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Industry review and outlook: DVB
Bert van Leeuwen
Extracted from Airfinance Annual • 2018/2019
Sponsored editorial: ROLLS ROYCE
The specialist
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2 Airfinance Annual • 2018/2019
Industry review and outlook: DVB
Good times, bad times
Aviation might still be enjoying its supercycle, but that does not mean there
is nothing bad waiting around the corner, writes Bert van Leeuwen, with
contributions from Albert Muntane Casanova and Steven Guo, DVB Bank SE.
I n last year’s industry review,
we reluctantly revived the term
“supercycle” to describe the state of
Clearly, not all airlines are
profitable and not all manufacturers
have reasons to celebrate. Sales
of a good number of financiers
and investors. Fortunately, trading
volumes are high and, because of
the industry. Now, more than halfway volumes for the Airbus A320 family the combination of strong demand,
through 2018, we can conclude and the Boeing 737 have reached restricted supply and low fuel cost,
that indeed the good times are still unprecedented levels, but twin-aisle airlines are generally willing to extend
continuing in the commercial aviation sales are definitely not as strong while leases, even for slightly older-
business in a way never seen before. in the regional jet market, a relatively technology aircraft.
Traffic volumes in revenue large group of manufacturers, is So, are there no clouds in the sky
passenger kilometres (RPK) have competing for a relatively limited at all for the industry? Certainly not.
been growing more than 5% a year number of new aircraft orders. There is still a number of airlines in
since 2010 and over the first half of The regional jet landscape, trouble. The future of Alitalia remains
2018 global traffic increased by a very however, is changing dramatically. uncertain and the recent pressure
robust 7%. In addition, airlines are still Airbus took over the Bombardier on selected emerging market
enjoying higher load factors. Over CSeries programme and renamed currencies, in particular Turkey, but
the first half of 2018, the load factor the aircraft Airbus A220. In response, also Argentina and South Africa,
improved to 81.3%, a level not deemed Boeing revealed plans to take over could cause problems for the local
possible only a few years ago. the commercial jet unit of Embraer. carriers. The spreading protectionism,
After some fairly high-profile airline Should this deal materialise, the trade tensions and the political
defaults during the past few years, market will see Airbus and Boeing unpredictability of certain countries
and recognising that many airlines competing head-to-head over virtually have not made any major impact on
are still struggling, the bottom-line the full range of commercial jets the airline business yet, but these
results of the world’s air transport with more than 100 seats. It seems, factors will be cause for concern for
providers looks healthy, with positive however, the North American- some time.
net operating results every year Brazilian link up (that clearly was a On the equipment side, while
since 2010 and even decent returns response to Airbus’s move to take the manufacturers cannot produce
on invested capital for the past four over the CSeries) is mainly driven by enough A320s and 737s, it seems
years. Boeing’s desire to access Embraer’s the larger widebody segment is
The International Air Transport engineering resources and benefit struggling and the current-generation
Association (IATA) did adjust its from lower production costs in Brazil – Airbus A330 and Boeing 777 may
forecast for the industry’s 2018 profit more so than the desire the become a come under more pressure once
from $38.4 billion (December 2017) regional jet player. the temporary demand to replace
to $33.8 billion (June 2018) because On the money side of things, grounded Rolls-Rolls-powered Boeing
of expected increases in fuel, labour the industry continues to attract 787s disappears.
and interest costs, but even at the new investors and financiers which Investors with significant positions
new lower level this still is an excellent are looking for yields unavailable in large twin aisles, such as the Airbus
result by industry standards. in their traditional markets. As a A380 or even 777s, probably look at
Order volumes for new aircraft consequence, the aircraft finance future lease terminations with some
reached a peak in 2013-14 but market is extremely competitive, concern. While some A380s returned
ordering continues at high levels. which translates in low margins and, by their previous owners continued
Today, the industry backlog for for lessors, very low lease-rate factors. as flyers (but at what terms?), others
western-built commercial jets is In addition, it seems terms for were parked in Tarbes, France, and
about 50% of the in-service fleet of airlines and aircraft lessors are only seem to serve as part donors
about 28,000 aircraft. This backlog becoming increasingly borrower- (including the high-value engines).
is equivalent to almost nine times the friendly. While in the past competition The title of the most recent (July
2017 level of production. In reality, outside of the mainstream new 2018) update of the International
the backlog can be fulfilled quicker aircraft market was limited, today Monetary Fund’s (IMF) World
because 2017 production levels were market niches, such as aero-engines, Economic Outlook clearly has a less
restricted by (engine) supply problems freighters, predelivery payment optimistic tone compared with the
for some of the more popular aircraft financing, older equipment and July 2017 edition. While last year the
types. end-of-life assets, enjoy the interest theme was “A firming recovery”, this
6 Airfinance Annual • 2018/2019
Industry review and outlook: DVB
year the report’s subtitle is “Less even a strengthening US dollar, trade In sub-Saharan Africa, growth
expansion, rising trade tensions”. tensions and geopolitical conflicts. figures have been adjusted upwards
While the IMF maintains that the The updraft on oil exporters from thanks to rising commodity prices,
pickup of the global economic growth the improving fuel prices was largely from 2.8% in 2017 to 3.4% in 2018
remains about 3.9% both in 2018 and offset by the drag this caused on other and 3.8% in 2019. Finally, the IMF
2019, the organisation also notes economies. Emerging and developing expects a stabilisation of growth at
that the expansion is becoming less Asia is expected to grow at no less about 2.3% for the Commonwealth
even, that expansion in some major than 6.5%, with China, however, of Independent States, implying an
economies has peaked and that risks seeing a drop from 6.9% in 2017 to upward revision to 2.3% in 2018 and
to the outlook are mounting. 6.6% in 2018 and 6.4% in 2019. Growth 2019. Russia and Kazakhstan both
Projected oil price increases have in India is expected to rise from 6.7% should benefit from stronger oil prices.
been adjusted downwards for 2019. in 2017 to 7.3% in 2018 and 7.5% in Overall, the IMF notes for the global
The average oil price was $42.8 a 2019. economy that the downside risks have
barrel in 2016, $52.81 in 2017 and In developing Europe, growth of the become more salient, most notably
the IMF now projects an average Turkish economy is expected to slow the possibilities of escalating and
of $70.23 (adjusted from $59.9 in down significantly from 7.4% in 2017 to sustained trade actions and tighter
the January 2018 World Economic only 4.2% in 2018 and 3.9% in 2019. global financial conditions. Financial
Outlook) for 2018 and $68.99 Growth in Latin America remains conditions face the possibility of
(adjusted from $56.4 in the World modest at 1.6% in 2018, increasing to abrupt shifts because of the market’s
Economic Outlook) for 2019. 2.6% in 2019. While for commodity reassessment of fundamentals and
It seems demand for air transport exporters the higher prices provide risks.
services is still sufficiently strong, some support, tighter financial The global aviation industry has
even without the stimulus of lower conditions and the need for policy proven remarkably resilient to many
ticket prices. However, despite adjustments in Argentina as well as geopolitical and other non-economic
generally strong yield figures, rising strikes and political tension in Brazil shocks in recent years. According
oil prices have already had an impact explain the more subdued outlook. to the United Nations World Tourism
on the bottom line of a number of Renegotiation of the North American Organisation (UNWTO) World
airlines. Disruption of global trade Free Trade Agreement and the Tourism Barometer, global travel and
and industrial production as well as collapse of the economy in Venezuela tourism remained relatively strong
further – unexpected – rises in oil are other negative factors. over the first four months of 2018 as
prices are obviously potential threats Intensifying geopolitical conflicts international tourist arrivals increased
for commercial aviation, and under and the need for fiscal consolidation by 6.2%. Over the full-year 2016,
a negative scenario could put the in the Middle East are compensated international tourist arrivals increased
prolongation of the supercycle at risk. by the improved outlook for oil. 3.9%, while full-year 2017 saw a 6.8%
As mentioned in the headline of Consequently, growth is projected to increase.
