Aircraft mega-deals raise bubble concerns, warn industry veterans

Aircraft mega-deals raise bubble concerns, warn industry veterans

Aircraft mega-deals raise bubble concerns, warn industry veterans

In a remarkable turnaround for the global aviation industry, which was once on the verge of collapse, there is now an atmosphere of immense optimism. After experiencing significant fleet groundings and staggering losses, airlines are now witnessing enormous profits, leading to a fierce competition of record-breaking orders.

This newfound confidence in the industry was prominently displayed on Monday, as Indigo made headlines by agreeing to purchase 500 jets from Airbus SE, surpassing a record set just a few months ago by Air India. These recent acquisitions complement the substantial orders made earlier this year by Ryanair Holdings Plc and Saudi startup Riyadh Air, with the cumulative announced deals nearing a staggering 1,500 aircraft.

However, amidst the corporate power play and ostentatious displays of wealth, seasoned industry veterans are raising red flags, expressing concerns about an overheating market.

Akbar Al Baker, CEO of Qatar Airways, warns, “We have seen an influx of aircraft flooding the market, and I can only hope that they are being acquired prudently.” Al Baker, a prominent customer of both Boeing Co. and Airbus, is well-known for his bold and high-profile deals. Another industry veteran, Steve Udvar-Hazy, aircraft leasing pioneer and co-founder of Air Lease Corp, echoes Al Baker’s sentiments.

Udvar-Hazy notes, “This collective rush seems to be driven more by herd mentality than by sound economics or reality. Nevertheless, such trends are not uncommon in the airline industry.” Both executives express their intention to add to their already extensive order books, with Air Lease Corporation having approximately 400 planes on its list. Al Baker, on the other hand, emphasizes that he is in no hurry to make further purchases.

Asia-Europe Growth Hubs

However, the attention has shifted to airlines seeking rapid expansion at the bustling Asia-Europe travel junction. The surge in orders, which initially commenced when the travel industry began recovering from the impact of Covid-19 in the United States two years ago, has left Boeing’s 737 Max almost completely sold out until at least 2028. Similarly, Airbus is facing limited availability for deliveries before 2030.

Securing the ordered aircraft will pose a significant challenge. Both Airbus and Boeing are struggling to increase production rates due to ongoing supply chain issues and a scarcity of skilled labor.

Yet, airlines fear that delaying their orders may result in being pushed to the back of an ever-growing line, potentially missing out on the ongoing travel boom, which shows no signs of abating.

Udvar-Hazy aptly describes the frenzy of purchasing as “kids in a candy shop,” highlighting the nature of the airline industry.

IndiGo’s recent announcement of a 500-jet purchase from Airbus has further extended the backlog for India’s largest carrier, bringing their undelivered aircraft count to approximately 1,000.

Further negotiations and deals are currently underway at the industry’s premier event, which alternates between Paris and London. Turkish Air is considering a deal for 600 jets, while Riyadh Air, a rising airline in Saudi Arabia, contemplates the addition of up to 400 narrow-body aircraft.

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Udvar-Hazy assures, “While we are always open to opportunities, we will not engage in excessively large orders merely for the sake of publicity.”

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