11 FEB 2019
Avolon, the international aircraft leasing company, issued its 2019 Industry Forecast, titled ‘Buckle Up’. The paper, written by Avolon’s Head of Strategy Dick Forsberg, provides a review of 2018 while offering predictions for the industry in 2019.
Dick Forsberg, Head of Strategy, Avolon, commented: “While not at the recent record levels, 2018 represented the airline industry’s ninth consecutive year of profitability. While load factors continue to rise globally, airline profitability remains highly concentrated, with nearly half being allocated by North American carriers. Additionally, numerous airline failures over the last year have indicated that full planes are not always cause for celebration. This leads to the conclusion that, although supply and demand is nominally in balance, there are simply too many cheap seats being sold in the market and too few expensive ones.Continued oil price volatility will leave some less well hedged airlines exposed. In this fuel price environment, the most effective hedge against oil price movement for airlines is operating the most fuel-efficient fleets. For lessors, the ability to apply appropriate risk-management processes to their airline customers, and pick up early warning signs of trouble ahead, will be critical in determining success.”
• The airline industry will see a further moderate decline in profitability, although returns will remain above the gradually rising cost of capital
• There will be more airline failures, but aircraft demand and values will remain robust as capacity is quickly re-absorbed
• Supported by investment by “traditional” lessors, sale and leaseback transactions will gradually return to more realistic levels
• Insurance products will gain further ground in financing deliveries, with both European and US providers increasing their market shares
• Capital markets will maintain their growth trajectory, with continued ABS and EETC activity in 2019. New investors will continue to enter the market and partner with lessors to build aircraft portfolios
• The anticipated economic headwinds will require diligent risk management on the part of lessors, but attractive opportunities will arise for insurgents with access to liquidity
• Boeing will conclude its evaluation of the NMA and launch a mid-market family aircraft during the year
Relatório completo: https://dm1es2gjsclb...19_11:41:31.pdf
The widebody market remains under pressure, with over 80 cancelled orders during the year adding to sluggish sales and leasing demand to drive weaker pricing for even the most liquid models.
The Manufacturers After a last-minute sprint to the finish, in which Airbus booked 47% of their full year’s orders in December against Boeing’s 22%, Boeing took the lead with 988 commercial orders – well ahead of Airbus with 827, which included 135 A220s. Embraer booked around 200 orders, 80% of which were for E175-E1 variants, but it was a slow year for turboprop sales, with ATR and Bombardier each taking around 30 orders. The industry total of almost 2200 gross orders is the 2nd lowest level since the start of the recovery, below the 2017 number but ahead of 2016. However, Airbus reported over 80 cancellations and Boeing almost 200 during the year, with a further 194 lost at Embraer. These figures underscore the risk of over-egging production rates at this point in time. Nevertheless, both Airbus and Boeing continue to maintain substantial over-booking profiles, especially on their core single aisle products, which on average are over-sold by almost 10% for the next five years. The knowledge that not all orders will be delivered to their original customers allows this strategy to be sustained and has largely avoided whitetails. However, on this basis of order-taking, both single aisle programs are sold out until at least 2023, leading to persistent talk of further production rate increases to fulfil obligations to customers. Whilst beguiling, this is not the right course of action given the broader industry economic and financial backdrop. Like the airlines, the leading OEMs have long fallen prey to the Siren call of market share, eschewing the basic economic laws of supply and demand despite an oligopolistic market that has narrowed further as Bombardier, and likely soon Embraer, essentially withdraw from independent commercial airplane production (kudos to both, by the way, for developing efficient new aircraft that are increasingly in demand with operators and passengers alike). The widebody market remains under pressure, with over 80 cancelled orders during the year adding to sluggish sales and leasing demand to drive weaker pricing for even the most liquid models. Any remaining OEM ambitions to raise widebody production rates should be tempered by these market conditions, with rate cuts now a more likely, and desirable, outcome. The race for deliveries is also intense, resulting in a near tie in 2018, with Boeing at 806, just ahead of Airbus on 800. Both are record levels. In aggregate, the total number of commercial airliner deliveries topped 1800 for the first time. This increase, combined with the fall in net orders, caused the industry’s net book-to-bill rate to fall sharply, from 127% to 90%. Boeing will fly the 777-9 for the first time this year and must also make a decision on the future of the NMA, for which the launch window continues to narrow. Boeing out-sold Airbus in 2019, in both single and twin aisle segments, but still lags in the large narrowbody space where the MAX10 took only a handful of orders in 2018. Since the rate of 787-8 ordering has also given way to larger family members, the risk of cannibalising other Boeing products is low and the company will be strongly tempted to commit to the NMA, especially if additional engineering resources are forthcoming from the JV with Embraer. 2019 will also be the year in which the new Airbus management team is tested, not least potentially by the fallout from a hard UK Brexit, which will leave critical components in the supply chain under threat of disruption – not for the first time.