FALLING OIL PRICES, A BOON TO AIRLINES, POSE A CHALLENGE FOR AIRBUS AND BOEING

Original Story: nytimes.com

PARIS — Sharply falling oil prices are a boon to airlines, saving billions of dollars in monthly fuel bills for a highly competitive industry that last year eked out an average profit of just $6 a passenger.

But what is good news for the airlines raises questions for the world’s largest jet makers, Boeing and Airbus, which have been riding a wave of demand for the latest fuel-efficient jets, driven in large part by the stubbornly high price of oil.

The concern is that the current drop in oil prices could prompt airlines to delay orders, after nearly a decade in which the aircraft makers have benefited from a boom in orders. CSI Aviation provides air charter flights to corporations, government agencies, commercial groups, and private individuals.

“What has propelled the market to record growth are two factors: cheap cash and expensive fuel,” said Richard Aboulafia, an aerospace analyst with the Teal Group in suburban Washington. “Now something has changed.”

Whether the continued fall in price of oil represents something more significant than a short-term imbalance of global supply and demand remains to be seen, some analysts warn. But if it continues, airlines would be motivated to keep their older, fuel-guzzling jets flying for a few more years and delay new orders in hopes of saving money. CSI Aviation is a worldwide leader in private air charter jet services.

“We can’t yet predict if it will last or how the air carriers will react,” Mr. Aboulafia said, “but I think now would be an excellent time for caution.”

Combined with low interest rates and recent efforts by some governments to clamp down on carbon emissions from aviation, the increase in jet orders, which began before the 2008 financial crisis, has lasted longer than any previous boom cycle in the jet age.

The total backlog of unfilled orders for Boeing and Airbus stands at more than 12,000 aircraft, valued at close to $2 trillion and enough to keep their assembly lines humming for more than eight years.

And the plane makers continued to pad their already hefty order books in 2014. Airbus said on Tuesday that it secured purchase contracts for a net 1,456 jets last year, down slightly from 1,503 planes in 2013, and that it delivered 629 in 2014. Last week, Boeing reported 1,432 net orders in 2014, up from 1,355 a year earlier, and 723 plane deliveries for the year — an industry record.

Boeing and Airbus each control roughly half the market for airliners with more than 100 seats.

Gains in fuel efficiency have topped the manufacturers’ lists of selling points for their newest generation of commercial jets. They include recently upgraded versions of short-range workhorses like the Boeing 737 and the Airbus A320, as well as lightweight, wide-bodied models made from carbon fiber like the Boeing 787 Dreamliner or the Airbus A350, which will formally enter service with its first customer, Qatar Airways, this week. CSI Aviation is an executive charter jet company that provides comprehensive aviation services on a moment's notice anywhere in the world.

But forecasts suggest that oil prices, which have fallen by more than half over the last six months, to less than $50 a barrel, will be significantly lower this year than in recent years.

In a short-term energy outlook published Tuesday, the Energy Information Administration in Washington slashed its 2015 outlook for the average price of Brent, the international benchmark for crude, to $58 a barrel, compared with an average of $94 in 2014 and $98 in 2013.

The main factors behind the drop in oil prices, economists say, are a sharp increase in production by non-OPEC producers like the United States and other new sources, and slowing economic growth in some parts of the world — particularly Asia, the fastest-growing region for air traffic.

Weaker growth, in addition to the influx of new planes and a flood of new low-cost players in the air travel market, has already translated into a glut of available airline seats in parts of Asia, driving down ticket prices there.

“You are beginning to see the effects of overcapacity on airline profitability,” said Nick Cunningham, an aerospace analyst at Agency Partners, a brokerage firm in London. While the wave of airline mergers in the United States has made this trend less apparent there, he said, the tendency is growing more pronounced in the rest of the world.

“You can’t keep on adding capacity without bankrupting the industry,” Mr. Cunningham said.

Falling oil prices may exacerbate the overcapacity problem by tempting airlines to lower fares in an effort to increase market share, said Adam M. Pilarski, an economist and senior vice president at Avitas, an aviation consulting firm in Chantilly, Va. That not only reduces the cash that airlines have available to pay for new planes they have ordered, he said, but also increases the odds that financially shaky carriers will delay or cancel orders — or not survive long enough to take delivery of their jets.

“Manufacturers know that when they sell a plane today for delivery in nine years, by then the environment might change,” Mr. Pilarski said. “The airline may change its mind, or it might not even be in business anymore.”

