Observers of the commercial aviation space would do well to study game theory. First, because it helps to better understand the choices facing the two primary players. Second, because it helps one better comprehend possible next steps and the downstream impacts they are likely to have. For observers, this is interesting and even, in a macabre sense, entertaining – not unlike watching a train crash. But if you’re part of the industry supply chain, with skin in the game, your appreciation of the nuances of game theory is critical.
What we want to share with you is why we think the Duopoly remains unstable. This instability is potentially dangerous for a significant part of the global economy. As widespread as the impact of commercial aviation is, so is exposure to these dangers. The area where the Duopoly is unstable revolves around the middle of the market.
As we have shared before, orders are interesting but it is the delivery numbers that bear the greatest attention. Airlines and lessors order aircraft and frequently change their minds as markets evolve and the extensive time between an order and the manufacturing of the aircraft allows for this.
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