Viewpoint

Business booming for commercial jets

“The commercial jet market is booming,” claims Bert Van Leeuwen, head of aviation research at DVB Bank. “Last year we saw an all-time record in terms of new orders for almost 3,600 new jets.”

In his video address to the industry for November, Van Leeuwen highlights that while people expected the market to slow this year, it “hasn't really”.

Thankfully, airlines are doing well. “They’re making money, which is quite exceptional in our industry,” he says.

Fuel costs are comparatively low, financing is cheap and easy, and the A320 family aircraft and 737 (which are taking the lion's share of orders) offer a step change in terms of fuel efficiency. Carriers want to, and are able to, increase their capacity.

The backlog for the second half of 2014 is about 56 per cent of the number of aircraft already in service. “If you take into account letters of intent and options between the airlines, lessors and manufacturers, we’re almost at 90 per cent of the in-service fleet, and that’s a record number – we've never seen that,” says Van Leeuwen.

A common concern when orders are high like this is that the bubble will burst, but Van Leeuwen says it isn't that simple. He believes that while the sector may eventually see over capacity for the older designs, newer aircraft should garner more confidence.

Why is this? According to the analyst, having only two manufacturers means that they control capacity, so a high number of orders translates to a long lead time.

“We did some research on that and if you look back 10 years... it took about a year and a half for 50 per cent of the backlog to be delivered.” Today it’s close to four years.

“Once the momentum starts building for the new generation of aircraft, and they’re starting to deliver in larger numbers, that's when we’ll see potential risk for the older generation,” warns Van Leeuwen.

If the increase in production coincides with a market downturn, we could have an oversupply of older aircraft, leading to many being parked and retired, he explains. "So we would say, beware of the late production aircraft of those current designs, but you can be confident if you put your money in a new technology aircraft."

It seems that, as ever, we all want a dip the fountain of youth.

 

 

 

 

 

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