The supply chain shortage will continue to pose issues for airlines, lessors, and financiers into 2024, warned head of global consultancy at Cirium Ascend Consultancy Rob Morris at the opening of the 2024 Dublin Growth Frontiers conference. With consistent shortage of aircraft, costs and fares are expect to continue to rise. Furthermore, with the 737-9 MAX door plug blast incident earlier in January 2024, the aviation industry can expect the supply chain issue to be further complicated with the US Federal Aviation Administration (FAA) grounding 737-9 MAX aircraft and launching an investigation into Boeing’s manufacturing. Demand, however, remains high as global traffic grew 14% in 2023 and around 6% over 2019.
“The demand side is not expected to be an issue,” said Morris. “It’s a slam dunk. However, what about the short term supply?” The supply is expected to remain lower than demand through to at least 2026. Furthermore, replacement demand is increasing, said Morris.
With the 737 MAX production halted until quality control issues have been addressed with the discovery of loose bolts various aircraft in the fleet, the original estimate for supply to catch up was originally around 2026. With these restrictions, delivery catch up will be further delayed.
Morris added: “When we've looked at previous high order ratios, we've seen deferrals, we've seen limited cancellations where there's bankruptcy, but we've seen most of the aircraft delivered in the end. So, it feels like this backlog - which might seem high - is appropriate.” However, he added that the delivery tail extends beyond 2030.
Morris believes the issues are not entirely pessimistic. “The supply and demand dynamic looks set to remain favourable for a long time to come. Yet this is a real reason to be cheerful because it feels like - although it's hard to say OEM's not delivering enough aircraft is a reason to be cheerful for the financial sector - it certainly is because it's restricting supply and making the assets that are already installed more valuable, there's headroom for further increases. ”
And while ticket prices are high and continue to grow higher as travel demand heightens, Morris believes that in terms of inflation, ticket prices are essentially lower. “In real terms, they’re down,” he said. “They are going up with inflation, but in real terms, and its real term impacts that affect demand, they’re down.”
He also added that global airlines are projected to have a combined net profit of $26bn. However, he added: “My feeling right now is that number feels conservative.”
GDP outlook shows that while the US is growing and Europe is showing some pessimism, he noted that India is going to “become increasingly important” with its backlog of almost 2000 aircraft on a fleet of around 700. This order backlog is the second largest after the US.