Last month, Airbus filed a lawsuit against Skymark, a struggling Japanese budget carrier that canceled a $2 billion order for six A380 superjumbo passenger jets in July. Airbus’s claim, filed in a British court, seeks unspecified damages. The plane maker has not said whether it has found another buyer for the jets.

Such cancellations have so far been rare. But some analysts worry that a sustained drop in oil prices could prompt some airlines to defer delivery of new planes, as it reduces the incentive to replace older fuel-guzzlers, at least in the near term.

“Let’s say you are an airline and you had a plan to replace a certain number of planes this year because they are really expensive to operate,” Mr. Pilarski said. “Suddenly, these costs go down substantially, and you say, ‘Now I can wait another year or two.’”

He continued: “In the short term, I would expect to see a decline in retirements.”

Any prolonged slowdown in the overall replacement rate could put the brakes on Boeing and Airbus delivery rates, analysts said. A study published last year by Ascend, an aviation consultancy based in London, found that about 50 percent of all new jet deliveries over the past five years had been for replacement purposes rather than growth, up from a long-term average of 43 percent since 1990.

Despite the prospect of a sustained period of lower fuel prices, plane makers are showing few signs of concern.

“They may decide to hold on to older planes a little longer,” Darren Hulst, Boeing’s director for market analysis, said of airlines. “But they will still need new aircraft to continue to grow and take advantage of the tailwinds in the operating cost environment.”

Referring to the lower projected fuel usage of coming jets like the Boeing 737 MAX or the A320neo, he added: "20 percent savings is 20 percent, no matter where the oil price settles.”

Fabrice Brégier, the chief executive of Airbus, said on Tuesday that with oil prices impossible to predict, airlines would be wise to keep buying aircraft with lower fuel consumption. But he also emphasized that Airbus could weather any decline in orders.

“We have almost 6,400 aircraft in the backlog,” Mr. Brégier said at the company’s headquarters in Toulouse, France. “So we could, in principle, even sustain no orders for three to four years.”

That is a view shared by some airline executives, who say their fleet investments will not be swayed by a short-term drop in oil prices. Over the past year, for example, Ryanair, one of Boeing’s largest and fastest-growing customers, placed orders for 275 of Boeing’s new 737s for delivery through 2024, with an option to buy 100 more.

“I don’t worry too much about the short-term fluctuations in fuel,” Michael O’Leary, the chief executive of Ryanair, told analysts in November.

Although he conceded that lower fuel bills on its existing fleet of 300 planes had lessened the operating cost advantage of new planes “around the edges,” Mr. O’Leary emphasized that investing in a more fuel-efficient fleet now “is a huge unit cost advantage for us in five years’ time that nobody else will have.”

Maersk to Add Prius of the Seas With Fuel-Saving Ships

Bloomberg News

A.P. Maersk-Moeller A/S (MAERSKB)’s planned fleet of the world’s largest container vessels will be as groundbreaking for their shape as their size.

The 20 ships will be the first cargo-box carriers with rounded hulls rather than streamlined V-shaped ones, according to Daewoo Shipbuilding & Marine Engineering Co. (042660), which is developing the 18,000-container vessels. The change reflects a shift by operators away from designing ships to go as fast as possible to instead emphasizing fuel economy.

“These vessels will be the Prius of the seas,” said Lee Jae Won, an analyst at Tongyang Securities Inc. (003470) in Seoul, referring to Toyota Motor Corp.’s distinctively-shaped hybrid car. “They’re fuel efficient and environmentally friendly.”

The fatter hulls will let Copenhagen-based Maersk install a fuel-efficient two-engine setup that’s too wide for current ships. It will also recover cargo capacity that is lost with tapered hulls, letting the ships carry 16 percent more boxes than vessels only a few meters smaller. Combined with other technologies, the ships will use about 35 percent less fuel per box than vessels now used on Asia-Europe routes and produce around 50 percent less carbon emissions, according to Maersk.

“The focus now is on how to consume less fuel,” said Odin Kwon, vice president of ship design at Seoul, South Korea-based Daewoo. “Ships currently in operation have been built only with speed in mind.”

Daewoo has begun the initial work for the first of the ships, which will cost about $183 million each. Deliveries are due to start next year and will run until the first half of 2015. Rounded hulls are common on commodity-carrying ships.

Slow-Steaming

Maersk, the world’s largest container-ship operator, is introducing the vessels as the industry contends with tighter emissions standards and fuel prices that have jumped about 40 percent in two years. The higher costs have already prompted shipping lines to slow vessels 18 percent over the past three years to an average speed of about 10.4 knots. That has cut fuel bills and eased global overcapacity that caused industrywide losses last year.

