Airbus Readies For a Banner 2022
Airbus brushed off concerns about its supply chain and said it expects to deliver more than 700 aircraft this year, up from 611 this year. The airframer added that it will decide by the middle of this year on how much further it can increase production, particularly of its fast-selling A320-family of narrowbodies.
By the end of last year, many of the supply-chain issues that had troubled Airbus in 2020 and early 2021 were behind it, CEO Guillaume Faury told investors last week. Suppliers were snapping back from being idled early in the pandemic and were standing up their workforces. But still, the airframer acknowledged that some issues are intractable. The labor market is tight, logistics remain snarled, and the price of raw materials is rising.
Faury acknowledged that the bottlenecks affected 2021 production but was optimistic that the airframer can handle its targets this year. “We are ready,” he said.
Airbus is planning to deliver 720 aircraft in 2022, up about 20 percent from last year. “We think we can do it, which is why we guided,” Faury said, adding that more than 720 would be “difficult.”
To achieve that goal, the airframer is raising production rates across the board. The A220 will go up to 14 aircraft per month by the middle of the decade. The A330 ramps up to three aircraft per month by the end of this year. And the A350 will build to six aircraft per month by early next year.
By far, however, the biggest and most challenging ramp will be for the A320 family, which will go to 65 aircraft per month by the middle of next year. To help achieve this, the company is making all its production sites capable of assembling the A320.
At the end of the year, Airbus’s backlog stood at more than 7,000 aircraft, which last year the airframer said could take more than 10 years to clear at current production rates.
Much of that backlog, of course, is for the A320neo-family. Faury noted that demand for next-generation narrowbody jets is soaring and is likely to stay high as the world recovers from the pandemic. The airframer believes regional and domestic travel will continue to rebound, but Faury was less bullish on the near-term prospects of long-haul travel. “The pandemic is not yet fully behind us,” he said.
The airline industry is “gradually emerging,” however, although Faury said the surges caused by the Delta and Omicron virus variants illustrated that the recovery is volatile and “won’t be linear.”
How the airline industry recovers longer term is key to Airbus’s mid-year decision on production rates for 2025 and beyond. Demand is “still quite strong and could go quite high,” he said. In which case, the airframer must balance demand with the capabilities of its supply chain. But the airframer is focused on whether that near- and medium-term is sustainable, Faury said. “Otherwise, it would be meaningless for us [to increase production rates].”
Another sign of the recovery is that Airbus last year was able to re-market about 100 aircraft that had been cancelled by airlines earlier in the pandemic.
Airbus reported revenues of €52.1 billion ($59.2 billion), up from €49.9 billion in 2020, generating adjusted earnings before interest and taxes of €3.6 billion, compared with €618 million in 2020. Adjustments included €1.1 billion in Covid-related costs. The airframer delivered 611 aircraft in 2021, including the last A380 to Emirates. Gross orders were for 771 aircraft, and including cancellations net orders were for 507 aircraft, compared with 268 net orders in 2020.
ALC Reports Record Revenues on Strength of Narrowbody Demand
Air Lease Corp. no longer hopes for an inflection point for the global airline industry’s recovery. Instead, the lessor thinks that point has passed and the industry is well down the road back to health.
The recovery began in earnest in the second half of 2021, and although the recovery will not be linear, the industry is on the right trajectory, Executive Chairman Steven Udvar-Hazy said last week.
As ALC has said before, the world’s airlines are clamoring for single-aisle aircraft, driven now by climbing fuel prices. The lessor has ordered 50 Boeing 737-8s and -9s for delivery between 2024-2026. “The passenger stigma has largely dissipated,” Udvar-Hazy noted. Most of these aircraft already have been placed. ALC also finalized its 116-aircraft order with Airbus, the lessor’s largest-ever single order. These include 25 A220s, 59 A321neos, 20 A321XLRs, five A330-900s, and seven A350Fs — the last being ALC’s first order for dedicated freighters.
Although ALC expressed confidence that the airframers can produce enough single-aisles to satisfy demand, CEO John Plueger noted that Airbus is basically sold out of delivery slots for its A320 family and Boeing soon will be for the 737 Max. “Demand for new single-aisle aircraft from our order book is accelerating with diminishing supply and future availability from both Airbus and Boeing,” he said. “We are, of course, watchful of OEM supply chain stress and any other production constraints that may impact our forward deliveries over the next several years.”
ALC is no stranger to delivery delays. Airbus has delayed delivery of A321s, and Boeing continues to struggle with the 787 (see below). ALC had planned to take delivery of 10 787s this year, but now expects only one. The lessor has converted three 787 positions to 737 Maxes, Plueger said.
