:: January 2006 Letter ::
I’ve got nothing. Let me state that up-front. I took a vacation in Vietnam, and was hoping to write a few pages on the local aerospace market as I did last year for India. Instead I’ve got nothing. No aerospace companies consider Vietnam a sufficiently important market to have locally based reps. None have joint ventures there. And remarkably little is happening, market wise. I’m just going to blabber on about tangential market issues. Read on if you don’t value your time.
Vietnam’s military market is particularly dismal. Like American zoos and pandas, the Viet Air Force takes delivery of a pair of Su-27s every few years hoping they’ll mate and reproduce. They’re not exactly looking for a JSF partnership here (for a great country overview, see Janes’ Defence Weekly, January 4). To fill space, I’ll just violate John Cleese’s essential maxim: Don’t Mention the War.
What’s interesting about the war (actually, both the French and US wars) is that while fought with relatively modern weaponry, command and control was lagging. For a vivid illustration of this (during the French war), I strongly recommend the best military book published last year, Martin Windrow’s The Last Valley. This 700-page history of Dien Bien Phu is the best account yet of my favorite metaphor for a hubris-shattering climactic battle. French planes would take off, snap photos of targets, return to base with the film, they’d develop and analyze the pictures, plot and transmit target coordinates to the artillery, the artillery would fire and would hit only jungle because the enemy was smart enough to move. It was so non-lethal as to be almost humane. The planes, bombs and artillery were fine; the connections between them were a serious problem.
Fifteen years after the French debacle, targeting had improved somewhat, but acquisition and tracking was often done the hard way. My father in law, Kurt Wisecarver, flew C-130 surveillance missions over the Ho Chi Minh trail. They’d drop flares near suspected targets. Information would be relayed via radio, a controller would vector fighters to their zone, and the fighters would attempt to hit targets close to the flares. There was still no real-time integration between observer and shooter, aside from an imprecise voice link. Again, the equipment was relatively modern—jet fighters, radars, modern artillery, even precision-guided munitions, later in the war. The only thing missing was the real-time connections between everything, the links that make instant target acquisition and precise destruction possible.
In short, looking at the recent military history of Vietnam, you can see the origins of today’s net-centric programs, such as ACS, JTRS, FCS, Deepwater, E-10, MMA and others. The objective is to create battlefield architectures, systems of systems using advanced datalinks to cut the lag time between sensor and shooter. And as these programs become billpayers for Iraq you can see what the Bush Administration meant when they said they’d “skip a generation” of weapons. They merely neglected to say when the skipped generation would be replaced with something tangible.
Back to Vietnam today. The military looks underfunded, which is a good sign—the country is more concerned with commerce and a slow move towards a market economy. For proof that the private sector is growing to eclipse the power of the state, visit any airport. Squadrons of obsolete MiG-21s sit quietly while brand new A320s and 777s get out there and do good work. (More proof the private sector is winning: Kentucky Fried Chicken ads have played up the weird resemblance between Col. Sanders and Ho Chi Minh.)
Vietnam’s air travel market is growing at a 15-20% rate, due largely to fast economic growth, a large expat population in the US, and the country’s elongated shape (long train rides are interesting but Spartan). Reforms could stimulate faster growth, with vague plans for airline privatization, electronic tickets, and low-cost start-ups (those mule-driven ground power carts will be replaced too). Yet this market just isn’t that big—maybe 4-6 planes a year at best. But Vietnam does a great job illustrating the important concept of airline route fragmentation. Fragmentation basically comes in three forms.
The most obvious type of fragmentation is geographic. The new long-range middle market jetliners are designed to enable and stimulate development of new city pairs. Like everyone else traveling from the West, we had to fly through somewhere (in our case Narita) to get to Vietnam. It’s hardly surprising that Vietnam Airlines was in the first customer group for the 787. How else could they start efficient Los Angeles-Ho Chi Minh service? This geographic fragmentation is aided and abetted by new bilateral air service agreements, like the recent one between the US and India (explaining why Air India is refocusing its fleet around 250/350-seat planes).
Next and simplest is temporal fragmentation. Greater frequency (and therefore flexibility) is something business travelers will pay for. Why have five 420-seat flights per week when you can offer eight 250-seat flights? Thanks to improving technology, seat mile costs aren’t all that different for smaller planes. In the case of the A350, they may even be better than for the A380.
Last, there’s brand fragmentation. As economies liberalize, the last near-monopoly flag carriers (like Vietnam Airlines) face growing competition from new national players and established international carriers. An intriguing third category: low-cost subsidiaries of legacy airlines engendering further brand options (Qantas’s Jetstar is the best example of this which explains why both entities recently went for 787s alone rather than buying bigger planes too).
There are also established companies seeking to create airlines as part of a “lifestyles brand,” like Virgin or India’s Kingfisher beer. (There are plenty of stunningly ordinary breweries that could copy Kingfisher’s “lifestyles brand” role in Vietnam; the most popular is 333, which tastes exactly like all the others. Just ask for “ba ba ba” and keep your expectations low.)
In the midst of this fragmentation kaleidoscope blunders the A380. Airbus would have an easier time selling a sneezing chicken in this part of the world. Many new and legacy carriers are banking on the capability offered by the new technology long-range twins. Airbus needs to get the A350 firmly established on the market with a blue-chip airline order. Boeing needs to execute on its remarkably ambitious 787 performance and costs promises. Both planes will re-engineer the way we fly and keep me from having to change planes in Narita.
No Vietnam letter would be complete without a mention of Vietnam’s Aerospace Industry. They have none. At all. Their museums are filled with things they’ve destroyed, not things they’ve built. But this raises an important point. Vietnam is manufacturing many things, from cell phones to TVs. But despite the obvious cost advantage of manufacturing there, nobody has placed any aviation contracts. Why? Because low costs don’t matter much in aerospace. What matters is technical capability and efficiency (aided sometimes with government support).
This is why the overwhelming bulk of outsourced aerospace work goes to high cost places like the UK, Japan, Italy, and Canada. Low cost countries like Vietnam (and more importantly, China) do yeoman work suppressing prices and wages in the West and helping manufacturers extract concessions from Western politicians (the dreaded “China Price”). But the amount of actual aerospace work placed there is miniscule.
That’s my letter about nothing. But Vietnam is something worthwhile. While the country’s most important days are behind it, its best days lie ahead. The people are friendly, the food’s great, and there are many interesting things to see. Hotels? In Hanoi, stay at the Metropole, whose Le Beaulieu restaurant offers the best French dining in Asia (and Chateau Dassault on the wine list!). Halong Bay makes a great side trip, and you can take an overnight cruise on the Emeraude. None of the hotels in Saigon/Ho Chi Minh City are remarkable, but the Duxton was nice and good value. If you go to Hoi An (you should, for the Chinese architecture and nearby ruins) stay at the Riverside.
Things to read? Again, dominated by the past. I’m sure there are some good contemporary travel books, but most of the literature revolves around the war. In addition to Windrow’s book, I’d recommend Frank Snepp’s Decent Interval for a chilling account of Saigon’s end. Anything by Bernard Fall is great, particularly Street Without Joy. And Graham Greene’s The Quiet American is equally superb as a book and as the recent movie with Michael Caine.
This month we’ve updated the A330/350, S-92, EH 101/US 101, Challenger 300, ERJ 145, C-212, MiG-29, and E-6. Enjoy winter and the somewhat less chilling arrival of QDR.
Yours, ‘Til 333 Airways Connects Dulles And Hanoi,
© Richard Aboulafia 1997-2006, All rights reserved.