Bubble Trouble? Some think airlines have ordered too many planes. Others disagree. Who’s right?
For some, 13 is an unlucky number. Not for plane builders though. For them, that’s the number of years now since their market last saw a big downturn. How much longer can the aircraft boom last?
The question was front and center at last week’s ISTAT Americas 2015 conference in Phoenix, organized by the International Society of Transport Aircraft Trading. There, many buyers and sellers of aircraft—including several airlines, most major leasing companies and both Boeing and Airbus—argued forcefully that market conditions remain strong, with few if any signs of distress on the horizon.
In the 10 years to 2014, Airbus and Boeing sold a combined total of nearly 20,000 airplanes, grabbing orders for at least 1,000 planes every year except 2009, when orders dropped below the 500 mark because of the recession. But even during that dark year, the aircraft market remained relatively firm thanks to valuable financing support from government export credit agencies. Conditions were thus not as grave as those witnessed in the aftermath of 2001’s 9/11 terror attacks. Since that time, the airline industry has seen its share of oil spikes, economic downturns, banking meltdowns, terror attacks, security scares, health epidemics and natural disasters. Still, worldwide air traffic growth, consistent with historical patterns, continued to outpace worldwide economic growth. And there’s no reason to think that long-term trend won’t continue. At the moment, Boeing and Airbus are actually increasing their pace of production, responding to airlines that are eager as ever to get the planes they’ve ordered. John Leahy of Airbus said at ISTAT that his giant backlog of orders consists of firm, non-cancelable transactions for which airlines are dutifully meeting their pre-delivery payment obligations. One leasing company after another reports historically low levels of delinquency with respect to their airline customers paying the rent on time. One major lessor, CIT, says finding homes for planes is easier than it’s ever been. Airline profitability is rising. Load factors are high. Financing is widely available, with low interest rates. And the percentage of parked planes is rather low.
In the meantime, far from losing value, some of the major aircraft…
The article you have previewed is premium content and available only to our paid subscribers. To continue reading become an Airline Weekly Subscriber today.
Click Here or the button below to sign up for a Free Trial.
Also Inside this Issue:
Not all is well in the lands of Lufthansa. Sure, the situation isn’t Air France/KLM bad. And sure, parts of the empire, such as Swiss, cargo and maintenance, are doing just fine. But at the center is a core Lufthansa-branded airline that’s not getting the revenue it needs to overcome high costs—not just vis-à-vis LCCs and Gulf carriers, but vis-à-vis rivals like British Airways, Iberia, Finnair and KLM too.
Its solution: internal labor arbitrage, whereby parts of the empire compete for growth on the basis of cost efficiency. It means Swiss gets B777s because lower-paid regional pilots will fly them. It means Eurowings is re-invented as a multitasking LCC deployed in Vienna with Austrian Airlines workers and intercontinentally with Sun Express workers. And so on.
But there’s a price to pay for this strategy: 15 days of scattered pilot strikes, with more perhaps to come. Even Air France’s strike lasted just 14 days, although all in a row and thus more costly. Norwegian’s pilot strike, for its part, finally ended last week after 11 days. But what didn’t end: worries about the viability of its grandiose ambitions, captured by its swollen aircraft order book.
There’s nothing swollen about Virgin Atlantic’s profits. But it’s at least not losing money anymore and is seemingly headed for even better days to come, hand in hand with its partner Delta.
Some airlines haven’t yet reported Q4 financial results. Among them: Gol, Aegean, Air Berlin, Garuda, Cebu Pacific, Philippine Airlines, El Al and the major Chinese carriers—plus Cathay Pacific and LAN/TAM, which will report Wednesday.
This issue is not currently online. To inquire about purchasing a copy, please email firstname.lastname@example.org.