Product forecasting—the BAC 3–11 Airliner

PRODUCT FORECASTINGTHE BAG 3-U AIRLINER C. Hamshaw

Thomas

British Aircraft Corporation, (Weybridge Division).

Aircraft manufacture is often seen by cynics as a process of very powerful companies, generaliy American, foisting aeroplanes on to the airlines of the world much faster than they are really needed. Alternatively it is sometimes seen as a process of offering wonderfully bright technological aeroplanes to a market for whom they are not correctly specified. B.A.C. have, over the past 5 years, been occupied intensively in studying how to avoid either of these charges. The object of this paper is to give an idea of how the process used to produce future project proposals compares with the long range planning techniques of other industries. The process described is that used to research the requirement for which the BAC 3-11 20&2!50 seat airliner has been -proposed.

T

HE

ALRCRAFT

INDUSTRY

REPRESENTS

A

curious compromise between a capital goods industry and a consumer goods industry. We produce equipment whose unit value is, in the main stream, unlikely to fall below El-2m. At the same time the economics of producing it are very closely dictated by the rate of production and the total number which can be sold. Our market is rather larger than most people think, the world airlines today turn over between f6000 and f7OOOm. per annum. At this level they are one of the larger discrete forms of industrial activity in the world. The airline industry is at the same time one of the world’s fastest growing industries (see Figure 1). The equipment used by the airlines of the world has, at today’s prices, a capital value of approx. f6OOOm. and the airline economics are based on this equipment being written off rapidly, typically over a period of ten years. As technical skills have built up in the manufacturing industry, we have all become better at designing the equipment to be economic over this Iife span. It is no secret that, increasingly, modern designs are unlikely to achieve the long economic lives of their pre-jet era predecessors.

LONG RANGE

PLANNING

The aircraft manufacturer has in the academic sense a perfect market. The airlines of the world are subject in the main to an overall national economic control, they are also through the United Nations, subsidiary, The International Civil Aviation Organization, subject to standardized international reporting. From these sources one does have a good background of consistent statistical material on which a variety of forecasts and modelling activities can te based. The fact that all these statistics are published and that the industry moves with such tremendous pace, has meant that, the forecasting and planning process is vigorous. In fact both sides, supplier and operator. find value in joint discussions of the future (see Figure 2). Increasingly the view is that the manufacturer has something to offer the airline planner. We have found that the deeper we get into the planning activitv the more our customers, and our potential customers, have welcomed this development. The raw statistical material provides an excellent understanding of the scale and shape of the business both by individual customers and by the industry overall. A second source of data on the airline timetables which represent the way that the equipment is used. In addition there are

other information sources provided by various bodies, National and International which are dedicated to producing statistics. These relate directly to air travel by recording facts on tourist promotion, the building of hotels, border crossings and the like.

AIRCRAFT MARKET CONSIDERATIONS The relationship of the aircraft salesman to the airline customers is essentially different to that of the staff concerned with the planning function. The salesman sells the aircraft to the airline, the airline sells the product of that aircraft to his customer. The manufacturer must work out the future of his customer, the airline, and thus it is essential to make similar analyses of the future of the airline’s business, in the form of consumer research to those made of the airline operator himself. Herein lies the key to co-operation in the equipment planning stage between manufacturer and customer. The major areas of airline study are the development of the services, the rate at which each is building up its geographic identification of activities in coverage, which the greatest amount of effort is being put, its policy or ability to increase

FIGURE

3

1. WORLD

the number of services and its progressive aircraft development policies. It is also necessary to study the form of economic or political control and follow or forecast changes in it. With regard to the consumer it is desirable to understand the travel motivation of its passengers and the economic reasoning behind its air freight business. Surprisingly enough this is an area which is sadly neglected. However, the economic parameters, and to some extent the political parameters, that underlie the individual airline’s business can be studied. The political considerations involved in building aircraft must also be mentioned. It would be the subject of an interesting paper to discuss the relevance of an aircraft industry to the British economy and its balance of payments. We ourselves are convinced that there is a very handsome contribution to the British balance of payments. The balance of payments problem, allied to government funding processes have generated complications. Several British aircraft have owed their origin to a basically political process: either through the establishment of a government committee or through monopoly customer pressures from the State sector of the British Airline industry.