The lessor is not giving up on widebodies. Demand will return, especially given that the world’s airlines have retired about 300 widebodies since the pandemic began, Udvar-Hazy said. ALC is focusing on what it calls “narrow” widebodies — A330-900s, A350s, and 787s. Airlines will continue retiring older widebodies or converting them to freighters.
Although ALC is encouraged by the recovery of domestic and regional passenger demand, international long-haul demand remains an area of concern, particularly in Asia. The reopening of Australia, India, New Zealand, and Vietnam are hopeful signs. But China remains shut, and this is a concern. “We are mindful that full recovery of the global airline industry will not happen until we see accelerated international travel recovery,” Plueger said.
Last year, ALC was the launch customer for the A350F. Udvar-Hazy said ALC had long considered jumping into the freighter market, but was convinced by the explosive growth in the sector during the pandemic. The lessor believes e-commerce will continue to grow and will drive demand for even more freighters. ALC plans to convert several of its A330s to freighters between 2023-2027, he said.
“E-commerce provides a stabilizing factor that was missing in the more volatile air freight marketplace in prior decades, and continued bottlenecks at container shipping ports globally also has vitalized air cargo demand, and we do not really see the situation abating,” Udvar-Hazy said. “So we felt it was time to make a move into this marketplace by sticking to our philosophy of ordering the most technologically advanced and the most fuel efficient aircraft with the new A350 freighter.”
ALC took delivery of 53 aircraft last year and has placed more than 99 percent of its portfolio. The lessor reported $597 in fourth-quarter revenues, 22 percent higher than 2020, and $2.1 billion for the full year, record-setting revenue for ALC both in the quarter and the year.
“As the Delta and Omicron variants have shown us, we cannot control each phase of this recovery, but we are moving in the right direction,” Udvar-Hazy said.
FAA Tells Boeing it Will Do Final 787 Certifications
The FAA told Boeing that it, and not the airframer’s inspectors, would issue airworthiness certificates for 787s, a reversal of the longstanding industry practice.
“The FAA informed Boeing that the agency will retain the authority to issue airworthiness certificates for all Boeing 787 Dreamliner aircraft,” the FAA said last week. “This will allow the agency to confirm the effectiveness of measures Boeing has undertaken to improve the 787 manufacturing process.”
FAA added that it will retain this authority until it is confident that Boeing’s manufacturing processes and plans for re-work of already built 787s meet its standards.
“We respect the FAA’s role as our regulator and we will continue to work transparently through their detailed and rigorous processes,” a Boeing spokesman said. “Safety is the top priority for everyone in our industry. To that end, we will continue to engage with the FAA to ensure we meet their expectations and all applicable requirements.”
Boeing delivered only a handful of 787s last year, halting deliveries after the FAA raised concerns about what it said were production quality issues. The delays have caused some customers — like American — to trim their long-haul schedules, and has cost Air Lease Corp. $500 million, the lessor’s Executive Chairman Steven Udvar-Hazy said.
At the end of last year, Boeing had 110 787s waiting for delivery. Neither the FAA nor Boeing offered a timeline for when deliveries might resume. However, some customers have said they expect 787s deliveries to begin again in the second quarter of this year.
Airbus Predicts Return of Strong Asia-Pacific Demand Post-Pandemic
The Asia-Pacific region will get past its current doldrums and return to leading the world in air transport growth. The region will need 17,620 new aircraft by 2040, Airbus predicts in its latest forecast.
That’s hard to see now, however. The region is beset by some of the world’s most stringent travel restrictions, with industries like tourism recovering haltingly and unevenly throughout the region. Countries with large domestic markets, too, are seeing uneven recovery. Arlines in India are paring back spring schedules in response to the softening demand due to the Omicron variant’s spread, while China’s “zero-Covid” policy has essentially reversed much of the domestic-market strength seen in that country earlier in the pandemic, IATA data show.
But despite these short-term travails, Airbus believes the region’s inherent demographic strengths will fuel demand for air travel — and therefore, aircraft. The region is home to 55 percent of the world’s population. But more strikingly, its economic output is expected to grow by 3.6. percent per year, stronger than projected global GDP growth of 2.5 percent per year between now and 2040. The emerging middle class in the region is forecast to grow by 1.1 billion people to 3.2 billion, tripling what Airbus calls “travel propensity” in the period.
“We are seeing a global recovery in air traffic and as travel restrictions are further eased the Asia-Pacific region will become one of its main drivers again,” said Christian Scherer, Airbus chief commercial officer. “We are confident of a strong rebound in the region’s traffic and expect it to reach 2019 levels between 2023 and 2025.”
Air travel demand is expected to grow by 5.3 percent per year over the next 20 years. This is slightly rosier than Boeing’s recent forecast, which predicted passenger traffic to grow by 5 percent per year through 2040, although the two airframers forecast roughly the same number of new deliveries the region will require in the period. Boeing further believes that the region will account for half of all global air travel by 2040.
