

Catherine (30:01): Thank you very much. Now when at the beginning of the conversation I asked you to give me the key characteristics of the industry, innovation came up. So I’d like to use that as of the springboard from which we explore what the industry might look like in 10 to 20 years, we’ve established that the industry wants to be carbon neutral by 2050. That is going to take a fair bit of innovation to get there. Talk to us when you sort of blue sky, what the industry will look like. Peter, what do you see?

Peter (30:32): Well, to Ernie’s point at the beginning about the efficiency of planes, the model T got 22 miles per gallon. And I think the average car in the United States today is only in the mid twenties. So despite all that, so the aviation industry has done well. Look, the other interesting thing about I think particularly about this sector is the willingness to invest in these things, even through the pandemic and things like eVTOL. So think of flying taxis, hydrogen supersonic travel that got capital through it. But I think one area to watch that I do think has great potential to have an impact to sustainable aviation fuel or SA for sure. And I give that because there’s a track record of this and we look at what’s going on in renewable diesel as an example, and it’s a similar product. And I would point you to a finished company called Neste, like they’re gonna do 25 billion in revenues this year.

(31:44):Were euros, I guess it’s about the same thing. And then the world’s largest provider of renewable diesel. It’s a real business, it’s a real thing. It works. Trucks run on it in all kinds of countries and it’s getting bigger and bigger and bigger. And in the United States, we’re seeing old crude oil refineries convert to produce renewable diesel as well as some sustainable aviation fuel. So we think with that credibility is something that can happen. It’s gotta scale a long way though in order to get there. But to the point being that there’s a track record here that we can point to that can make a difference in decarbonization

Catherine (32:29): When you say they’ve got a long way to go, how long

Peter (32:34): Just the volumes that need to be produced of this stuff. I mean the press releases are awesome about millions of gallons and stuff that they’re going to produce and it sounds impressive, but when you think, look, I cover the oil industry too. The oil industry is a hundred million barrels per day, give or take. When you multiply that by 42 for 42 gallons in a barrel and divide by 365 those millions of gallons per year, not that impressive in the overall kind of liquid energy consumption that we are today. But you gotta start somewhere. These things gets blended in with traditional fuel to start, but there is this willingness to invest and it gets their attention that like, hey, real companies are throwing real money at their own money. It’s not just government money they’re throwing, it’s not some sideshow r and d experiment that might or might not work. That’s everything.

Catherine (33:39): Thank you very much, Ernie. From your perspective, if you look ahead, where do you see the industry going?

Earnest (33:45): I see the industry going in different directions based on the size of the aircraft with electrification, starting with the smaller aircraft and moving upward over time. Saaf, as Peter mentioned, is the easiest solution. But right now I think if we took all the SA in the world and put it in airplanes, we’d have a half of 1% of the capacity. So it really, really needs to scale up dramatically to be effective. And the investment is coming to do that. I think the industry sees that as the easiest road to carbon neutrality and something that has to be done. As we look at electrification, but electrification of airplanes is coming. We see electric motors, so we see a number of the smaller innovative companies building aircraft. We’ve got nine seaters that are becoming electrified. We’ve got a number of technology companies that are coming forward. PIP rule had the first certified electric airplane, the two seat trainer.

(35:03): They were acquired by Textron, which has a major presence in everything from training aircraft to business jets. Clearly they saw something there that was valuable that they wanted to buy. In terms of this technology there are a number of smaller companies that are going to be acquired by the big guys as we look to the future. And many of them are involved in the urban air mobility process because there we’re seeing electric motors and electrification as the fundamentals. Companies like Emory Air, which build regional aircraft and commercial aircraft have invested in the sector as well. And that knowledge and the experience from building the smaller aircraft will lead to eventual eventual applications of electric operations on larger aircraft, whether that be hydrogen powered or fuel cells or indeed solid state batteries as companies like Lighton are looking at for the future. So we’ve got a number of technological developments that are happening so rapidly it’s hard to keep track of them all.

(36:16): And that’s the interesting part is that once a couple of these become successful, have a good track record they’re going to be applied by the big guys as we grow the issue. The fundamental problem there is weight, because weight is the enemy of aviation. The lighter the aircraft the better. And one of the things about fossil fuels is they burn up during flights. So as you go through the flight your aircraft becomes lighter and you be become more efficient and can extend that range. A battery weighs the same whether it’s empty or full. So once you’re there, you’re there. And getting over that hump is the technological challenge that we’re looking at.

Catherine (37:07): So both of you have mentioned a couple of players in this space. And my question now, just to wrap this future gazing segment of the podcast up is how many of the players that we see active at the moment, whether it’s aircraft manufacturers, whether it’s OEM suppliers, whether it’s actual airlines, will still be around, and how much is this gonna be an industry where in 20 years time we’re gonna be talking about businesses that don’t even exist yet?

Peter (37:31): Well, I always like to roll back 10 or 20 years and think about all the airlines that didn’t exist or weren’t even on people’s radar. But I think the thing that has impressed me so much since the start of the pandemic is the willingness of people to invest in the sector. And I think of late 2020 when only it was only a vaccine had been discovered but wasn’t available and United is investing in air taxes, ol capital was still very precious. And there’s a few hundred of these E T O L companies that are out there today. How many of them are gonna merge? Maybe a couple from that, but it is an industry that is able to raise capital.

Earnest (38:24): If I can add, I think we’ll see consolidation as well. I was speaking with a a CEO of one of the major aerospace companies and their attitude is that rather than invest in one of these startups and get it at a low price, they’d rather wait, have them sort themselves out. And as leaders emerge, then they’ll jump in and buy them perhaps 10 times more costly than what they could have done today by buying someone who’s smaller but letting the market work and then coming in and jumping on the technologies. So I think we’re going to see a lot of consolidation once some of these smaller companies come out they’re gonna be acquired. And that’s obviously an opportunity for shareholder value, but predicting, which is really the

Catherine (39:21): Key. Now I’d like to wrap the podcast up by asking each of you to give me the one to watch in the space. And that might be a company, it might be a product, it might be a piece of technology, a development in the space. If you want our listeners to sort of come away and say like, okay, this is definitely the one to watch going forward. Peter, from your perspective,

Peter (39:43): One that we get a lot of interest in is Comac in China. And if they can really build a commercial aircraft to compete with the likes of Boeing and Airbus and in in’s a game changer, it’s the biggest opportunity in the future is in Asia. So watch that one.

Catherine (40:02): That one. Thank you very much Ernie. You’ll one to watch.

Earnest (40:05): I’m good to go in the business aviation sector and say DEO Aviation they’ve coming out with two new aircraft and I think they can regain a fair amount of market share because they’re differentiated products with extra wide cabins with similar capabilities to other players. So they’ve got a differentiated product coming into the market over the next few years with two new models and I think they’ll be quite successful.

Catherine (40:33): Brilliant. Thank you very much. Now unfortunately that’s all that we have time for today. So I’d like to say a huge thank you to Ernie and Peter for sharing your experiences and your vast insight into the aviation space. And thank you to you listening to this episode of The Signal presented to you by Third Bridge, the world’s leading investment research provider. Join us again in a fortnight for the next episode. And in the meantime, please rate for you and follow our podcast. Indeed. If you like it, tell a friend, find us on Spotify, apple podcast, and wherever else you get your podcast from. And also on third bridge.com/signal for me, Katherine Ford. That’s, thank you very much. And until next time, goodbye.