Financiers at the center of a $200 billion industry that underpins airline fleets are meeting to discuss a host of macro issues, from China’s return to travel, to a shortage of narrow-body planes as that dilapidated supply chains are delaying new aircraft deliveries.
Financiers at the center of a $200 billion industry that underpins airline fleets are meeting in Dublin this week, betting that China’s move to free travel will speed their recovery from a pandemic downturn, while warning of a shortage of jets.
Three years after the spread of Covid-19 grounded thousands of airliners, demand for air travel is booming again, boosted by Beijing’s decision last month to end its zero Covid policy.
In a report on Monday, the world’s second-largest aircraft leasing company, China’s Avolon, predicted that global traffic would return to pre-pandemic levels as early as June this year – months earlier than the most industry players never anticipated.
The International Air Transport Association, which represents global airlines, predicts a full recovery in 2024.
“After a 70% recovery in passenger traffic last year, led by Europe and North America, Asia will drive growth in 2023, helped by the recent reopening in China,” Avolon said.
Data so far suggests Chinese are resuming travel ahead of Lunar New Year, despite concerns over infections after Beijing ended restrictions last month, with passenger traffic jumping to 63% from levels of 2019 since the start of the annual travel season.
Others are not so optimistic.
“Airlines are not dramatically increasing their frequency to China. It’s going in the right direction but… it’s going to take time,” said aviation adviser Bertrand Grabowski.
The crippling impact of Covid-19 has seen dozens of airlines go bankrupt and wiped billions of dollars off their balance sheets.
In a sharp reversal, the industry’s biggest worry now is having enough narrow-body jets, which are the most widely used, to meet demand, as supply chains in difficulty are delaying deliveries of new aircraft.
On top of that, severe bottlenecks at maintenance, repair and overhaul (MRO) plants are hampering efforts to keep existing jets in regular service or retire others.
“The main thing is the MRO; they are totally full,” Grabowski said, adding that the stored planes needed thorough checks.
In public, airlines and leasing companies have lamented delivery delays and are likely to pressure aircraft manufacturers for compensation.
Privately, many airline executives acknowledge that the shortages have allowed them to keep airfares higher to help rebuild balance sheets, cushioning them against fears of a recession.
The same goes for aircraft rentals billed by lessors, some of which have on average increased by double-digit percentages over the past 12 to 24 months for a variety of reasons, according to Rob Morris, global head of consulting at Ascend by Cirium.
At the same time, a host of macroeconomic concerns are keeping delegates on edge ahead of the annual Dublin conferences hosted by Airline Economics and Airfinance Journal this week.
Inflation is pushing up parts and plane prices, while raising questions about the resilience of travel demand.
With interest rates rising to fight inflation, leasing companies have to pay far more to pay off heavy debts inherited from a years-long jet order boom.
All airlines are facing volatile oil prices, and those in most emerging markets are facing a sharp increase in the cost of dollars needed to pay for aircraft rental and fuel.
This is all happening as the industry seeks to implement and pay for pledges to achieve net zero emissions by 2050.
This week’s gathering of more than 2,000 financiers, lessors, investors, airline bosses and manufacturers will spawn hundreds of private meetings to secure financial backing for newly delivered planes or to find new homes for old ones.
It is an annual rite for the specialist and mainly Irish-based industry, started by the late leasing tycoon Tony Ryan, whose empire rose and fell between the 1970s and 1990s to be rebuilt under the current market leader, AerCap.
Overall, more than half of the global airline fleet is controlled by global leasing companies rather than owned directly by the airlines.
Reporting by Tim Hepher and Joanna Plucinska; Additional reporting by Conor Humphries and Padraic Halpin; Editing by Bradley Perrett.
This article was written by Tim Hepher and Joanna Plucinska of Reuters and was legally licensed through Industry Dive Content Marketplace. Please direct all licensing questions to [email protected].