Boeing’s 737 Max “will safely return to revenue service” in 2020, Avolon has predicted in a new report, but the lessor expects “turbulence” in the aviation industry amid geopolitical uncertainty and rising environmental concerns.
“While in 2019 we buckled up, in 2020 we will navigate through turbulence,” states Dublin-based Avolon in a 2020 outlook report published on 19 January. “The fog of geopolitics will continue, with hot spots abounding, from US trade confrontations, escalating tensions in the Middle East and unrest in Hong Kong.”
The “flight shame” movement, whereby passengers shun air travel in order to reduce their personal carbon footprints, “was a meaningful drag on growth for air travel in northern Europe” last year, and the airline industry “must be relentless in its efforts to continuously improve” efficiency and “communicate its progress to the flying public”, argues Avolon.
Despite these headwinds, Avolon sees opportunities ahead – particularly for aircraft leasing companies.
“Lessors are now firmly in the majority when it comes to taking delivery of new aircraft. Half of Airbus and Boeing deliveries were to lessors in 2019, either from direct orders or through sale-leasebacks,” states the report. “With more than $150 billion of new aircraft financings required in 2020, lessors will continue to be vital partners for airlines and manufacturers.”
Avolon expects that capital markets “will remain open” to established lessors, and that the asset-backed securitisation (ABS) market “will see strong demand for issuances in 2020, continuing its 2019 pace”.
While there were “more than 20” airline failures last year, by Avolon’s count, it believes that the 400 aircraft operated by these carriers were “redeployed efficiently” by lessors. Airline net profits “remained robust” in 2019, at an estimated $26 billion, and are set to improve further, despite the fact that “several sizeable carriers remain on life support” and the price of jet fuel “remains uncertain”, adds Avolon.
Reflecting on the pressures faced by Boeing in 2019, following the Max’s grounding in the wake of two fatal crashes, Avolon forecasts that 2020 will bring “an opportunity to overcome the challenges of the year gone by”.
“The 737 is here to stay,” the lessor asserts. “Boeing’s 737 Max will safely return to revenue service in 2020. Airlines and passengers will turn up to fly. Trading markets will reopen and values will be supported by strong demand for Boeing’s most popular product.”
Avolon does not expect any new major aircraft programmes to be launched this year, as Boeing focuses its efforts on getting the Max back in the sky and Airbus picks up more orders for its A321XLR.
“The A321XLR will compete uncontested as Boeing will not launch the NMA [New Mid-market Airplane] in 2020,” writes Avolon. “Talk of single-aisle replacement aircraft will be quieted as regulators verify the strengths of the current offerings.”
Nevertheless, the lessor foresees that talk of Boeing’s NMA, which “quieted to a whisper in 2019”, will become louder later this year as “the reverberations of Airbus’s XLR are felt”.