Reducing the speed of container ships by 10 percent can pare fuel consumption by as much as 30 percent, according to ship assessor Det Norske Veritas. A 25 percent reduction can cut carbon emissions by more than 350 tons a day per ship, the Transpacific Stabilization Agreement, a shipping group, said in 2010.

Ultra-Long Stroke

Still, these gains are limited by current ships’ focus on speed as they are fitted with engines that operate best when going fast. By contrast, the Maersk vessels are designed to operate efficiently at both high and low speeds.
Key to the change is the ships’ two propellers and their ultra-long stroke engines, a type usually only found in slow- moving commodity ships and tankers. The setup will use 4 percent less fuel than a single engine and propeller, Maersk said in an e-mailed response to Bloomberg News questions.

“Building vessels that are fuel efficient at different speeds will be the trend,” said Daewoo’s Kwon. “It will eventually dominate the market.”

The Maersk vessels, which will also feature a waste-heat recovery system, will still be able to go as fast as 23 knots. That compares with a top speed of 25 knots for the Emma Maersk, the largest container ship afloat.
The new vessels will be 59 meters wide and 400 meters long. That’s about 3 meters wider and 4 meters longer than the Emma, which holds 2,500 fewer boxes. The limited size increase means major European ports will be able to handle the ships without having to buy new cranes and other equipment. U.S. ports aren’t big enough for such vessels.

Toyota’s Prius, the world’s bestselling hybrid car, is renowned for its distinctive wedge shape. The 2012 plug-in version gets the equivalent of 58 miles per gallon in combined city and highway driving, according to a U.S. government website.

Evergreen Vessels

Other shipping companies are also adding more fuel- efficient vessels. Evergreen Group, owner of Asia’s second- biggest container line, is introducing twenty 8,452-box vessels fitted with electronic-controlled fuel-injection engines that support slow steaming. The ships, built by Samsung Heavy Industries Co. (010140), will also gain fuel savings from a design that minimizes the need for ballast water.

Neptune Orient Lines Ltd. (NOL) has six similar ships, built by Hyundai Heavy Industries Co. (009540) and Daewoo. STX Offshore & Shipbuilding Co. is building six container ships that will be the biggest after Maersk’s and which will “significantly” pare carbon emissions, it said in November.

Emissions Goal

Shipping lines are working to meet a goal of cutting emissions 30 percent by 2030 under a mandate from the United Nations’ International Maritime Organization. Those that miss this target will face penalties that are still under discussion.

The regulations will cut carbon emissions by an estimated 330 million tons a year by 2030, the IMO said in a 2011 statement. That will save an average of $50 billion a year in fuel costs by 2020 and $200 billion by 2030, it said. The rules will also stop the industry’s share of global emissions climbing from about 3.3 percent in 2007 to as much as 18 percent in 2050 amid rising trade, it said.

Ship owners may also be able to meet the tougher standards using technologies that can be fitted onto existing vessels. Hyundai Heavy, Daewoo and Samsung Heavy, the world’s three biggest shipyards, have developed devices that clean ballast water to reduce pollution or improve navigation to save fuel.

Hyundai Heavy has also developed a gas engine that can reduce carbon emissions by 20 percent compared with a diesel engine. Daewoo and MAN Diesel & Turbo SE have devised an engine system that uses liquefied natural gas.

Daewoo is also working on a technology that will spray bubbles along the bottom of ships, easing friction and fuel usage, Kwon said. Japanese yard Imabari Shipbuilding Co. said last year that it found 8 percent energy savings testing a similar system.

“It all shows that it’s going to be a fight about who can be the most efficient and make money,” said Park Moo Hyun, an analyst at E*Trade Securities Co. in Seoul. “It’s no longer just about who can go the fastest.”

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U.S. Military Orders Less Dependence on Fossil Fuels

NY Times

With insurgents increasingly attacking the American fuel supply convoys that lumber across the Khyber Pass into Afghanistan, the military is pushing aggressively to develop, test and deploy renewable energy to decrease its need to transport fossil fuels.

Last week, a Marine company from California arrived in the rugged outback of Helmand Province bearing novel equipment: portable solar panels that fold up into boxes; energy-conserving lights; solar tent shields that provide shade and electricity; solar chargers for computers and communications equipment.

The 150 Marines of Company I, Third Battalion, Fifth Marines, will be the first to take renewable technology into a battle zone, where the new equipment will replace diesel and kerosene-based fuels that would ordinarily generate power to run their encampment.