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In BAC we have concentrated on getting away from these influences. BAC’s position today results from the success of the BAC l-11 (see Figure 3). The original establishment of this programme in the years 1960 to 1962 probably represented the first intensive analysis of market demands for a proposed British commercial transport. BAC formulated an aircraft which the airline market of the world was believed to need. When the programme started it did not appear to have any home market at all, though a developing, and hitherto disregarded, sector of the British airline industry very soon showed this to be wrong. With some difficulty, and against very considerable American competition, this aircraft has developed into Britain’s most successful and highest earning Civil Aircraft project. Early on in the history of that project the forecasting processes began to be developed instead of arriving at intuitive estimates of total demand. Ways of determining how many machines of this class every potential customer would want were accordingly developed. Progressively these techniques were developed and one of the products of this analysis some years ago was a classical marketing picture of the annual forecast demand against timescale. This showed that the demand for this particular aircraft type would be falling around 196819. While the study was not taken out to the full length we now expect sales of

1-11’s to last, the shape of the curve has already been justified. IDENTIFICATION OF AN OPPORTUNlTY BAC was then in the position of any producer dependent on a single product, which while reasonably successful, was likely to be in a falling market. Accordingly a study was made to initiate the new product to put into production as the demand for the existing one fell away. It is really the process of determining exactly what this product should be that forms the major part of this article. The simplest forecasting technique, and ours was no exception, starts by trying to analyse the past to learn from past mistakes and successes. This was started in 1965 when the economic and political background of the aircraft industry was at its lowest ebb. At that time it appeared that the two basic parameters, which had never been properly understood, were the size of the aeroplane and its timing on the market. In proposing new aircraft on this side of the Atlantic these parameters had often turned out wrong. Past projects aircraft such as the Brabazon, the Princess and, to some extent the Vanguard, VC.10 and Trident, show what a problem this has been. The BAC analysis concentrated on trying to understand why some aircraft had been successful, and others had not, based on these parameters alone. Some

FIGURE 2. LEVELS OF ACTIVITY

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FIGURE 3. THE BAC l-11 MEDIUM HAUL TRANSPORT

early work which had been initiated in the late 1950’s had established an interesting historical pattern in this regard. This had unfortunately at the time gone unnoticed. Commercial aviation can be said to have started with the DC3. Making this assumption a clear relationship of aircraft types to the DC.3 could be seen, demonstrating a consistent rate of size growth for a given segment of airlines business. This relationship had implicitly forecast aircraft developments, such as the Boeing 747 ‘jumbo jet’, which had occurred since the study was performed. Equally, the majority of unsuccessful aircraft could be shown to have diverged from the pattern (see Figure 4 and Figure 5). This simple plot provided a useful modelling process for a variety of purposes both for individual customers and for the industry as a whole. Any proposed aircraft, of a given size, could immediately be related to existing aircraft, to competing proposals and to the job it had to do. Since aircraft production cycles run to 10 years or more ideally, it gave a valuable insight to the role the aircraft might play at towards the end of this period. Progressively it emerged that the relationships in this curve could be used to measure specification requirements and the overall size of the market. On a lower level it

JUNE,

1970

identified competition from existing types and gave some hint of what competitors might plan. In addition, at individual customer level, early identification of starting customers become possible. These refinements developed from the first subjective impression that, amid a welter of aircraft proposals, there were none aimed at the segment of the market BAC was involved in. At that time the European Airbus was already mooted but the charts showed this as too large for the sector of the market it was supposed to command. Some considerable time later this mistake was recognized and an aircraft of the same capacity as our own proposal was suddenly substituted. This one curve, in a simple way, represented a modelling process by which the opportunity which existed could be seen. It showed the way that the new machine would have to be fitted into the airline structure, it determined the total magnitude of the opportunity and also the detailed specification. Progressively the potential of this particular simple piece of modelling became appreciated. It led later to such important elements of an initial study as the identification of which airline needed it most and of the aircraft and manufacturers from which competition, both real and potential, could come.