IMF’s July 2018 report, expansion strengthen from 2.2% in 2017 to 3.5% There were big differences among
levels differ per region. Advanced in 2018 and further to 3.9% in 2019, the various regions. Africa and Europe
economies are projected to grow numbers that were adjusted upwards grew by 9% and 8.4%, respectively
by 2.4% in 2018, before easing to from the earlier April economic in 2017 but both saw a drop to 5.6%
2.2% in 2019. Emerging markets and outlook. and 6.8%, respectively over the first
developing countries are at 4.9% and
5.1%, respectively. The US is expected
to enjoy a temporary strengthening
Recent monthly traffic developments
Source: IATA Air Passenger and Freight Analysis
because of a combination of fiscal
stimulus with the existing strength of 0.14
the private sector. Unemployment is
at very low levels. Growth in the US
is projected at 2.9% in 2018 and 2.7%
9%
in 2019.
Growth numbers in the Euro area 7%
6.3%
were adjusted downward to 2.2% in
2018 and 1.9% in 2019 as a result of 4%
4.7%
activities softening in the first quarter 3.8%
in Germany, France and Italy.
Also Japan has been revised
downward 1% in 2018 and 0.9% in -1%
2019 as a result of weak private
consumption and investment. Revenue Passenger Km. Freight Tonne Km. 2018YtD Avg. 2018YtD Avg.
Emerging countries, according to -6%
the IMF, experienced the impact of
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rising oil prices, high US yield levels,
www.airfinancejournal.com 7
Industry review and outlook: DVB
months of 2018. The Americas had 22.1% – especially between 2014 and break even or negative results. In
3.3% more tourist arrivals last year, 2015. Between 2015 and 2016 another 2015, the profit margin suddenly
with 3% so far this year. Asia-Pacific significant drop of 24.1% could be skyrocketed to 8.6% and this
seems to be speeding up, from 5.6% noted but between 2016 and 2017 the level could be maintained in 2017.
in 2017 to 7.8% in early 2018, while fuel bill increased by 10.3% and for the Preliminary figures for 2017 indicate a
the Middle East remains stable, going year 2018 another increase by no less slight reduction to 7.5%. For 2018, the
from 4.6% last year to 4.5% now. than 26.1% is projected. The average expectations are even more modest
In terms of total tourism spending, annual fuel price in dollars a barrel with a forecast for 6.8%. Clearly, as
China takes the top position with dropped by 41.9% in 2015 and 21.9% a result of increasing (fuel) costs the
$258 billion, followed by the US with in 2016 but increased again in 2017 industry has passed the peak of the
$135 billion, Germany with $84 billion, by 28% and for 2018 another 25.9% profitability cycle, but compared with
the UK with $63 billion and France increase is anticipated. Between 2017 previous cycles, there seems to be no
with $41 billion. and 2018, fuel cost as a percentage of short-term risk of the global airlines
The top net earner from global total operating cost is set to increase diving into the red.
tourism is the US with $211 billion, to 24.2% from 21.4%. It should be noted that the main
followed by Spain with $68 billion, The projected total spend on air cause of this swing in profitability has
France with $61 billion, Thailand with transport in 2018 is anticipated to been the structural changes in the
$57 billion and Italy with $44 billion. be about $834 billion, 10.7% higher North American airline landscape.
It is a far cry from the 1960s when compared with the $754 billion from The main contributors to the global
international tourist arrivals reached 2016. In real volume terms, both the airline profit numbers are without
only 69 million. By the year 2000, this RPKs and the number of passenger doubt the North American carriers. It
number had increased to 669 million: departures are projected to increase. is interesting to compare the absolute
that had almost doubled by 2016 to The RPK volume will rise from 7.75 post-tax profit per region and the
1.23 billion. For 2018, another increase billion in 2017 to an estimated 8.29 profit per passenger. By both criteria,
to 1.8 billion is expected. billion this year, a 7% increase. The North America stands out.
Last year, air transport had a share number of passenger departures will Comparing net profit figures, the
of 55% of all tourist arrivals, followed increase by about 6.5% to 4.36 million. system-wide global commercial airline
by 39% for road transport. Water (4%) The airline industry is offering its profit reached $38 billion in 2017.
and rail (2%) are relatively insignificant. customers an increasing range of Just over 48% of this, or $18.4 billion,
Confidence in international tourism direct connections. Over the past 20 was generated by North American
remains high, according to UNWTO. years, connectivity increased by 108%, airlines. Almost 27% came from the
Its expert panel’s outlook for the and today the world’s airlines offer Asia-Pacific, overtaking their European
May-August period this year is one of connections between well over 21,000 competitors to take second position.
the most optimistic in a decade, with unique city-pairs. European airlines contributed 21%,
sentiments particularly upbeat for From a financial perspective, the the Middle East just under 3%, Latin
Africa, the Middle East and Europe. airlines entered a new era in 2015. America just over 1% and African
Over the first half of 2018, global Before then, global airline operating airlines lost $100 million, so not
RPKs increased by a solid 7%. profit margins would be about 3% contributing to industry profitability.
According to Iata, this growth level still to 4% at best and generally any For the year 2018, the relative
illustrates the strength of underlying profitable year would quickly be positions are not expected to change
demand, despite a slight slow down followed by one or more years with a lot. North America is projected to
versus the 7.9% achieved during the
first half of 2017. This year the industry
has not been able to lower airfares to Crude Oil & Jet Fuel - Price Development
As of Aug. 21st : WTI = $66,50 / BBL; Brent $71,11 / BBL ; Jet Fuel $2,077 / Gallon
stimulate demand because of rising
input costs, most notably fuel prices.
The average return fare (before
surcharges and taxes) in constant
(2018) US dollars dropped to $394
in 2016 from $380 in 2017 but is
anticipated to remain at this level
in 2018. A stabilisation of airfares
would be relatively unusual, taking
into account that between 1998 and
2018 fares dropped by 59%. The main
factor ending this period of falling
ticket prices is obviously the cost of
fuel because it has mainly been the
lower fuel price that enabled airlines
to lower ticket prices. Fuel cost for the
global airlines dropped dramatically –
10 Airfinance Annual • 2018/2019Industry review and outlook: DVB
account for 44% of the anticipated (MoUs), letters of intent (LoIs), options existing old- and current-technology
$33.8 billion net profit, Europe and and option LoIs. As an example, aircraft, rather than making a massive
Asia-Pacific each about 24% to during the 2018 Farnborough air show switch to new-technology equipment.