Of the 17,620 aircraft Airbus Airbus forecasts countries in the Asia-Pacific region will need, the majority — 13,360— will be single-aisle aircraft like the A320-family. Of these, 30 percent will be replacement aircraft for older, less-efficient models. The region will fuel 42 percent of demand for larger aircraft, Airbus said, translating into 2,470 medium-sized and 1,490 large aircraft.
Cargo traffic, meanwhile, is expected to grow by 3.6 percent per year, compared with 3.1 percent globally. Package freight will by almost 5 percent per year in the region, as consumers shift their retail habits. Airbus sees these trends driving demand for 2,440 freighters by 2040, 880 of which will be new-build aircraft.
Airbus forecasts the world will need 39,000 new aircraft, including freighters, by 2040. Of these, 15,200 will replace retiring aircraft, with the balance going toward air transport growth. Boeing, by contrast, believes the world will need 43,610 aircraft by 2040.
Freighters Steal The Show in Singapore
The world’s airlines seem to have an almost insatiable demand for freighters. That’s not a surprise, given the startling growth of air cargo traffic since the pandemic began. Airlines are convinced now that what had seemed like a way to generate revenue while passenger demand was in the doldrums now is here to stay as a critical part of their business and no longer an afterthought or adjunct.
The Singapore Air Show last week. Airbus notched orders for its new A350F: Seven from Etihad (letters of intent) and seven from Singapore Airlines (although these were firming up letters of intent announced earlier).
Meanwhile, Boeing announced that Western Global Airlines has ordered two 777Fs, the carrier’s first new-build freighters. Western Global operates a fleet of 21 747-400Fs and MD-11 freighters.
And separately, lessor CDB Aviation said it will add 12 Airbus A330-200P2F conversions from EFW to its fleeting, bringing its total of the type to 14. The lessor will place the conversions with Sichuan Airlines and Jiangxi Cargo Airlines.
Atlas Beefs up Widebody Fleet in Anticipation of Continued Cargo Strength
Atlas Air Worldwide is not concerned that belly-hold cargo may eat into its business once international passenger traffic recovers. First, most forecasts hold that the transatlantic market will recover before the transpacific market, which is more important to shippers. Second, when transpacific passenger markets recover, flights are likely to be point-to-point and not to cargo hubs, and especially not in large numbers to emerging cargo hubs like Vietnam, CEO John Dietrich said. Before the pandemic, the air freight market was roughly split between belly-hold and freighter traffic. Now, about 70 percent of freight is transported in freighters. Dietrich believes even after the world fully emerges from Covid, more freight will be carried by freighters.
Maritime snarls don’t hurt, either, he said. Air freight offers shippers clarity, so they may be more willing to pay higher cargo rates for the reliability of air freight, and seek cost savings elsewhere in manufacturing, even after the pandemic recedes, Dietrich said. And Dietrich is not convinced passenger traffic to China will return to pre-pandemic levels.
Atlas is putting its money where its mouth is, betting on the continued strength of freight with more widebody freighters. The carrier is taking delivery of one Boeing 777-200F this year, with three more to follow next year. It has placed all four of the 747-8Fs it ordered. And it is buying six 747-400Fs as they come off lease, and could buy five additional of the type as they come off lease. Atlas reactivated one stored 747-400F in December. Atlas could opt to buy more 747-400Fs as they come off lease if cargo demand warrants the expenditure, Dietrich said.
The cargo carrier reported a record fourth quarter, with $1.2 billion in revenues, generating $177 million in net income. For the full year, Atlas reported $4 billion in revenues, also a record, and a net income of $551 million. Atlas expects to generate $1 billion in revenue in the first quarter.
“We’re excited about the future, and, frankly, quite pleased with the results we reported,” Dietrich said.
- Malaysia Airlines signed a deal with Air Lease Corp. for 25 Boeing 737-8s, which will join the fleet from next year through 2026. “After a detailed tender process in the last quarter, we are pleased to appoint ALC as the aircraft lessor for our Boeing 737-8 fleet,” Malaysia Aviation Group CEO Izham Ismail said. “This exercise is tied to the restructured terms of our existing orderbook with Boeing.”
- American has ordered three more Embraer E175s for its Envoy subsidiary in a deal valued at $160 million at list prices. Deliveries are scheduled for this year. Envoy will operate 100 E175s following the arrival of the aircraft.
- Canadian budget startup Lynx Air took delivery of its first aircraft, a Boeing 737-8, on February 14. The arrival followed a sale-and-leaseback with Aergo Capital for its first three aircraft, all Maxes. CarVal Investment funds provided equity funding for the deals, AV AirFinance arranged the debt. The deals are Aergo’s first for the 737 Max.