SPECIFICATION

PROCESSES

There are obviously two major elements in any proposal process for a high technology product which should ideally be carried out in parallel. They are to determine what is technologically feasible and in contrast to gauge what is desirable in the market. The BAC 3-11 was no exception in this regard. The process of determining the technological feasibility does not play a part of this particular article. The processes which are set out here to determine market needs were at every stage discussed with the relevant project staff. One of the happiest things about the BAC 3-11 programme is that there was an extremely close parallel between what on the one side was specified as desirable and that on the other side seen as possible. It was one thing to speak of our opportunity for a ‘200-250’ seat medium haul aircraft; but further work was needed to define how far such an aircraft should fly, what sort of airfields should we design for, what design targets should we adopt for economic studies. These and other questions needed to be answered before the specification could be optimized. The major tool in the process of writing a detailed specification is a massive computer programme based, in the first

39

place, on the ABC World Airways Guide. The ABC punch cards which are the basis of the global airline timetable are reprocessed by BAC to study actual aircraft usage (Figure 6). The airline timetables are aimed at the convenience of the passenger, showing what time of day aircraft fly from A to B. The aircraft manufacturer is however interested in the distribution of flight lengths, which airfields are most important and which city pairs are predominant. Our programmes are designed also to enable us to study this on a global basis. The programme is arranged to analyse the distribution of flights, by number over a given route by the length of the flight, and to order in various ways the importance of flights to and from individual airports. Typical of the output is Figure 7 which is a machine plotted histogram. Each bar represents the total percentage of all the aircraft miles flown by an individual type over a range band of 100 miles. A cumulative curve is also provided. In this case which is the Boeing 727 fleet of the German airline Lufthansa, we can see that the greatest number of miles is flown in the 3-400-mile band. Flights of up to 1600 miles are flown by this type, and their

FIGURE 4. SIZE-TIME

contribution to the whole is only 6 per cent of all miles flown. If we decided to build the best replacement aircraft for this customer, peak efficiency should be sought at the average flight length and would have to be suitable for commercial operation of flights on 1600-mile journeys. Airline patterns are not fossilized and it is very instructive to watch the patterns change as every six months the figures are recomputed. The Three-Eleven range characteristics were determined from this form of analysis covering all the aircraft which were likely to be replaced and on a global basis. Analysis of aircraft design characteristics related to airfield performance mechanized owing to the complex of technical factors involved. However, the programme did provide a tool to assess numerically the importance of airports which were known to be critical. Equally the computer demonstrated clearly that the number of different airports to be used by this type of aircraft would be higher than was going to be the case with the Jumbo jets or three engined American ‘Airbuses’. This led in turn to a view that, looking at the total cost of the transport system using the proposed aircraft, it would pay if the aircraft could

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be dsigned to cut out the need for more money to be spent on the buildings, ground equipment and the like required to handle the aircraft. The process of testing the market reaction to our proposals later showed up one weakness in specification determination process. It depended purely on the scheduled airlines, whereas a considerable part of the demand, and indeed of current aircraft sales, was to the emerging holiday tour (IT) operators. Their pattern of operation was considerably different The same techniques could not be applied. since in no comparable data was initially available. Had it been, some considerable doubt of the validity of lessons deduced would have been justified in a fast developing and changing industry. As a result, as well as analysis of those figures that could be obtained more basic analyses of the holiday reception areas and of customer spending power had to be made (Figure 8). This was done to try to forecast changes in the pattern of the holiday industry. These studies provided valuable indicators of market demands in this sector, but must of necessity be

