With production issues plaguing Boeing aircraft, particularly the 737 MAX 9, one of the world's largest aircraft lessor Air Lease Corporation (ALC) executive chairman and aviation entrepreneur Steven Udvar-Hazy spoke on the issues at the Airline Economics Growth Frontiers Dublin conference 2024, describing how developments have transformed the market landscape for Airbus and Boeing. Udvar-Hazy described Boeing as historically a “leader” with aircraft such as the “747, 767”, but with the announcement of the neo family fleet, Boeing had a “knee jerk reaction and came up with the MAX”.
He said: “When Boeing made that decision, they were having tremendous industrial problems on the 787, they basically put the whole idea of a new airplane on the back burner. So, if you look back and history will prove that had Boeing launched a new airplane, it would've changed the whole market dynamic. But it was a reaction, and it did not demonstrate industry leadership. It was a reaction to what Airbus was doing.”
Udvar-Hazy described how aviation leadership is not just about looking at the production issues facing the company today, but to also anticipate problems for the years ahead. For Boeing, he believes its leadership should have established a stronger projection for its future. He said: “That is, I think, where the Boeing board and Boeing management had not paid enough attention to where do we go from here? What is the next generation of aircraft? What will Boeing be able to produce that will be a step change improvement in operating economics to what they have today. So, in that respect, I fault Boeing as far as fixing their problem.”
Commenting on the certification of future aircraft, particularly with 737 MAX 7 & 10 still awaiting certification, Udvar-Hazy added: “It almost seems like the regulators are overregulating and they’re overcautious. The part about the 737-7, I simply don’t understand. That aeroplane is just a 737-8 junior. There’s nothing in that aeroplane that is any different in terms of systems or stresses or reliability aspects that’s different than the MAX eight.” He added: “If anything, it'd be easier on the airframe than the MAX 8, because you're operating at a derated level. It's a lighter airplane. So that one is a total mystery to me.” He added: “I think certifying any new airplane nowadays is going to be much more costly and will take a longer period of time. And I don't think the industrial base, the supply chain, is ready to be able to support a brand new airplane design.”
The “robust passenger traffic trends” will benefit aircraft value and lease rates, with passenger numbers expected to increase to 4.7 billion in 2024 and with ALC expecting this number to increase to six billion passengers by 2030. Uldvar-Hazy said this “means the airlines will need a lot more airplanes.” ALC projects that total jet fleet of aircraft will rise to between 24-25,000 aircraft globally. By the end of the decade, it is estimated that the number will grow to approximately 31,000 aircraft globally with around 2-3% variable depending on the number of aircraft put into retirement, converted to cargo, and any lost to accidents. Though, the big OEMs are sold out until the end of the decade and, thus, increased demand for leased aircraft.
Lessors made up around a quarter of jets delivered by 2000. It is estimated that the leasing component of these new deliveries is now over 50%. Lease rates are expected to continue to increase as “acute shortages of desirable aircraft” remains. Uldvar-Hazy said: “What this really represents is a tremendous capital requirement over the next five years of almost $800bn for aircraft. It’s a huge amount of investment that needs to be funded. And lessors will have to come up with about $388bn for new aircraft in the next five years.”
As for the future of leased aircraft, Udvar Hazy said: “It certainly could be in the high 50s, might even reach 60%. It depends on the financial capability and balance sheets of the airlines, and how much debt that they can absorb, especially [because] they have to modernise fleets at a rapid pace between now and the end of the decade. So, it could go into the high 50s, low 60s for a period of time.”
And with a higher demand for travel and aircraft, thus comes a higher demand for oil with consumption increasing. However, there has been an underfunding for new drilling and so oil supply will not be able to meet both global consumer and industrial requirements, according to ALC figures. Udvar-Hazy said that lower oil reserves, particularly with the US shrinking its strategic reserves, gives American policy makers less flexibility to “dampen out major swings in oil prices". The ESG pressure, especially in Europe, has seen greater taxes and fees on older aircraft at major airports. Environmental and sustainability taxes have also been added onto airline tickets, which has emerged an economic headwind for airlines. Furthermore, ALC expects sustainable aviation fuel (SAF) to only makeup around 3% of aircraft fuel by the end of the decade.
Udvar-Hazy said that even if SAF is “doubled to 6%, that's probably toward the middle of the next decade”, he says the industry cannot depend on SAF as a "sort of antibiotic to cure our problems on this environmental issue". He added, "a lot of money's being invested in that, but the distribution logistics infrastructure of SAF is still very problematic. And most world airports do not have access to, to SAF type fuels.”