25%, respectively. The Middle East a total of 1,464 order commitments By doing so, airlines can benefit from
carriers are expected to improve their and options were announced by the the highly competitive situation among
results to $1.3 billion, or about 4% of manufacturers, of which only 400 aircraft lessors and operate low
the industry total. Latin America is (27%) were firm orders. capital cost (or low lease rate) aircraft
projected to contribute just below 3%, Both the 737 and the A320 continue without paying a huge penalty in the
while Africa will again be negative. to be the most popular commercial form of a massively higher fuel bill.
Comparing the profitability per jet types by far. According to the As generally airlines expect a gradual
passenger eliminates the impact Flightglobal Ascend database, Boeing increase in fuel cost, the market has
of the relative size of each region. sold about 450 737 Max aircraft not seen massive cancellations of
Asia-Pacific as an example has a during the first seven months (75 the new-generation aircraft; however,
share of 33.7% of global traffic, versus cancellations) of the year, including reportedly aircraft lessors are not
only 2.2% for Africa. Profitability orders announced at Farnborough. able to generate significant lease-rate
per passenger as such reflects the Airbus sold more than 200 A320neos premiums for the new-technology
performance of each region more during the same period. Despite aircraft compared with the older types,
fairly. For 2018, each North American reliability problems and production where short-term availability is at a
airline passenger is projected to delays around the new single-aisle premium.
generate $15.67 net profit. In Europe, engines, it is clear that the 737NG and After having fluctuated between
it is $7.58, with $5.89 in the Middle A320 are coming to an end. Boeing about $2.8 and $3 in 2013-14, jet
East and $5.1 in the Asia-Pacific. In received orders for only 13 more fuel (US Gulf Coast, FOB) reached a
Latin America, profit per passenger NGs, while Airbus’s orders totalled 22 low in January 2016 at just over $0.8
is a bit lower at $1.78 and African A320s. a gallon. Subsequently, the price
carriers, which subsidise each After the transfer of the CSeries showed a generally upward trend to a
passenger, generate a negative $1.55 family of large regional jets from peak of $2.22 in May this year and, in
per passenger. Canada’s Bombardier to Airbus, a August, kerosene fluctuated between
Apart from the benefit of lower fuel firm order for 30 aircraft was received $2 and $2.1 per gallon.
cost, the North American result can be (excluding any LoIs or options, etc). Apart from the still modest price
explained by the increased (domestic) Bombardier sold another 30 CRJ900 of jet fuel, it seems the new order
market power of the major airlines regional jets. volume is held back by the record
after a wave of consolidation. This has Despite a flurry of different types backlog already on order and the
enabled improved pricing power, as of commitments at Farnborough, resulting significant lead times for the
well as higher load factors and more Embraer has only a limited firm order delivery of the more popular jet types.
income from ancillary services. volume. So far this year, the old Overall, the backlog for western-built
Traditionally, when airline Embraer E1 version is still outselling commercial jets (all civil operations) is
profitability goes up, the new order the new E2. Japanese manufacturer equal to about eight-and-a-half times
volume for commercial aircraft Mitsubishi’s MRJ has not had much the number of jet deliveries made in
increases also. In the past years, this sales success this year. 2016. As production is set to increase
relationship has been broken. While Widebody aircraft sales volumes in the coming years (bar any supplier
the industry profit doubled between are still relatively low, but improving. constraints, such as engines and
2014 and 2015 and subsequently Boeing sold about 105 of its 787 types, interior parts), burning off the backlog
stayed at a near record high level in while Airbus placed about 58 A350s. may not take as long.
2016-18, the number of new aircraft While Boeing also sold about 33 The launch of a new aircraft type
gross (net) orders dropped from about 777s, the vast majority of these sales can have a stimulating effect on
3,500 (3,100) in 2014 to about 2,400 were for the freighter version of the order volumes. Compared with the
(2,100) in 2015 and 2,200 (1,750) in aircraft. In addition, Boeing sold 14 boom years in the first half of the
2016 to just under 2,600 (2,300) in 747-8 freighters and 20 767-300ER decade, major new product launches
2017 (new orders for western-built freighters. Airbus sold 14 A330s, were almost absent during 2015-
jets). of which the majority was for the 17, not counting some significant
Over the first seven months of 2018, re-engined A330-900neo version. product variants (such as the Airbus
the trend in new ordering seems to Emirates Airline also placed orders for A321neo LR). Most developments
continue up again with about 1,100 another 20 A380s, giving the type a that were announced focused on
(1,000) orders versus just about shot in the arm. range increases and high-density
800 (700) over the same period in Kerosene-type jet fuel prices were interiors, by applying slimline seats,
2017. It has to be taken into account up by 38% in August 2018, compared more compact galleys and toilets and
that counting orders is not always with a year ago. Despite the fuel price reconfigured emergency exits.
straightforward, because of different increases during the past months, and However, the importance for aircraft
contract types. Apart from firm oil at about $70 a barrel no longer orders of the launch of a new aircraft
orders, manufacturers also announce cheap, it seems that airlines are still type was vividly illustrated during the
memorandums of understanding comfortable with extending leases on 2017 Paris air show, when Boeing
www.airfinancejournal.com 11Industry review and outlook: DVB
launched a new stretched version of
the 737 Max family, dubbed the Max- IATA Passenger Market Data
10. Shortly after the launch of this new 20 84
version, Boeing booked more than
14.9
360 commitments, 260 orders plus 15 81.5 82
over 100 LoIs and options. It must be 80.5 80.5
9.5 79.7 79.8
noted that the majority of these orders 10 8.9
6.9 8 8.3 8
78.4 7.5
79.3
7.4 7.4
8.1
80
were changes in variants. 6.6
6.3
5.3 5.7 6
The year has not seen any major 5
2.8 1.7 2.4
78
new aircraft launches, apart from a 1 76.1
0 76
rebranding of the former Bombardier -0.8
CSeries CS100 and CS300 as the 74.9
-1.2
-1.4
-5 73.5 -3.9 74
A220-100 and A220-300, respectively. -5.5
It can be argued that even this
-10 -8.8 72
change sparked additional interest
-11.9
in the type because immediately -15 -13.7 70
after the announcement some RPK Growth Pax. Yield PLF
major commitments followed, after -20 68
some years of relative calm in the 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017
orderbook.