FIGURE

5. SIZE-TIME

RELATIONSHIPS

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Entry

1970

ASSESSMENT OF DEMAND In the study of demand for aircraft, as presumably in most planning activities, there are two schools of thought. Either the overall demand can be forecast and individual demand established by breaking down, or the individual elements studied and the build up to the total used as a checking mechanism against overall forecast. The great majority of published aircraft requirement studies have been based on analysis of the macrocosm. The BAC 3-11 study has in contrast been based on study of the individual customers. The individual requirement and timing of demand for each can be estimated with reasonable accuracy. Equally each would be suppliers standing with that customer is more easily gauged and thus more realistic penetrated estimates become possible.

DESIGNS

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regarded as less firm than the direct scheduled industry analysis. From all of these studies a market oriented specification was written, which has been closely matched in the eventual design (Figure 9). This is summarized in Figure 10.

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FIGURES 6 ANALYSIN if :CT”AL AIRCRAFT USAGE

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The ‘top down’ method leads to a multiplicity of factors being multiplied one by the other and thus to conclusions which are arguabie, if not positively misleading. The process, repeated for each potential customer, is in three stages. First the fleet procurement histdry is studied (Figure 11) and, if no section of his operations are performed by an aircraft which the new project could replace-in line with the customers purchasing history-then that market is rejected. The second check is to ensure that the task performed by the aircraft to be replaced can be performed by the project on offer. The computer programme provides the main parameters for this and also provides information on the total share of the airlines output that is performed by the fleet selected for replacement. The third stage is to make a forward assessment of the airlines likely requirements for the future in terms of aircraft productivity. This is compared with the output available from the current fleet, from aircraft on order and from aircraft that will need to be ordered for other parts of the system (Figure 12). While, with known depreciation policies, it is possible to construct a retirement pattern, it is also necessary to allow for changes in FIGURE 8. ANALYSIS

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1970

OF HOLIDAY

RECEPTION

AREAS

AND

employment of aircraft towards the end of their operating lives. For example we already see the Trans Atlantic planes of the early 1960’s flying on routes within Europe. Thus to forecast demand for a part of the airlines it is vital to take on the complex task of forecasting his entire future equipment needs. The process of estimating future purchases has been developed manually. We have seen some of the American manufacturers methods which are computer generated and have the constant logic a computer insists upon. The methods employed by BAC are more in the British tradition of craftsmanship, blending into the initial work the knowledge of the analyst, on the personalities, the politics and other factors involved. The difference between these two techniques is to a great extent the function of the different base markets. The U.S. one is a large homogeneous market all under the same economic, political and market pressures. Britain’s home market is small thus the manifold pressures of the different national export markets has assumed greater relevance. The possible purchasing plans of each airline played a part in the initial presentation of the BAC 3-l 1 to each airline. Their

CUSTOMER

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FIGURE

9. BAC

3-11

ARTIST’S

FIGURE 10. MARKET

ORIENTED

Summary 200-240 Best

SPECIFICATION

of Requirements

seats

economics-250450

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comments, forecasts and plans could then be embodied in an iterative exercise to justify the market forecasts and to provide a constant updating of the demand assessment. The reaction of the potential customer to the total analysis of the task required for the 3-11 and of its market potential was extremely good. It played a large part in the excellent initial reaction the project received-and possible in the sudden change in specifications of the European Airbus. FIELD

