Manufacturer production rates in an unpredictable economic environment are a growing concern among aircraft appraisers speaking at today's ISTAT conference in Barcelona.
"There have been a lot of aircraft retirements and as long as traffic growth stays over 5%, the OEM forecasts are reasonable. But if GDP slows down, traffic falls off, and we get into a double-dip period, we could have a situation where they will be a lot of pressure not to increase production rates," says Doug Kelly, vice-president of asset valuation at Avitas.
"We are betting on a probable decision not to increase production rates," he adds.
Kelly says that the industry is at record backlog. According to him, there appears to be a bubble forming in terms of orders, but still the situation remains sustainable at the moment.
AVAC founder and managing director Paul Leighton recalls that production rates were also high 15 years ago. "We need to put this into the right context and production rates are less of a percentage of the total fleet today."
IBA Group's president and chief operating officer Phil Seymour says OEMs can play with production rate numbers over the long-term, but "the more standard the aircraft, the better."
Ascend director and head of valuation services Les Weal says an increase in production rates is cannibalising the secondary market. "The push up in frequencies of younger aircraft to be parted out will bring down the useful life the aircraft," he comments.
"Airbus and Boeing are increasing production rates on the A330 and 777 but this is proper demand driven," he says.
But on the narrowbody sector he does not rule out the possibility of a delay on a decision to increase production rates. "OEM could postpone a decision, maybe by on year, particularly as traffic figures for 2012 are looking grim."
In July, Airbus confirmed that it is still looking to increase build rates on its A320 line to 44 aircraft per month. It currently has plans in place to increase the rates to 42 per month. But earlier this week, Airbus said it is taking an initial look at requirements for increasing A320 production to an extraordinary 50 aircraft per month
Boeing Commercial Airplanes' chief executive officer Jim Albaugh has asked his product development team to examine what it would take to ramp up the 737 final assembly line to 60 aircraft per month. Boeing is currently advancing its 737 output from 31.5 per month to 42 per month through a series of record rate increases that will take the airframer to 35, then 38, before arriving at its plateau of 42 in the first half of 2014.