© Reuters. FILE PHOTO: A China Eastern Airlines plane and a Shanghai Airlines plane at Hongqiao International Airport in Shanghai, China June 4, 2020. REUTERS/Aly Song/File Photo
By Tim Hepher and Joanna Plucinska
DUBLIN (Reuters) – Financiers at the center of a $200 billion industry that underpins airline fleets are meeting in Dublin this week, betting that China’s decision to liberalize travel will speed up its recovery from a recession by the pandemic, while warning of a shortage of planes.
Three years after the spread of COVID-19 grounded thousands of planes, demand for air travel is booming again, buoyed by Beijing’s decision last month to undo its zero-COVID policies.
In a report on Monday, the world’s second-largest aircraft leasing company, Chinese-owned Avolon, predicted that global traffic would return to pre-pandemic levels as early as June this year, months earlier than the most of the industry had predicted.
The International Air Transport Association, which represents global airlines, predicts a full recovery in 2024.
“After a 70% recovery in passenger traffic last year led by… Europe and North America, Asia will drive growth in 2023, helped by the recent reopening in China,” Avolon said.
Data so far suggests the Chinese are resuming travel ahead of the Lunar New Year, despite concerns about infections after Beijing ended restrictions last month, with passenger traffic rising to 63% of the 2019 levels since the annual travel season began.
Others are not so optimistic.
“Airlines are not drastically increasing their frequency to China. It is going in the right direction but … it will take some time,” aviation adviser Bertrand Grabowski said.
The crippling impact of COVID-19 caused dozens of airlines to go bankrupt and wiped billions of dollars off balance sheets.
HIGHER RATES, LEASE RENTALS
In a sharp reversal, the industry’s biggest concern now is getting enough of the most widely used narrow-body jets to meet demand as battered supply chains delay deliveries of new planes.
On top of that, severe bottlenecks at maintenance, repair and overhaul (MRO) plants are thwarting efforts to keep existing jets in regular service or move others out of storage.
“The bottom line is MRO; they are totally full,” Grabowski said, adding that the planes in storage needed extensive checks.
In public, airlines and leasing companies have deplored the delivery delays and are likely to press aircraft manufacturers for compensation.
Privately, many airline executives acknowledge that the shortage has allowed them to keep airfares higher to help replenish balance sheets, shielding them against recession fears.
The same is true of aircraft leases charged by lessors, some of which have risen on average by double-digit percentages in the past 12 to 24 months for a variety of reasons, according to Rob Morris, global director of consulting at Ascend by. cyrium.
At the same time, a host of macroeconomic concerns is keeping delegates on edge ahead of the annual Dublin conferences hosted by Airline Economics and Airfinance Journal this week.
Inflation is driving up prices and parts for planes, while raising questions about the resilience of travel demand.
With interest rates rising to combat inflation, leasing companies must pay much more to pay off large debts inherited from a multi-year boom in aircraft orders.
All airlines are facing volatility in oil prices, and those in most emerging markets are facing a sharp increase in the cost of dollars needed to pay for aircraft rentals and fuel.
All of this is happening while the industry is figuring out how to implement and pay for commitments to reach net-zero emissions by 2050.
This week’s gathering of more than 2,000 financiers, lessors, investors, airline chiefs and manufacturers will spawn hundreds of private meetings to get financial backing for newly delivered planes or to find new homes for old ones.
It’s an annual rite of passage for the mainly Irish-based and specialist industry started by the late leasing mogul Tony Ryan, whose empire rose and fell between the 1970s and 1990s only to be rebuilt under the current market leader, AerCap.
Overall, more than half of the world’s airline fleet is controlled by global leasing companies rather than directly owned by the airlines.