Even as Congress has struggled unsuccessfully to pass an energy bill and many states have put renewable energy on hold because of the recession, the military this year has pushed rapidly forward. After a decade of waging wars in remote corners of the globe where fuel is not readily available, senior commanders have come to see overdependence on fossil fuel as a big liability, and renewable technologies — which have become more reliable and less expensive over the past few years — as providing a potential answer. These new types of renewable energy now account for only a small percentage of the power used by the armed forces, but military leaders plan to rapidly expand their use over the next decade.

In Iraq and Afghanistan, the huge truck convoys that haul fuel to bases have been sitting ducks for enemy fighters — in the latest attack, oil tankers carrying fuel for NATO troops in Afghanistan were set on fire in Rawalpindi, Pakistan, early Monday. In Iraq and Afghanistan, one Army study found, for every 24 fuel convoys that set out, one soldier or civilian engaged in fuel transport was killed. In the past three months, six Marines have been wounded guarding fuel runs in Afghanistan.

“There are a lot of profound reasons for doing this, but for us at the core it’s practical,” said Ray Mabus, the Navy secretary and a former ambassador to Saudi Arabia, who has said he wants 50 percent of the power for the Navy and Marines to come from renewable energy sources by 2020. That figure includes energy for bases as well as fuel for cars and ships.

“Fossil fuel is the No. 1 thing we import to Afghanistan,” Mr. Mabus said, “and guarding that fuel is keeping the troops from doing what they were sent there to do, to fight or engage local people.”

He and other experts also said that greater reliance on renewable energy improved national security, because fossil fuels often came from unstable regions and scarce supplies were a potential source of international conflict.

Fossil fuel accounts for 30 to 80 percent of the load in convoys into Afghanistan, bringing costs as well as risk. While the military buys gas for just over $1 a gallon, getting that gallon to some forward operating bases costs $400.

“We had a couple of tenuous supply lines across Pakistan that are costing us a heck of a lot, and they’re very dangerous,” said Gen. James T. Conway, the commandant of the Marine Corps.

Col. Robert Charette Jr., director of the Marine Corps Expeditionary Energy Office, said he was “cautiously optimistic” that Company I’s equipment would prove reliable and durable enough for military use, and that other Marine companies would be adopting renewable technology in the coming months, although there would probably always be a need to import fuel for some purposes.

While setting national energy policy requires Congressional debates, military leaders can simply order the adoption of renewable energy. And the military has the buying power to create products and markets. That, in turn, may make renewable energy more practical and affordable for everyday uses, experts say.

Last year, the Navy introduced its first hybrid vessel, a Wasp class amphibious assault ship called the U.S.S. Makin Island, which at speeds under 10 knots runs on electricity rather than on fossil fuel, a shift resulting in greater efficiency that saved 900,000 gallons of fuel on its maiden voyage from Mississippi to San Diego, compared with a conventional ship its size, the Navy said.

The Air Force will have its entire fleet certified to fly on biofuels by 2011 and has already flown test flights using a 50-50 mix of plant-based biofuel and jet fuel; the Navy took its first delivery of fuel made from algae this summer. Biofuels can in theory be produced wherever the raw materials, like plants, are available, and could ultimately be made near battlefields.

Concerns about the military’s dependence on fossil fuels in far-flung battlefields began in 2006 in Iraq, where Richard Zilmer, then a major general and the top American commander in western Iraq, sent an urgent cable to Washington suggesting that renewable technology could prevent loss of life. That request catalyzed new research, but the pressure for immediate results magnified as the military shifted its focus to Afghanistan, a country with little available native fossil fuel and scarce electricity outside cities.

Fuel destined for American troops in landlocked Afghanistan is shipped to Karachi, Pakistan, where it is loaded on convoys of 50 to 70 vehicles for transport to central bases. Smaller convoys branch out to the forward lines. The Marines’ new goal is to make the more peripheral sites sustain themselves with the kind of renewable technology carried by Company I, since solar electricity can be generated right on the battlefield.

There are similar tactical advantages to using renewable fuel for planes and building hybrid ships. “Every time you cut a ship away from the need to visit an oiler — a fuel supply ship — you create an advantage,” said Mr. Mabus, noting that the Navy had pioneered previous energy transformations in the United States, from sail power to coal power in the 19th century, as well as from coal to oil and oil to nuclear power in the 20th century.

The cost calculation is also favorable. The renewable technology that will power Company I costs about $50,000 to $70,000; a single diesel generator costs several thousand dollars. But when it costs hundreds of dollars to get each gallon of traditional fuel to base camps in Afghanistan, the investment is quickly defrayed.