Another fairly low-profile two versions, probably called 797-6X Claudia Slacik. Senator Pat Tooney,
development is the intended redesign and 797-7X. Any launch decision will however, said he would continue to
of the 787-8. While this launch only be made in 2019, interestingly block a quorum on the bank’s board,
version of the 787 enjoyed good while maintaining the entry-into- so the bank will still not be able to
sales success in the early phase of service date in 2025. approve big-ticket transactions.
the programme, later on the spotlight Like in 2017, during the first months Interestingly, ECAs from Italy and
moved to the bigger 787-9 and -10 of 2018 any airline or leasing company the UK guaranteed credit lines for
and the orderbook for the 787-8 looking to finance its fleet purchases local suppliers to help financing for
slowly dried up. had ample choice from a range of Boeing products. As an example, Lot
In April, American Airlines placed funding sources. Both debt funding Polish Airlines has taken two 787s
an order for 787s, surprisingly and equity is abundantly available at on finance leases with guarantees
including the -8 version. It turned out historically low cost and offered by a from UK Export Finance (UKEF).
this was for a structurally different broad range of lenders and investors These aircraft are the first 787s to
-8, compared with the earlier worldwide. The only traditional be guaranteed by UKEF under a
aircraft. Reportedly, the aft fuselage sources of funding that have not been programme in which the UK’s export
commonality between the 787-8 and available for about three years has credit agency offers support for
787-9 is relatively low, only 30%, while been export finance for Airbus and (Rolls-Royce-powered) aircraft with a
commonality between the -9 and -10 is Boeing products. significant UK content.
almost 95%. Apparently, this resulted Both the Export-Import Bank of As an alternative to export credit,
in relatively high production cost the United States (Eximbank) and the Boeing, together with Marsh &
for the -8, making this version less European export credit agencies (ECA) McLennan and Aircraft Finance
attractive to sell for Boeing, compared had their problems. While Eximbank’s Consortium, developed the Aircraft
with the more lucrative -9 or -10. charter was reauthorised for five years Finance Insurance Product (AFIC).
With a more common design, the at the end of 2015, the US Senate This is a syndicate of insurance
manufacturing cost of the -8 will go did not nominate three new board companies (Allianz, Axis Capital,
down, which will improve the profit members, essentially taking away the Endurance/Sompo International and
margin on future sales. Interestingly, bank’s ability to approve big-ticket $10 Fidelis) providing a default or non-
while this will also strengthen Boeing’s million-plus transactions. payment insurance for banks and
competitive position versus the Last year, Scott Garrett, a former capital market investors funding new
A330neo, the improved 787-8 design congressman, was nominated to lead aircraft purchases from Boeing. The
plus the 2017-launched 737 Max-10 the bank, but the Senate Banking premiums and advanced rates are
could, in theory, limit the open space Committee rejected his nomination. inspired by the terms set forth in the
in the market for a future Boeing In July, President Trump nominated 2011 Aircraft Sector Understanding.
New Midrange Aircraft (NMA). This Kimberly Reed to serve as president The structure has already been
middle-of-the-market NMA – and of Eximbank after her nomination as used to finance more than $1 billion-
Airbus’s response to it – probably is first vice-president was withdrawn worth of commercial jets. While AFIC
the most exciting potential new aircraft earlier in the year. In August, Reed’s reportedly has no immediate plans to
design of the moment, and the subject nomination got support from the support Airbus aircraft, there seems
of many industry debates. Boeing Senate Banking Committee. Other to be no specific reasons why the
released a rendering of the NMA this nominees for the board of directors European manufacturer could pursue
year, and reportedly is thinking about are Spencer Bacchus, Judith Prior and a similar solution.
12 Airfinance Annual • 2018/2019Industry review and outlook: DVB
In Europe, the problems were of Less than a year ago, as an apparently keeping or increasing its
an entirely different nature. In April example, Japanese hotels were levels in Europe. Last year, at this
2016, UKEF, Coface (France ECA) and warning their guests there could be same time, the forecasts for 2017
Euler Hermes (German ECA) halted North Korean rockets. After three profits were $31.4 billion, and airlines
all guarantees and export support for years of RPK growth between 7.4% and Iata updated their forecasts after
Airbus aircraft. Alleged “inaccuracies” and 8.1%, the forecast for 2018 is mid-year to a record $38 billion in
in applications for export credit slightly below at 7%, which is not order to reflect better-than-expected
financing relating to information enough to signal a real change in the second-half demand.
provided in respect to consultants trend yet. Initial information for July 2018 is
and other third parties were the In 2017, airlines delivered the showing a very strong performance
reason for this suspension of support. highest-ever profits as an industry in terms of load factors, but given
In early 2018, Airbus reached an and, according to Iata, they generated the pressure on the costs side (fuel
agreement with the ECAs on a a record net profit of $38 billion (5% and wages) and potentially negative
process under which it would be able net margin), which would translate foreign exchange effects for some
to apply for UK ECA support again approximately into a net profit of $9.3 airlines, it is too early to foresee a
this year and, in April, the company per passenger. reviewed 2018 forecast.
was reported as having received These were a result of a very strong Using data from The Airline Analyst,
European export credit support for demand, where RPK grew 8.1% on a we performed a more granular
two A330s going to Rwandair. 6.7% available seat miles (ASK) growth analysis on airline profitability in
and, as a result, airlines experienced 2017. Using a sample of 160 airlines
Air transport market – first-half 2018 their highest-ever load factors, (including both passenger and cargo),
After a couple of years of good reaching an average of 81.5% on a we see that the majority of those
times, could it be that the tide has global basis. Passenger yields were (79%) were profitable – ie, they had
already turned? After all, one of the down 0.8% versus 2016, but this yield positive net results – and only 21%
most used terms in quarterly and development shows a remarkable posted negative results. If we then
half-year reports from airlines during improvement compared with previous look at earnings before interest,
the first half of 2018 was “fuel price years. As airlines were experiencing taxes, depreciation, amortisation
increase”. Despite some negative an increasing fuel cost, they seem and rent cost (Ebitdar) levels, these
impact on the results of many airlines, mostly to have been able to pass on airlines delivered on average a
passenger growth still remains very those increases to passengers. 19% Ebitdar margin. This compares
strong, and this has enabled airlines As can be observed from the positively with 14% in 2010, the first
to adjust their pricing upwards. Maybe chart, profitability in 2017 has been year when the industry had positive
surprisingly, the continuous political consistent with 2016 levels across net results after the global crisis.
uncertainties worldwide are not all regions, with again North America While not evenly distributed, and
having much of an impact on demand maintaining the lion’s share of net with the potential caveat of the fuel
– although it would be interesting to profits, followed by Asia-Pacific and price, the 2017 Ebitdar figures seem
know how much higher passenger Europe. Forecasts for 2018 based on to suggest that the majority of airlines
demand would have been had those first-half data show a bit of a reversing are proficient and capable to manage
uncertainties not been there. trend in the first two regions, but their operations profitably.
However, if we look at these same
airlines at net profit levels, we clearly
Airline Net Profit (Post Tax, in US$ bln.) by IATA Region see that the biggest portion of last
year’s profits come from a reduced
$40.0
number of airlines, and many others
Net Profit 2012
are only capable of delivering small
$35.0 Net Profit 2013 33.8
Net Profit 2014
results.
