Double counting orders to lead to a recession

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The guessing game about whether the United States will head into recession is over.


“Recession will happen, trust me, ”said Avitas’ senior vice president Adam Pilarski at the 25th ISTAT conference in Orlando.


Pilarksi reminded the audience of cyclical patterns. “There are times when the industry prospers, but don’t forget that there are other times when the industry is in a downturn,” he comments.


In a detailed presentation, Pilarski drew some parallels with the economic situation 20 years ago in the airline industry. Pilarski recalls the late 1980s when orders passed the 1,000 mark three years in a row. “Then in the early 1990s, we had a crash,” he says.


Pilarski blamed the leasing companies for ordering aircraft in addition to the airlines.


“The bubble burst because we had double counting on orders. Airlines continued to orders, but so did the operating lessors. Operating lessors forgot to tell the airlines not to order aircraft and this resulted in many orders for the same demand,” he says.


According to Pilarski, the backlog/fleet ratio was about 40% in 1990 and is now at around 45%. “The backlog/fleet ratio is definitely higher than in 1990 and to me this is a sign of a bubble bursting,” he adds.


This time around Pilarski blames the demand emerging from the Middle East. “Heavy investment by Middle East carriers in aviation is one of the reasons. This time these Middle East carriers have forgotten to ask incumbent carriers not to order. Again we find ourselves in a ‘double counting’ situation.,” he states.


As to when the recession will occur, Pilarski admits he does not know. “However I am confident the bubble will burst because they are too many orders. I expect some sizeable cancellations,” he concludes.