No stock: A Boeing aircraft of United Airlines takes off in icey conditions from Zurich Airport, Switzerland. The American company, along with Europe-based Airbus, is sold out of its most popular single-aisle models until at least 2029. — Reuters
NEW YORK: As travel springs back and even China dismantles the last remaining Covid curbs, one stark truth is beginning to emerge: the world is running desperately short of planes.
With carriers from United Airlines Holdings Inc to Air India Ltd placing or looking to place jet orders that number in the hundreds, Boeing Co and Airbus SE are crowing variously about blockbuster deals.
But supply chain constraints mean those planes won’t be delivered until possibly years down the track. Jefferies LLC estimates there’s an order backlog of 12,720 aircraft currently.
All that means is that the sky-high airfares that people have complained bitterly about over the past few months are here to stay, and things could get worse before they get better.
“People got used to lower fares during the pandemic, and China’s reopening will make it worse,” Ajay Awtaney, the founder of frequent flyer website LiveFromALounge.com, said.
“It’s not just a shortage of planes but also other factors like oil prices.”
While one cashed-up airline in a particular jurisdiction may have the financial wherewithal to bring prices down, that would likely cause other carriers to stumble, “leading to even higher fares in the long run,” Awtaney said.
Boeing and Airbus, the planemaking giants that largely enjoy a duopoly supplying passenger jets, are sold out of their most popular single-aisle models until at least 2029.
Compounding the demand from airlines as people once again take to the skies with a vengeance and carriers look to refresh ageing fleets are supply chain challenges, ranging from getting the necessary components to labour shortages.
Airbus earlier this month dropped its delivery goal of 700 jetliners this year, citing supply chain issues, and has previously warned that a jump in energy costs will weigh particularly heavily on smaller, more power-intensive producers, such as those making castings and forgings.
According to the founder of Air Lease Corp and a legendary name in aviation, Steve Udvar-Hazy, said every jet delivered to one of the world’s largest lessors over the past two years has been late.
“We haven’t gotten one airplane on time, whether it’s a 737 Max or a 787 or an A330 or an A350,” he said.
“And the worst has been the A321neo. We’ve had delays of as much as six or seven months comparing the contract delivery month to the actual delivery month. It’s a combination of supply chain issues, ramping up too quickly, and a shortage of labour. Production workers can’t work from home. So it’s been a real problem.”
The thousands of planes that carriers stored in deserts around the world, unsure of when demand would return as travel collapsed in the wake of Covid and countries shut borders, are also contributing to the shortage. Hundreds haven’t been brought back into fleets, either because they now need heavy-duty maintenance after so long not being used or because airlines plan on phasing them out and haven’t bothered slotting them into their schedules again.
The end result for the flying public is eye-watering fares, which could rise even further as business travel returns and more people are willing to treat themselves as they holiday abroad for the first time in years.
It could also mean flying on older planes.
“As a last resort, we can see airlines extending ownership cycles,” said Sunny Xi, a Singapore-based principal at consultancy Oliver Wyman.
Airlines in Asia have historically planned fleets around 12-year cycles, which is lower than in most other regions.
“But during the restructurings that carriers have gone through over the past few years, several airlines have extended their existing fleets and could do so again in the future,” he said.
For Boeing and Airbus, delivering the planes they’ve sold on time is now problem number one.
Airbus is already seeing airlines reluctant to place new orders for jets, considering it has a backlog of more than 6,100 planes for the A320neo family that would take eight years to fill. While it’s long touted its plan to ramp up production to as many as 75 A320 jets a month, it’s now pushed back that goal to the middle of the decade.
Investors in Boeing, which has announced around 850 gross orders this year, including the mid-December United Airlines deal, are meanwhile concerned about the slow progress the US planemaker has made in resolving its supply chain snarls and speeding work in its factories, RBC analyst Ken Herbert said. — Bloomberg