$30.0 Net Profit 2015
Nevertheless, the picture looks a
Net Profit 2016 bit brighter if we put these numbers
$25.0 Net Profit 2017(E) in relation to the respective airline
Net Profit 2018(F) revenue sizes.
$20.0 As we can see in the chart, airlines
are showing a solid improvement in
15
$15.0 managing their operating margins
(Ebitdar) and also have managed
$10.0 8.6 8.2 a significant reduction in their
debt levels, which results in lower
$5.0
adjusted net debt/Ebitdar ratios. This
1.3
0.9 combination of better operational
$0.0
-0.1 results and financial metrics give us
Africa Latin America Middle East Europe Asia/Pacific North America Global
some comfort in the resilience of the
-$5.0
airline industry in a potential downturn.
www.airfinancejournal.com 13Industry review and outlook: DVB
Meanwhile, airlines seem not too
worried about a potential downturn IATA - Net Airline Profit - (post tax) per Region
and they continue to order and 40
lease aircraft to accommodate the
continuous growth of demand. 35
Measured in ASK, Asia-Pacific is Net Profit 2018(F) Net Profit per Passenger 2018(F)
30
leading such growth in both 2017
and 2018, followed closely by Europe 25
and Latin America. The Middle
East, however, has slowed its past 20
impressive growth rate. North America 15.67
15
shows a stable growth rate at about
4%, very much in line with previous 10 7.8
7.58
years. 5.89
5.1
The most relevant fact, though, 5
2.95
remains that all regions are
0
forecasting a growth in demand above
-1.55
growth in capacity (RPKs are above -5
ASKs in all regions) for the current Africa Latin America Middle East Europe Asia/Pacific North America Global
year, and some regions are showing
a massive capacity growth in the first
quarter of 2019.
Taking a different angle, and EBITDAR Margin 2017 (%)
according to schedules and capacity 50
data from Diio/SRS Analyser, if we
40
look beyond the regional focus we
find that capacity has been growing at 30
a higher rate in non-hub airports than
20
in traditional hubs.
Perhaps not surprisingly given the 10
saturation of some of the largest hubs
0
and the ever-present growth of the 0 20 40 60 80 100 120 140 160
low-cost carrier (LCC) model, capacity -10
at non-hub airports measured in ASK
-20
accounts already for 55% of the total
production of passenger airlines. With -30
growth rates that are almost twice of
those in hub airports, the gap between
non-hubs and hubs continues to
expand. Net Income 2017 (USDm)
If we look at the seat capacity
5000
distribution per airline groupings, we
can clearly see that on a global level,
LCCs account already for almost 4000
one-third of the seats available, and
taking into account that traditionally 3000
this type of operator reaches higher-
than-average load factors, it can safely
2000
be assumed that LCCs already carry
one-third of all passengers. In any
case, LCCs continue to grow faster 1000
than their traditional competitors.
It is comforting to see that the 0
recovery in the airfreight market 0 20 40 60 80 100 120 140 160
continued to be strong throughout -1000
2017 and – albeit at a more moderate
pace – also in the first half of 2018.
This slowdown in the upward trend orderbooks of manufacturing firms are protectionism and tariffs. This is visible
mainly reflects the fact that the also experiencing some moderation in the export orderbooks of several
inventory restocking cycle is adjusting in their development because of countries (China and the US, but also
downwards and also that export the political frictions arising from Germany, Japan or South Korea),
14 Airfinance Annual • 2018/2019Industry review and outlook: DVB
and therefore could be indicative of
a global slowdown in global trade Net margin 2017 (%)
conditions. Nevertheless, industry 50
freight tonne kilometres (FTK) grew 40
4.7% in the first half of 2018 and the
30
forecast for the entire year is 4%, but
20
unlike in the previous years, available
10
freight tonne kilometres grew more
0
than FTK, resulting in a lower load 0 20 40 60 80 100 120 140 160
-10
factor of 44.7% (down 0.6 points
-20
against the first half of 2017).
At regional level, Asia-Pacific -30
(which is the biggest air cargo market -40
with about one-third of the total) -50
experienced a growth of 4.6% on -60
a 6.8% increase of capacity, which
resulted in a decrease of 1.1 points of
load factor.
While demand is growing below Ebitdar & Adj. Net Debt ratio evolution
capacity, the continuous positive
development of cargo yields has 0.25 14
helped the performance of revenues
in the first half of 2018, as yields 12.9 12
0.198
reached $1.8 to $2 a kilo, up from 0.2 0.186 0.19
the $1.55 to $1.6 both in 2016 and 0.165 10
0.159
2017. Nonetheless, the outlook for 0.146
0.104 0.14 0.139
the rest of 2018 is less optimistic, 0.15
0.13 0.128 8
and there seems to be a consensus 0.107
that world trade is weakening, with 6
0.1
these developments visible not only 7.2
8.1
5.5 5.6
on airfreight markets but also on 5.1 5.3 5.2 5 4
containerised trade, where container 4.2 4.2 4.2
0.05
throughput index reached peak 2
growth rates of close to 8% in third
quarter of 2017 but is now down to 0 0
below 4% levels. 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017
It is worth highlighting the role
EBITDAR Margin (%) Adjusted (Net) Debt/EBITDAR (x)
that developing and/or emerging
economies have in passenger
demand and, therefore, on aircraft
demand. A key element of the air
traffic growth over the past 20 years Worldwide Airline Profitability
has been the establishment of new
routes or city-pairs, particularly by 45
LCCs. During that time the number Net Airline Profit (US$ billion) - source: IATA "Economic Performance of the Airline
Industry (Jun. 2018) 36
38
34.2 33.8
of city-pairs has gone from about 35
10,000 to 21,000, enabling passengers
25
travel options not even fathomable
14.7 17.3
a few years ago. Where in mature 13.7
15
markets the traffic growth used to be 8.3 9.2
10.7
a multiple of between 1.3 and 1.7 times 5
5
GDP growth, in new markets (new
routes), and provided some minimum -5
-4.1 -4.6
requirements are met (infrastructure, -5.6
payment methods), the first driver -15
of growth is the capacity deployed
– ie, the number of seats available -25
– and therefore the resulting traffic -26.1
growth is not correlated with GDP, but -35
2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017E 2018F
rather with new aircraft flying those
previously non-existing routes.
www.airfinancejournal.com 15Industry review and outlook: DVB
This leads to the following question:
how far can this generation of new ASK Evolution (%)
city-pairs go? Likewise, the second key
14
factor for this traffic development is
the introduction of low fares by airlines 12
Global
to the public. Some airlines have 10
North America
been pioneers at developing the LCC 8
Europe
concept, but even those seem to have
6 Asia-Pacific
reached the bottom when it comes to
4 Middle East
unitary costs, and it might be difficult
Latin America
for them to improve further that cost 2
Africa
advantage in order to generate traffic. 0
2015 2016 2017 2018F
Hence, the next question: how much -2
traffic can be stimulated by low (but not
lower) fares?