TESTING

Work on the project reached a point in late 1968 when a complete aircraft proposal could be discussed with customer airlines. This involved engineering proposals, together with specific performance and economic analyses of the aircraft proposed as applied to the particular requirements of each airline. There were four teams engaged in this process and particular care was taken to ensure comparability of reporting. Presentation of every aspect of the aircraft, including the methods used to FIGURE 11. FLEET HISTORY

determine the specification and the individual airlines’ demand for it were made. Discussion of these presentations was guided to obtain answers to a comprehensive team questionnaire. These answers gave a basis for statistical analysis of airline dislikes and preferences and for logical assessment of possible changes to the basic specification (Figure 13). As has already be remarked, the reaction to these presentations was gratifying and aided refinement of the market study process. This latter plays an increasing part in the development of BAC’s tactical marketing activities. ASSESSMENT OF COMPETITION AND PENETRATION Proposal of an aircraft matched to an identified market is no guarantee of success. In a market with relatively few major product opportunities, competition is inevitable. It has become part of the BAC marketing process to attempt assessment of potential competing manufacturers. This

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task was attempted from three directions, but the process has still to be rationalized. First we assessed which manufacturer’s business would suffer from introduction of our project-and what he was likely to do about it. A second process was to study forward commitments in terms both of production load (or lack of it) and of work for the design team (Figure 14). A third study was made of financial capability to start new programmes. Having determined likely runners in the race, a series of tables was developed showing how the market might split between competitors. This process was largely intuitive, but with knowledge of financial, political and other ties, plus knowing where past investments had been made, a reasonable series of forecasts These identified the were produced. brackets within which our own sales could be expected to lie, with a variety of differing competitive situations (Figure 15). The British manufacturer faces a pecuFIGURE

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liar difficulty here. Arrhnes do not purchase aircraft as such. Rather they enter into partnership with manufacturers, putting the profitability, reliability and reputation of their operation to a large extent in the manufacturers hands. This means that the industrial aspects of the supplier become as important as the technical aspects of the aircraft. The purchaser must ask himself will the aircraft perform correctly, will it be delivered on time, be properly supported and adequately developed? A host of questions all ultimately involved the commercial success and stability of the manufacturers firm, play a major role in airline purchasing decisions. With the political and economic back drop of the last few years, British companies have been unable to-satisfy some of these criteria, though BAC’s record since 1967 has been reflected in increased sales. Looking to the future an estimate of how BAC might compare in these respects had to be attempted. OF

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FIGURE 13. SUMMARY

OF WORLD

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FIGURE 14. SHORT

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HAUL JETS-FORECAST

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FIGURE

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CONCLUSION At the time of writing, the studies described above have played a part in the decision that the BAC 3-l 1 is an investment which is likely to prove profitable, for the Corporation. This conclusion is based on a market estimated as being for over 1100 aircraft, at size and with the penetration achieved by the BAC One-Eleven, a useful return on the investment can be foreseen. The shareholding companies have accepted the validity of the analysis, backed as it is by airline support of the actual aeroplane thay have led to. Government support for the remaining half of the required finance, has been sought. To achieve this position it is vital to adduce some proof that the forecasters previous work, while not so sophisticated, was on the right lines. For the BAC l-11

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five-year forward forecasts were produced from 1965 onwards and, together with tentative estimates of penetration, these have been used as a guide to production planning. It is now within a few months of the end of the first five-year period and the coincidence both of the total number of aircraft delivered, and of the penetration of the market in fact, as opposed to forecast, is encouraging. The most recent of Government inspired enquiries into the aircraft manufacturing industry (The Elstub Committee) reached the following conclusions (among others). “ As a general principle a new project should be started only when firm prospects of sales are large enough to make its development economic and its selling price competitive. Britain needs to choose new projects which will not only

BY BAC

l-11

be in wide demand, but which can exploit her strongest area of technical expertise, the advantage of her lower wages and salaries, and the goodwill earned by earlier aircraft.” The magnitude of Research and Development cost should not of itself deter Britain from undertaking advanced aircraft projects, provided that the cost estimates and sales forecasts can be relied upon.” These choices can be guided by commonsense marketing techniques and analysis. This process therefore plays a vital part not only in the aircraft manufacturing industry, but also in ensuring a favourable balance of payments for Great Britain. Within it there is still much to be learnt and refined, but some of the methods and lessons learnt may already be applicable to other capital goods industries. n

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