Whatever way you look at it, we are heading for a situation in aviation that will resemble the 1970s fuel crisis. Only this time the global fleet and with it the level of competition in the airline market is some ten times larger than the 1970s. That is all well and good since the number of air passengers has risen tenfold (at least), but factor in the pandemic, high inflation, and with it a truly intense and massive increase in prices for food and all commodities across the board, and you have a toxic mix. The factor in the giant COVID airline debt mountain and it is clear to see that airlines have to either merge or die and in the USA further Chapter 11 action looks increasingly likely.
Airlines with fuel hedging in place will be thanking their lucky starts that this one time it has come to the rescue. Ryanair, for the first time looks to have played a real winner on its hedging policy. Those without a hedge in place for fuel and currency mix will start to lose money very quickly indeed on all forward bookings – turning what was a cash flow necessity into what might be an added burden.
On top of all this, many key routes transiting over Russia are now lost to the global system - meaning that many large aircraft are now redundant for the time being. So where does this leave aircraft leasing? Airlines that were once considered safe are no longer secure, lease agreements are now becoming very expensive for some currencies against the US$, and inflation will render a great many of those bargain client retaining deals loss making in the extreme. Will oil prices send the value of mid-life aircraft down heavily? If the current trends continue into next month then the answer would have to be yes. The danger signs are all on display and the future looks like very hard work indeed. We all need to readjust or at least prepare to do so over the coming months. A new young fleet is essential now more than ever. And as such the lessors are in a good position to gain. But only if lease rates increase. And if oil goes to $200 or $300 per barrel then the mass grounding of the global airline fleet may be required. We are slipping towards a desperate situation that might ignite a global war. We are all too close.