On the costs side, fuel remains a
key driver, and with current prices up
37.5% compared with one year ago, RPK & ASK growth 2018 (%)
it is certainly a threat to profitability 10
that airlines need to manage. The 9
second main cost driver is labour,
8
where pressures are mounting not
7
only on the salary side but also on the
6
access to flight crews, which is quickly
becoming an issue for many airlines 5
(and which no doubt unions will try 4
to use in order to obtain concessions 3
from airlines’ management). 2
The third main cost driver is the 1
cost of aircraft, where airlines seem
0
to be enjoying a benign enough Global North Europe Asia-Pacific Middle East Latin America Africa
environment given a) the increased America RPK ASK
competition among aircraft providers
(original equipment manufacturers and
lessors) and b) increased competition
among financiers because of low ASK growth Q1 2019
interest rates, and, as a result, airlines
can achieve lower aircraft costs, which
0.12
they might lock in for the next couple 10.7%
of years. 0.1
Even if we are only halfway through 8.9%
8.7%
the year, it is reasonable to assume 0.08
that the final financial results for the
global airlines in 2018 will be below 0.06
4.9%
those of 2017. Demand remains 4.7%
4.5%
4.1%
extraordinarily strong, with record load 0.04
factors across the system and with
yields showing a stable development, 0.02 1.5% 1.5%
but unit costs are growing because -0.4%
0
of fuel prices and labour pressures. Central North South TOTAL
Africa Asia Australasia Caribbean America Europe Middle East America America
Nevertheless, 2018 results will still be
-0.02
overly positive and 0.9 points above
the cost of capital (WACC), with Iata
forecasting $33.8 billion net profit fuel environment. The bigger players even if at a relatively slow pace,
for the year. While this is below 2017 in the industry have shown a very consolidation is also developing
figures ($38 billion net profit and two distinct focus in managing profitability, in Europe – and to a lesser extent
points above WACC), it is still a quite and this focus seems to be slowly in Asia. Needless to say, one of
remarkable figure that somehow extending throughout the industry. the benefits (at least in theory) of
shows that the industry can – at least We must not forget that one way of acquisitions is also the acquisition of
for the time being – still generate achieving this profitability is through assets. However, taking into account
shareholder returns in a higher cost the acquisition of competitors, and the current profitability levels, some
16 Airfinance Annual • 2018/2019Industry review and outlook: DVB
According to the Flight Fleets data, the first converted A330-200 P2F
Market share 2018 (in seats) over the first seven months of 2018, a freighter and West Atlantic the first
total of 1,112 commercial aircraft was Boeing-converted 737-800 (BCF)
sold, of which 678 were single aisles, freighter. The first delivery of an A330-
oneworld 263 twin aisles, including widebody 900 to TAP has been postponed until
13%
freighters, 129 regional jets and 42 September.
LCC turboprops. In terms of sales successes the
29%
The already full orderbook, as well 737 Max and A320neo family still
Star Alliance as the low fuel price, could be used to dominate the scene. Boeing received
19%
explain the slight softening of the new sizable orders for the Max from
equipment market last year. It could Southwest Airlines, Ryanair, UTAir,
SkyTeam
be argued that now that fuel prices Gol, and lessors Jackson Square and
Alliance Others seem to be on the rise again, another Goshawk Aviation. The Neo booked
17% 22%
order wave for new aircraft is building, double-digit orders from SAS, Jetblue
especially against the background of Airways, Aegean Airlines, and lessors
traffic growth of 7% or better. Macquarie, Goshawk and China
This year has seen only a few new Aircraft Leasing. The E-Jets got bigger
potential acquisition targets might aircraft types enter service. Qatar orders from United Airlines and Envoy
be deemed too expensive, and the Airways received the first A350- for the E175 scope clause special
bigger players in the industry have 1000 in February, while in March, and from Wataniya Airways for the
certainly the financial capability and Singapore Airways got the first 787-10. new E195-E2. Unfortunately, Embraer
strong strategic positioning to be able In the same month, Thai Lion Air also lost an important order from Air
to wait until the next downturn and received the first 737 Max-9, while, Costa. PSA and Skywest selected the
buy at potentially distressed prices. in April, Wideroe completed the first competing Bombardier CRJ900.
commercial flight of an Embraer In the twin-aisle segment, Boeing
Equipment market E190-E2. Egyptair took delivery of sold significant numbers of the 787s
After several years of increasing sales
volumes, a temporary commercial jet
order slow down started in 2015. This Capacity growth (seats)
downward trend continued into 2016 11.7%
as well as over the first 11 months of 10.4%
2017. In December 2017, however, the
industry witnessed an order explosion,
predominantly Airbus aircraft. Industry 6.7% 6.7%
speculation suggests the December
4.9%
miracle was effectively the last hurrah 4.0%
3.8%
from Airbus’s retiring super salesman 3.1%
John Leahy, who in his final year with
the European manufacturer was eager -1.2% -0.4%
to beat Boeing in terms of annual LCC Others SkyTeam Alliance Star Alliance
sales volume. 2017 vs 2016 2018 vs 2017 oneworld
According to the latest Flight Fleets
gross order figures (western-built jets,
airlines, finance and professionals)
at the end of July, order volumes Air freight growth vs. global new export orders
exceed 2017’s level at the same point
in time by about 40% and the 2016 % y-o-y
level by only 4%. As it seems unlikely
30 40
a similar order boom will occur in the
30
second half of 2018, it may end up 20
20
about 2,200-2,400 for full-year 2018.
Obviously, a few mega-orders can 10 10
change this number dramatically. The 0
0
number of commitments and options -10
placed during the 2018 Farnborough -10 -20
air show was close to the level placed -30
-20
at the very successful Paris air show -40
in 2013. If all these LoIs, MoUs and -30 -50
options are firmed up the second half 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017 2018
of 2018, the end-year total could also Growth in industry FTKs Global PMI new export orders component Implied PMI series if the index remains flat
(LHS) (RHS, adv. 2 months) at its July 2017 level in the months ahead
bring a surprise.
Sources: IATA Economics, IATA Monthly Statistics, Markit
www.airfinancejournal.com 17Industry review and outlook: DVB
to American Airlines, Turkish Airlines
and Hawaiian Airlines. Also for the IATA Cargo Market Data
Boeing freighter types, the first half 25
of 2018 brought good sales volume
19.4
from especially the integrators, among 20
others with orders for the 767-300ERF 14.4
15
from FedEx, the 777-200LRF from DHL 11.6
and the 747-8F from UPS. 10
9.7
8.1
Airbus also booked good order 6.3 4.7 5.6
7
4.4 5
volumes outside the A320 family. 5 3.9
3.6
2.3 0.8 2.3
The original equipment manufacturer 0.5 0.4 -0.9
0 0.6
0
(OEM) booked double-digit twin-aisle -0.7
orders from Turkish Airlines and
-5
Sichuan Airlines for the A350 and -4.8 -4.7
-6.9
Emirates threw a lifeline for the A380 -10 -8.8
in a year when used aircraft of this -11.9
type encountered mixed fortunes. -15
-15.2
Some were taken over by Portuguese FTK Growth Cargo Yield
-20
charter airline Hi Fly for continued 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017
operations, while others were parked
in Tarbes, maybe permanently.
