Airbus notched another win with an order for 22 A220s from regional-airline lessor Azorra, the first major order of the year for an airframer that reported a banner year last year, with more than 600 deliveries.
The Azorra deal cements the A220’s role “complementing” the A320 family, Airbus Chief Commercial Officer Christian Scherer told reporters last week during a call to discuss the company’s 2021 deliveries. Airbus expects demand for the aircraft to increase as airlines seek to replace aging jets at the lower end of the market. Last year, the airframer delivered 50 A220s, compared with 38 in 2020.
A stretched variant, the A220-500, is in the works, although when the program will formally launch remains uncertain. “It is not an imminent decision,” Scherer said. “It is a logical progression, and we have a lot milestones to achieve on that program,” he said, adding, “this is not an agenda item for a near-term decision.”
Allegiant Air‘s decision to walk away from the A220 was informed, in part, by the uncertainty of when the -500 would launch. The Las Vegas-based carrier’s decision did not affect Airbus’s decision to proceed with the stretched variant, nor will it affect the timeline. Allegiant also opted for Boeing’s 737 Max over the A320 because of the unavailability of delivery slots from the narrowbody. Scherer noted the Allegiant deal with Boeing was “opportunistic” based on timing and deliveries. “We have to accept that.”
Airbus, at current production rates, has an 11-year backlog for A320 deliveries, which CEO Guillaume Faury acknowledged is a problem. But he noted that the 11-year backlog is based on 2021 production rates, and the airframer plans to ramp up production to more than 60 A320s per month within a couple of years. As the production rate increases, the delivery backlog will fall, but it is premature to update the numbers until production firmly rises, he said.
However, airlines that want A320s direct from Airbus will face long waits, Scherer said. The solution, in the near- and medium-term will be for airlines to acquire aircraft from lessors, which Airbus has been working with to iron out delivery problems. But this only applies to the A320 family, he stressed. Customers should not face long wait times for Airbus widebodies or A220s.
During 2020 and 2021, Airbus’s supply chain struggled to keep up with the airframer’s ambitious production targets, as they downsized in response to the Covid-19. After spending much of last year working with suppliers, Faury is confident the supply chain will be up for the increase in demand.
The spread of Omicron variant, and staff shortages at both Airbus and suppliers, is “an area of concern,” he said. So far, production has not been affected enough to push deliveries back. Lockdowns in Tianjin and Xian, two cities with large Airbus and supply-chain presences, also have not adversely affected manufacturing — yet. “We are monitoring the situation very closely,” Faury said. “We are on track to achieve our ramp-up plans.”
Nor has the shortage of semiconductors yet affected Airbus or its suppliers. Faury said the shortage has been most keenly felt by manufacturers of consumer goods and cars and has not yet affected aerospace. “There are no systemic issues with semiconductors in aerospace at the moment,” he said.
Airbus expects 2022 to be a year of “transition” out of the industry’s Covid-19 footing and back to more normal growth. The airframer did not expect to such a strong year last year. It started 2021 expecting a repeat of 2020, but demand for its products started to snowball starting in the summer, Faury said. “Many of our customers are now looking beyond Covid, and I think that’s good news.”
Airbus is happy with the aircraft program it launched last year, the A350 freighter variant. It has recorded 22 orders for the type so far. Faury acknowledged that the airframer is playing catch up with Boeing on freighters. “We responded to market feedback with the launch of the A350 [freighter].”
As for the other reason why the A350 is in the news, Faury was relatively quiet. Qatar Airways is demanding $618 million in damages for what it says are paint problems and surface erosion on its A350 fleet. Airbus counters that there are no problems that would affect flight and said it will fight the charges in court. The spat has not affected A350 production, he said, noting, “I have nothing more to add.”
Airbus delivered 611 aircraft last year, 8 percent more than in 2020. In addition to the A220s, it delivered 483 A320-family aircraft; 18 A330s; 55 A350s; and five A380s. Airbus reported 771 orders, or 507 net of cancellations. Orders include: 64 A220s; 661 for A320-family aircraft; 30 A330s; and 16 A350s, including 11 A350Fs.
These orders do not include the 100-aircraft order from Air France-KLM, which will be counted in this year’s orders after the deal is firmed up, Faury said.
Aircastle Reports Stronger Quarter as Airlines Turn to Lessors For Fleet Needs
The pandemic brought new prominence to the aircraft leasing industry, as airlines, with their balance sheets battered by the crisis, increasingly have turned to lessors to supply their aircraft needs. But this prominence could accelerate a wave of consolidation in the industry, Aircastle CEO Michael Inglese said.
