'Most aircraft on order will deliver': Moody's

Source: Flightglobal.com
This story is sourced from Flightglobal.com

Moody's Investors Service believes the market's "strong demand" for aircraft is justified and talks of over-ordering are premature.

"Orderbooks are more diversified in terms of customers and geography than before, casting further doubts on the market notion of an order bubble," says Moody's Investors Service in a research note today. "Even with the risk of an uptick in deferrals during the second half of the decade, we believe most aircraft on order will deliver."

According to Moody's, orders and commitments for new aircraft have yet to "take the breather that many in the industry have been expecting", and activity should "cool off in a more noticeable way over the next year or so."

The ratings agency admits it has "modest concerns" about some of the larger, one-off orders placed in recent periods by "less creditworthy, low-cost carriers", but it believes that most of the strong demand for existing and next-generation aircraft by airline customers is "wholly warranted".

"Because of capacity discipline and the effects of consolidation, yields should remain favourable and contribute to ongoing improvement in overall airline profitability."

Airbus and Boeing, each booked orders totalling approximately $70 billion at the recent Paris air Show, about half of which were firm orders, says Moody's.

"Although actual selling prices are usually discounted by about 50% on average, these lofty values were more than double prior-year levels as more of the newer, more expensive widebody airframes were represented in this year's take."

Moody's believes the larger narrowbody category will continue to "rule the skies", but twin-aisle aircraft will grow at a "much faster clip", albeit off of a much lower base, and contribute "most significantly" to its expectations of accelerated revenue and cash flow growth.

Moody's notes with jet fuel costs remaining at "lofty levels" and representing upwards of 30% to 40% of total operating costs, versus 10% to 15% five to 10 years ago, and a much larger component of flying costs, "there is an increased willingness on the part of carriers to replace existing aircraft sooner in order to realise operating efficiencies."