Looking beyond the most recent
sales successes, how are the various IATA Estimates - Net Post Tax Profit H1 2017 and H1 2018
programmes progressing? The table, Preliminary estimates based on sample of 34 airlines
which includes a small number of 12000
corporate jet and (semi) military Q2 Q1
versions as well, shows the current 10000
backlog by aircraft family and main
versions or variants. Overall, the 8000
backlog is still impressive, with almost
14,000 firm orders plus 3,000 options. 6000
With about 5,700 orders outstanding,
the A320neo family clearly remains
4000
the top-seller in the market. Within
this family, the A320neo is the most
popular version, followed by the 2000
A321neo, both in the old version and
in the new, increasingly popular Airbus 0
North America North America Asia/Pacific 2017 Asia/Pacific Sample total Sample total
Cabin Flex (ACF) version. The CFM 2017 2018 2018 Europe 2017 Europe 2018 2017 2018
LEAP-powered A320/A321neos are -2000
in the lead over the Pratt & Whitney
Geared Turbo Fan (GTF) version, but
a large number of orders have an
undecided engine selection. Gross Orders Placed - Western Built Jets
The A320neo engines have been Source : Flight Fleets Analyzer (West.Built Jets ordered by Airlines, Finance & Professionals)
a hot topic during the past months. 4000
Production volumes of, in particular, 3554 3513
the Pratt & Whitney PW1100G GTF was 3500
behind plan and the entry into service 3000
2944
has been plagued by a number of 2639
2525
technical problems. While Airbus is 2500 2419
2325
2141
planning to ramp up production to 2105 2088
2000
60 a month in two years, still only 154 1690
A320neos were delivered (of which 1500 1384
96 were LEAP-powered). 1025 1070
Demand for spare engines is 1000
699 764
high because of technical problems 500
plaguing in-service aircraft, such as
rotor-bow, prematurely deteriorating 0
2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017 2018
combustor liners and carbon seals Gross Orders (full years) Gross Orders (Jan.-July period)
and, in some cases, in-flight shut
18 Airfinance Annual • 2018/2019Industry review and outlook: DVB
admittedly the 737 Max was launched and with a very limited order inflow in
Gross Orders Placed some months after its European the past few years for the shorter -8,
Jan-July 2018 competitor. With open commitments the -9 is likely to become the standard
(Source : Flight Fleets Analyzer) of about 5,000 units, however, this version, similar to the -300ER as the
should not worry the Seattle-based standard version of the old 767 family.
Single Aisles 678 manufacturer too much. A redesigned version of the 787-8
737 Max 8 125 Within the 737 Max family, the Max- that potentially could be offered at a
737 Max 10 3 8 is clearly the most popular version. more competitive price could revive
737 Max 321 Its backlog of more than 2,100 units the fortunes of the smallest member
A319neo 26 (2,350 including the Max 8-200) of the 787 family. The redesign seems
A320neo 129 dwarfs the backlogs of the Max-7, mainly a defensive measure against
Max-9 and the new Max-10. Effectively, the A330. The double-stretched 787-
A321neo 52
the launch of the Max-10 has diluted 10 is likely to become a bigger sales
A319ceo 5
the position of the Max-9 because a success compared with its equivalent
A320ceo 15
significant number of version swaps in the 767 family, the 767-400ER, but
A321ceo 2 was reported. Unfortunately, there is with a sales volume of only 165, there
Regional Jets 129 no clarity about 1,400 737 Max orders, is still some ground to cover.
A220-300 (CS300) 30 for which the exact version remains In the regional jet market,
E175 E1 44 undecided or unannounced. Bombardier’s position is not totally
E195 E2 3 With a still modest – relative to the clear. After spinning off the CSeries to
E195 E2 13 mainstream single aisles – backlog Airbus, all that remains are two very
for the regional jets, the A350 and mature products, the CRJ regional jet,
CRJ900 39
787 twin-aisle families take third and effectively now only the CRJ900, plus
Twin Aisles / WB Freighters 263
fourth position in the current backlog the Q400 turboprop. Both face strong
767-300ERF 20 chart. While this market was very soft competition, and it is difficult to see
787-8 26 last year, 2018 saw a modest firming how these two products are enough
787-9 79 up, albeit partly thanks to freighter to ensure Bombardier’s position as
A350-900 58 orders. The A350-900 XWB features a a commercial aircraft manufacturer,
A330-200 2 backlog of 536 aircraft, supplemented or if the future of the Canadian OEM
A330-300 1 by 164 orders for the stretched -1000 will see it focus purely on corporate
A330-900neo 10 XWB. Airbus had to face reality for the aircraft.
A350-800 XWB and that version was While Embraer lost an important
777-200LRF 31
aborted. customer (50 E2s) when Indian carrier
777-300ER 2
Within the Boeing 787 family, the Air Costa suspended services, the
747-8F 14 -9 is clearly the most popular version, Brazilian manufacturer announced
A380-800 20
Turboprops 42
ATR 42-600 13
Western Built Jets - Backlog as per 25, August 2018
Source: Flight Fleets Analyzer
ATR 72-600 10
Type Versions / Variants
DHC-8-400 (Q400) 16
E170 E175 E190 E195
DHC-6-400 2 Embraer E-Jets E1 0(6) 110(142) 40(55) 6(2)
Embraer E-Jets E2 100(0) 46(40) 94(35)
Do 228NG 1 MAX7 MAX8 MAX8-200 MAX9 MAX10 MAX?
Boeng 737MAX 65(0) 2127(260) 235(75) 131(100) 436(10) 1483(158)
Total 1112 -700 -800 -900ER
Boeing 737NG 3(0) 188(6) 38(0)
B747-8F
Boeing 747 22(0)
downs. P&W indicated that later in B767-300ER
Boeing 767 68(40)
new – redesigned – parts would -200LR -200LRF -300ER -8 -9 -8/9
be introduced to solve some of the Boeing 777 0(2) 58(0) 42(5) 53(0) 263(56) 10(12)
-8 -9 -10 -?
problems. Some airlines decided to Boeing 787 93(35) 407(105) 165(24) 0(66)
stick to the proven A320 for the time -100 -300 -?
Airbus A220 (CSeries) 115(96) 246(131) 0(20)
being. While the backlog for the type A319 A320 A321 A321ACF
is still meaningful at more than 250, Airbus A320NEO 55(0) 3766(619) 1474(386) 421(0)
A319 A320 A321
order intake is slowing down. The Airbus A320CEO 20(0) 119(29) 117(0)
same goes for the 737NG, for which Airbus A330
-200
16(4)
-200F
4(8)
-300
38(0)
-800
0(6)
-900
224(0)
the backlog is about 230. -900 -1000 -?