The wave has already started, with the $30 billion merger of Aercap and GECAS last year. Aercap CEO Aengus Kelley last year said the sector is ripe for further consolidation. Inglese agrees. “We will see more consolidation in the lessor space as the industry grows and matures over the balance of this decade,” he said during the lessor’s most recent fiscal quarter results call. “And I think we’ll be positioned to play in it, if and when we find the right opportunity.”
Consolidation comes at a good moment for the lessors. Before the pandemic, lessors accounted for 40-45 percent of the global fleet. Now, aircraft owned by lessors comprise 60-65 percent of the world’s aircraft, a percentage most expect only to grow. Part of this is financing. Lessors are better able now to raise money, and banks are more likely to see lessors as a safer bet than airlines struggling with the pandemic.
Part of this also a shift in the way airlines view lessors. “Leasing is not any longer a poor airlines’ choice for financing,” Air Lease Corp. Executive Chairman Steven Udvar-Hazy said at the Skift Aviation Forum in November. Even financially healthy airlines like Delta Air Lines see lessors as an increasingly attractive way to finance aircraft purchases, he said.
And part is aircraft availability. Inglese noted that demand remains robust — and is continuing to grow — for next-generation single-aisle aircraft, like the Airbus A320neo family and the Boeing 737 Max.”The speed of the recovery has brought about a surge in demand for new technology narrowbody aircraft,” he said.
But both airframers have huge backlogs for those jets. At current production rates, an airline would have to wait up to 11 years for an A320 ordered today. Airlines that need those narrowbodies soon should turn to lessors or face very long waits, Airbus Chief Commercial Officer Christian Scherer said last week (see story above).
Airbus has ambitious plans to ramp up production of its A320-family aircraft, but Inglese is skeptical that the airframers, Boeing included, can achieve their goals. “I don’t think many people who don’t work at Airbus or Boeing are believing that, given what’s going on in the world in the context of supply chain and how that can get ramped,” he said.
Although Inglese was bullish on the demand for new aircraft, he was cautious about the industry’s overall recovery. Air travel demand is picking up in Europe, North America, Latin America, and domestic Russia and Australia. But Southeast Asia, where Aircastle has some exposure, remains largely shuttered. Most recently, the lessor is working with Garuda Indonesia, which declared bankruptcy and returned three aircraft to Aircastle, on lease deferrals. Overall, deferrals are down. Aircastle’s strategy is focused on lease extensions and other measures to aid airlines, like Garuda, that are facing headwinds, Inglese said.
The Omicron variant has put a damper on the recovery, although Inglese said government reactions to the variant “present a significant risk” to the airline industry. “If we’ve learned anything from the past two years, making predictions during the pandemic is difficult,” he said. “So the only assurance I can make today is that Aircastle remains vigilant, nimble and is focused on collecting cash and supporting our customers. The Omicron variant will pass, and our long-term perspective on the industry remains positive.”
Aircastle reported lease revenues for its most recent fiscal quarter were up 13 percent from the previous quarter, a sign of the industry’s upward trajectory, Inglese said. Revenues were $191 million, and the lessor reported quarterly cash flows were up 118 percent compared with the same quarter in 2020. Aircastle reported a net loss of $62 million, which includes $45 million in aircraft impairment charges.
Fleet Briefs
- Boeing delivered 340 aircraft last year, or just a little more than half of what Airbus delivered. Boeing delivered 263 737-family aircraft, seven 747s, 32 767s, and 24 777s. It only delivered 14 787s, as the FAA has mandated more inspections for the type (a delivery delay that has raised the ire of lessors and caused some airlines, like American Airlines, to trim schedules). It’s been a rough couple of years for Boeing. Despite the win of the Max recertification, its other programs have been plagued with delays, like the 787, or are snarled in regulatory limbo, like the 737-7 and -10 and the 777X programs.
- Wait, what now? The FAA has laid out conditions for FedEx to install anti-missile lasers on Airbus A321s. FedEx applied for the permit to install lasers to deflect heat-seeking missiles. FAA, in its notice, acknowledged that several civilian aircraft have been targeted by shoulder-mounted heat-seeking missiles, but the agency also pointed out the obvious. “FAA design standards for transport category airplanes did not envisage that a design feature could project infrared laser energy outside the airplane,” the agency said of the A321. “The FAA’s design standards are inadequate to address this capability.” Among the conditions FAA called for are safeguards that the lasers aren’t activated inadvertently or in populated areas, and that the system does not damage the airframe.