Rise in aircraft production driven by demand: Udvar-Hazy

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Aircraft production rates may be going up, but there is an "equilibrium" between supply and demand supporting this, Steven Udvar-Hazy, chairman and chief executive of Air Lease Corp told Flightglobal at the sidelines of the ISTAT Asia conference in Singapore.

While there are some concerns among leasing companies about possible over-production and the impact this would have on the value of their existing assets, Udvar-Hazy believes that growing demand and the need to replace older aircraft is fuelling the increase in rates.

"I always worry about production rates, but at this point, I see an equilibrium between supply and demand that backs it up," he adds. "Every year, around 800 aircraft need to be replaced all over the world. A lot of the new aircraft will be needed to replace those that are being retired, and rising demand picks up the rest."

In Asia, and China in particular, he said that the new orders are to rejuvenate fleets that have a very high average age and aircraft that are no longer economical to operate.

"In the last 12 months, we have done more leases to China than any other company," said Udvar-Hazy. "We see airlines in Asia using 737-800s, for example, to replace 737 Classics or even older aircraft. They do this to get more fuel efficiency, and reduce maintenance and operating costs. That will continue to happen."

Aircraft with buoyant demand and solid economics such as the Airbus A330, A320 and A321, the Boeing 777-300ER and 737-800, and Embraer 190, will do better than others in retaining their residual values, he adds.

The planned introduction of the A320neo and 737 Max in 2016 and 2017 respectively will not make a big dent initially on the values of current A320s and 737NG aircraft, he said.

"They will come in slowly and there will be a large number of the existing aircraft in the market at that time. So there will be no big impact on values," added Udvar-Hazy.