Airbus A350 536(114) 164(23) 0(66)
Its successor, the 737 Max, has a -800
backlog of well over 4,400 aircraft Airbus A380 102(26)
Bombardier CRJ -700 -900 -1000
with another 600 on option. The 1(0) 57(28) 6(0)
market share of the 737 Max family in Embraer ERJ135 13(10)
Mitsubishi MRJ90 213(174)
the single-aisle market seems to be Overall Total : 13990 (2974) Firm Orders (Options)
falling behind the A320neo, although
www.airfinancejournal.com 19Industry review and outlook: DVB
an impressive number of new
commitments during Farnborough this Cumulative Net Orders Single Aisle Jets
year. Given the arguably increased Source : Flight Fleets Analyzer - yr. 1 is year of first order
competitiveness of the CSeries
7000
in its new A220 guise, it is more 737 Max ? 737 Max 10 737 Max 7 737 Max 8
737 Max 9 737MAX All A319neo A320neo
important than ever for the Brazilian A321neo A320NEO All
6000
manufacturer to establish its E2
products. The total order backlog of
5000
240 aircraft plus 75 options is fairly
evenly spread over the three versions, 4000
E175-E2, E190-E2 and E195-E2. The
E2’s predecessors, the original GE 3000
CF34-powered E-Jet E1, still enjoy a
backlog of 200-plus aircraft. The E175, 2000
especially, remains popular with the
US regional airlines. 1000
Unfortunately for Embraer, the
E175-E2 is not scope-compliant. 0
Under current scope clauses, the E2’s 0 1 2 3 4 5 6 7 8 9
maximum take-off eight (MTOW) is
slightly too high. Scope clauses limit
the number and capacity as well as Cumulative Net Orders Regional Jets
the MTOW of aircraft that are operated Source : Flight Fleets Analyzer - yr. 1 is year of first order
by commuter airlines on contracts with
450
the US major operators. These scope
A220 / CSeries E175 E2 E190 E2
clauses are negotiated between 400
the US major airlines and the pilot E195 E2 E-Jets E2 MRJ 90
unions. Embraer hopes that during 350
the next contract negotiations, scope 300
clauses will be more liberal, but initial
responses from the unions indicate 250
this may be a tough fight.
200
United will be the next US major to
negotiate pilot contracts in early 2019. 150
The scope clause in United’s deal with
100
the Air Line Pilots Association limits it
to 255 large regional aircraft (up to 76 50
seats and MTOW of 86,000lb). Delta
will follow in December 2019 and 0
0 1 2 3 4 5 6 7 8 9 10 11
American at the end of 2020.
The same issue is causing Mitsubishi
Aircraft Corporation headaches with its
MRJ90. The type can be configured Cumulative Net Orders Twin Aisle Jets
with up to 90 seats, although also Source : Flight Fleets Analyzer - yr. 1 is year of first order
in a two-class configuration to meet
1600
the 76-seat scope clause restriction. 787-10 787-8 787-9
It will be more difficult to meet the 1400 787 All A330-900neo A350-1000
MTOW restriction. The MRJ90’s
A350-900 A350 All
MTOW ranges from 87,300lb for 1200
the MRJ90STD to 90,300lb for the
MRJ90ER and just over 94,000lb for 1000
the MRJ90LR. Restricting the MTOW
800
to 86,000lb would result in a clear
range shortfall with passengers on 600
board.
The MRJ90’s backlog has dropped 400
to 213 since last year: Eastern Airlines
cancelled 20 aircraft and no new 200
orders have been announced in
0
recent months. Given the scope 0 1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18
clause issue, it is interesting to see if
20 Airfinance Annual • 2018/2019Industry review and outlook: DVB
anything happens to the orders from
Trans States Holding and Skywest. Cumulative Net Orders Large Twin Aisle Jets
Taking the time since the launch of Source : Flight Fleets Analyzer - yr. 1 is year of first order
the programme into account, the MRJ
350
is losing ground versus the A220 and
the E2 products. The first MRJ delivery
300
to All Nippon Airways is still scheduled
for mid-2020. As an alternative for the
250
MRJ90, the Japanese company may
also refocus on the smaller MRJ70,
200
which will not be scope clause-
restricted, or even a larger MRJ100X
150
version.
In the larger twin-aisle category, 100
the A330’s backlog is now reduced to
about 58 aircraft. The majority is for 50
the A330-300HGW and a few more A380-800 747-8 777-8 777-8/9 ? 777-9 777X
-200s. During the first half of 2018, 0
the order stream for the A330-200/- 0 1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18
300 almost dried up. The A330 still
is a workhorse for many operators.
make sense to build an aircraft for customers cancelled seven 777-
Some airlines expressed the desire
effectively one customer? 300ERs. As long as no freighter
to acquire additional used A330s to
The A330-900 enjoys some versions of the new-technology twin
supplement their fleet. With prevailing
popularity with the lessor community aisles are announced, the 777-200LRF
market values and the low fuel cost,
as Air Lease (ALC) and Avolon will be the preferred long-haul heavy
the A330 is an excellent entry-level
(including CIT) committed to the type. freighter by many airlines. It remains
twin aisle, with the -200 and -300
Airasia X (100) and Delta (25) are the unclear if Boeing or Bedek IAI will
HGW variant producing decent long-
largest A330neo customers after Iran eventually launch a P2F-conversion
range performance.
Air (28). programme for the 777-200LR, and in
Airbus launched the A330neo
Like the transition in the A330 recent months there was speculation
to plug the gap left behind by the
product range, Boeing is facing a about a potential 777-300ER P2F
cancelled A350-800 XWB. At that
similar change for its large twin-aisle programme. The potential feedstock
time, fuel costs were still relatively
777 family. Since January, Boeing for a -300ER conversion will probably
high and the fuel cost savings offered
has booked 26 net orders for the be more plentiful compared with the
by the A330neo looked favourable,
777 classic. No less than 31 freighters niche -200LR.
especially in combination with a
have been sold, plus two passenger The new-generation Boeing 777X
relatively low capital cost, compared
versions to Swiss. Unannounced has already clocked up an impressive
with modern hi-tech long-range
aircraft such as the 787 and A350.
The launch success of the A330neo
was impressive, with 110 net orders Western Commercial Jet Backlog as Multiple of Annual
in the second half of 2014. However, Deliveries
in 2015, the net order intake dropped Source: Fligh Fleets Analyzer - West. Built Jet, Commercial Ops.
to 52. In 2016, Airbus sold only 42
16000 12
A330neos, of which 28 of the Rolls-
Royce-powered aircraft are destined 14000 9.5
for Iran Air. Ten more Neos were sold 10
in 2017 and another 10 during the first 12000 8.9
half of 2018 (excluding the additional 8
34 Airasia X aircraft). 10000
Fortunately for the European
8000 6
manufacturer, the Neo’s biggest
customer, Airasia X, reconfirmed its 6000
order for 66 A330-900s and added 34 2.9
4
more in July after initial indications the 4000
Asian airline contemplated a switch to 2
the 787 models. The shorter A330- 2000
800 does not seem to be too popular,
with only one order, for two aircraft, 0
1995 1996 1997 1998 1999 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017 2018
0
from Uganda Airlines after all other On Order Deliveries Backlog as multiple of previous year's delivery volume
orders were cancelled. Does it really
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