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Boeing MAX Return Will Bring Aviation Turbulence - IBA

Published on Jan 20 2020 10:30 AM in General Industry tagged: Trending Posts / IBA / Boeing 737 MAX

Boeing MAX Return Will Bring Aviation Turbulence - IBA

A year after the grounding of Boeing Co's 737 MAX sent shockwaves across the aviation sector, its likely return in 2020 promises more upheaval, consultant IBA has said.

The industry faces market turbulence as the release of some 800 grounded jets reverses a surge in narrow-body aircraft values, with the glut of planes potentially weighing on fares, IBA said.

Since the MAX grounding last March, after two deadly crashes, airline customers have secured alternative planes or extended existing leases, driving up contract rates and second-hand values of Boeing and Airbus single-aisle jets.

"Capacity Glut"

Airlines and lessors face a whiplash effect from the jet's return to service and resulting "capacity glut," IBA said, compounded by uncertainty over the timing of its recertification by the US Federal Aviation Administration.

"Over a two-year period you're going to have another whole year's worth of deliveries sandwiched in," the firm's chief operating officer, Stuart Hatcher, said, referring to about 800 completed 737 MAX aircraft that are ready to fly once approved. "The market has never seen that before."

Warnings

In its latest market update, IBA warned of "a difficult year for the aviation industry as sharply changing aircraft values and falling yields from ticket sales cause pressures for airlines and lessors alike."

The strength of the dollar will put a further squeeze on many carriers, especially in Southeast Asia and countries such as Turkey and Argentina, it added.

Global airlines warned last month that 2019 industry profits were set to fall faster than expected, with an improvement in 2020 contingent on a "truce" in trade disputes.

Airlines Under Threat

Last year saw the failure of airlines operating a record total of 430 planes, and several more are under threat in 2020, IBA also said, citing a number of carriers that have been forced to refinance or seek bailouts. "Hong Kong Airlines, South African Airways, Flybe and Norwegian Air will face significant risks."

Flybe, Europe's biggest regional airline, appeared to have narrowly averted collapse last week after striking a deal with the British government expected to include a cut to passenger duty.

A Further Slide In Leasing Rates

Leasing firms will be confronted with a further slide in wide-body or twin-aisle jet leasing rates, already down 30% in the past year, IBA said, predicting a 10% decline for the Airbus A330ceo in 2020.

Boeing's 777 programme is "not immune from these challenges," it added, forecasting a similar drop in 777-300ER rates after Boeing recorded a net decline in orders for the coming 777X version over the past 12 months.

"Leasing rates can't get much lower than where they are now" in the widebody market, Hatcher said, adding that increasing pressure on lessors may lead to consolidation. "These sharp dynamics in aircraft values, and what IBA believes is unsustainable growth in aircraft leases, are set to cause trauma in the overcrowded aircraft leasing market."

News by Reuters, edited by Hospitality Ireland. Click subscribe to sign up for the Hospitality Ireland print edition.

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