As the industry convened in Orlando this week for the ISTAT Americas conference, the head of CDB Aviation says the downturn has begun.
"So many of the carriers taking deliveries from the OEMs are in such a fragile state," chief executive of CDB Aviation Peter Chang told an audience during a panel at ISTAT Americas in Orlando on 12 March. "I think this is the beginning of the downturn."
Weaker and more marginal players have gone bankrupt or liquidated over the past few years. In 2019, already several airline restructurings are underway, while other airlines teeter on the brink as they report negative financials.
For instance, India's Jet Airways, which awaits restructuring approval, has grounded much of its fleet due to late lease and debt payments. The carrier has 142 aircraft on order, Cirium's Fleets Analyzer shows.
Norwegian, which operates low-cost, long haul operations posted net losses for 2017 and 2018, and some question whether the airline will survive 2019. It has 185 aircraft on order with the manufacturers, according to Cirium data.
"I think we're probably past the peak of the airline cycle," SMBC Aviation Capital chief executive Peter Barrett said during the panel, adding that low fuel prices, low cost of capital and traffic demand have facilitated a protracted period of growth.
Over the last four years, airlines have recorded in excess of $30 billion in profits globally, IATA data shows. As of December, the body was projecting a net profit of $35.5 billion for 2019, higher than its revised figure of $32.3 billion for 2018.
But Barrett was also reluctant to call the cycle, noting that it is usually some exogenous factor that forces the aviation downturn.
"We're in a cyclical business," GECAS chief executive Alec Burger told the audience. "We've benefited from a very healthy expansion... nothing goes on forever."
Noting that global growth and traffic projections remain robust, Air Lease chief executive John Plueger says the downturn will be less pronounced than in previous cycles. "I would fall way short of expressing any kind of deep cyclical downturn."
Along with comments about the cycle, lessors continue to note fierce competition due to a surplus of liquidity that has shown no sign of abating over the past few years. This competition has driven yield compression on lease rentals.
"Returns are definitely being squeezed in the last two or three years," says GECAS's Burger. "At some point that will be the catalyst that drives some of the players out of the industry."
Barrett notes that lower returns are due to the fact that aircraft leasing is a maturing business. "There was less capital back in the day," he said. "More players are what you would expect from an industry that is maturing, and you'd expect it to be more competitive."
Source: Cirium Dashboard