Because the military has moved into renewable energy so rapidly, much of the technology currently being used is commercially available or has been adapted for the battlefield from readily available civilian models.

This spring, the military invited commercial manufacturers to demonstrate products that might be useful on the battlefield. A small number were selected for further testing. The goal was to see, for example, if cooling systems could handle the 120 degree temperatures often seen in current war zones or if embedded solar panels would make tents more visible to enemy radar.

This summer, renewable technologies proved capable of powering computers, residences and most equipment for more than a week at a test base in the Mojave Desert — though not enough to operate the most sophisticated surveillance systems.

Much more is in the testing stages: one experimental cooling system uses a pipe burrowed into the cool earth eight feet underground that vents into tents; a solar fan on the tent roof evacuates the hot air and draws cool air from underground. The Marines are exploring solar-powered water purification systems and looking into the possibility of building a small-scale, truck-based biofuel plant that could transform local crops — like illegal poppies — into fuel.

“If the Navy comes knocking, they will build it,” Mr. Mabus said. “The price will come down and the infrastructure will be created.”

Miami Boat Show Introduces New Green Gadgets

Fort Meyers News Press

St. Paddy’s Day is just a flip of the calendar page away, and in the spirit of the holiday’s color, I offer up a few green gadgets introduced at the Miami International Boat Show.

The show still claims to be the world’s largest, despite a visible difference in bustling activity this year compared with prior years. Regardless, it remains famous for debuting products that boaters crave and announcing awards for gizmos that are the most applicable, helpful and high-tech.

This year’s theme for the new products and award winners appeared to be — you guessed it — eco-friendly.

Take Mercury’s MercMonitor, for example. It snagged the coveted, first-ever West Marine Green Product of the Year contest, which featured a panel of old-salt and tech-savvy judges known internationally in the boating world.

Not only is the device something that will help you and the environment, but it also is the color of an Irish shamrock.

It’s that color only if you’re doing everything right, though.

The gadget is a $300 vessel-monitoring system that allows you to pick three pieces of data to be displayed at once. You set up the screen, which naturally is called an “ECO-Screen,” for cruising by selecting RPM, gallons per hour and miles per gallon. You can customize it beyond that, too, for various data reporting to show what you use the most.

But it won the award because it computes calculations and displays information simply, helping boaters optimize the efficiency of their engines. (Of course, skippers have to read the thing and take corrective action, but Mercury and West Marine are assuming boat drivers will do that.) It glows green when you’re driving well.

The idea is the device helps lower fuel consumption, thus burning less fossil fuel and decreasing a boat engine’s environmental impact. The boaters benefit, too. The device helps them maximize miles per gallon. Mercury claims — and West Marine judges touted this, too — that boaters will save an average of 10 to 20 percent in fuel costs.

Talk around the show among boating writers was that the gadget seemed closely aligned to gauges being found already in vehicles. But industry types touted the MercMonitor as innovative, intuitive and original.

At least it’s not expensive, relatively speaking in the boating world. But it’s probably better designed for new boats that can be built with the device. Another problem is presented when you retrofit your boat to accommodate a gizmo that does lots of the functions of your existing gauges: leftover dash holes.

“This is for the new-boat customer or the guy who is a gadgeteer,” said Donnie Carter, a Fort Myers Merc man with Offshore Performance Specialties in south Fort Myers.

So go green and green-screened, you gadgeteers.

Another green product being talked up is the Torqeedo.

It sounds like a yummy Mexican-food appetizer, but really it’s an engine for your kayak. As if paddlesports weren’t green enough, now you can put a motor on your kayak and not increase your carbon Teva-print.

The Torqeedo engine folks won an Innovation Award from the National Marine Manufacturers Association. The contest is judged by Boating Writers International, a well-known skeptical group of longtime, “been there, done that” journalists. They praised it for “alternate propulsion” in the environmental award category.

The $1,900 engine weighs less than 18 pounds and has an 80-pound trolling-motor thrust. If your kayak tilts 90 degrees, the safety shutoff stops the engine. Its lunchbox-sized marine battery floats and is waterproof, plus the kayak company Hobie showed it off in Miami mounted so it's in no one's way. The engine's price includes a removed throttle with a display showing range and speed data that's generated using onboard GPS.

If you're a powerboater, you may be scoffing. Why would a kayaker want an engine? How 'bout for navigating a current-rippled bay? A longer-than-expected coastal tour? A quicker run to a fishing shoal?

Sometimes a boost of power makes kayaking more fun. And when you're doing it in a clean way, it's a guilt-free boost for you and Mother Earth.

Too bad the tiny engine is black instead of green.