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  • Is 2024 the Year of the Aircraft “Power Surge”?

    Lalitya-Dhavala
    Lalitya-Dhavala

    Lalitya Dhavala, Valuations Manager, Cirium Ascend Consultancy

    As we race towards the end of the year, I’ve examined how values and lease rates for spare engines have evolved in 2024, and what has driven the significant movements in this market.

    Overall, Market Values for engines that power narrowbody aircraft have risen by around 12.3% over the last five-year period (on a fleet-weighted average basis). With the demand for single-aisle passenger aircraft rebounding post the pandemic, coupled with expensive new materials and high inflation on OEM list pricing, new-generation engine values have strengthened. Further, as the engine shop visit turnaround times increased, attention has turned to the green time remaining on the previous-generation engines that could be deployed into service, thereby increasing the value of maintenance on these engines as well as the asset market value. Lease Rates have exhibited strong increases as well over the last five years.

    Meanwhile, values for engines powering other asset classes such as regional jet, regional turboprop and widebody have not yet returned fully to pre-pandemic levels (on a fleet-weighted average basis).

    In the regionals sector, demand has been slower to trickle through; and on the twin-aisle sector, OEMs tend to tie in list prices with comprehensive engine maintenance programmes, coupled with lower utilisation on twin-aisles meaning fewer spares are needed. Widebody engine Lease Rates, however, have risen over the last few years and surpassed their pre-pandemic levels.

    values for engines powering other asset classes such as regional jet, regional turboprop and widebody

    Source: Cirium Core, Ascend Consultancy analysis

    Looking more closely at the key single-aisle associated engines over the last year, we can observe the correlation between Values and Lease Rates for previous-generation powerplants (CFM56-5B, -7B, V2527) rising strongly on the back of more modest increases or stability in the Values and Lease Rates of the new-generation engines (PW1127G, Leap-1A and Leap-1B). A notable exception here is the PW1127G, where Lease Rates saw increases of up to 30% as a result of the scale of the powder-metal contamination issues resulting in the wide-scale aircraft grounding (564 A320neo family aircraft stored) and the removal of an average of around 1,100 engines throughout 2024.

    Fleet-weighted percentage increase over 1 year

    Source: Cirium Core, Ascend Consultancy analysis

    Turning to the twin-aisle sector, there is less correlation between the technology of the engines. Rather, the notable increases in both Market Value and Market Lease Rates have been on the engines that support the Airbus A330ceo or the Boeing 777-200LR/300ER platforms, both of which have seen substantial improvement in their values in 2024.

    As long-haul traffic recovered in 2024, these workhorses of the twin-aisle segment have proven the preferred choice for airlines re-deploying this capacity.

    In addition, both aircraft types offer conversion potential to freighter configuration, increasing the demand for spare engines. Of the A330 engine choices, although the GE CF6-80E1 has shown the largest increases this year, it trails behind both the Pratt & Whitney PW4168 and the Rolls-Royce Trent 772 when compared to pre-pandemic levels, with only the latter engine seeing its values and lease rates higher than pre-pandemic due to these engines typically having more green time available, with several examples still on their first run.  

    Fleet-weighted average percentage increase over 1 year

    Source: Cirium Core, Ascend Consultancy analysis

    The increase in the value of maintenance particularly, for the engines that power single-aisles, has led us to increase our expectations for their longer-term values as well. In fact, our analysis of the depreciation of the value of the engine overhaul and life-limited part stack has shown that these are falling less rapidly than before, and consequently we made several changes to how much we depreciate these into the future. For key single-aisle engine types such as the CFM56-5B, CFM56-7B, and the IAE V2500-A5, depreciation through their Phase 2 (stable phase) has been reduced to 4% per annum, resulting in stronger residual values for the Airbus A320ceo and Boeing 737NG platforms they power. Furthermore, engine OEMs have advised that the technological improvements that are in development currently are expected to be retrofittable. Therefore, such engines are now not expected to see their values decline prematurely due to replacement by a more efficient version of the same engine.

    To find out more about how these affect aircraft values and lease rates, or to find a similar summary of our aircraft values, please join the Cirium Ascend Consultancy webinar on 12 December where I will be joined by Rob Morris and George Dimitroff to take stock of this year and look ahead to 2025. In the meantime, if you enjoyed this analysis, please take a moment to consider voting for us as your Appraiser of the Year; you can cast your vote here.

  • Will Growth in Cargo Demand Drive More Freighters in China?

    Yuanfei Zhao (Scott) Aviation Analyst
    Yuanfei Zhao (Scott) Aviation Analyst

    Yuanfei Zhao (Scott), Senior Aviation Analyst, Cirium Ascend Consultancy

    On the back of growth in global trade, especially the booming e-commerce, and continuing capacity constraints on maritime shipping, international cargo market is showing strong growth in 2024 again. According to IATA’s figures, demand for air freight rose by 11.4% in August, representing the ninth consecutive month of double-digit year-on-year growth, with overall levels reaching heights not seen since the record peaks of 2021. Just one month later, IATA’s figures shows that air freight rose again by 9.4% in September, representing the 14th consecutive month of growth.

    According to Cirium’s tracked utilization data, in terms of tracked number of departing freighter aircraft, tracked aircraft number has increased by 32% globally between the first 10 months of 2024, over the same period of 2019.

    For the top 10 ranking air freight markets, China’s growth leads the way with 85% growth, followed by United Arab Emirates at 48% and Hong Kong SAR at 45%. as shown in the below chart. The United States is still the largest air freight market with growth of 28%. The United Kingdom is the only country that has declined at -2% in the top 10 list.  

    commercial widebody & single aisle freighters

    Source: Cirium Core, commercial widebody & single aisle freighters

    China as the global manufacturing centre, benefits hugely from the surge in e-commerce demand given the country’s dominating position in global trade and export, which therefore has led to the booming of its air freight sector. However, China’s current dedicated cargo fleet especially the widebody fleet seems to be lagging the pace in which international trade demand has been grown and appeared to be not matching the country’s status as a global manufacturing centre.

    Various comments have gone around in the market recently, about that there are plenty of widebody freighter requests in Asia, especially in China/Hong Kong.

    The logistics companies are eager to get more space, but the operators cannot offer enough capacity which has consequently driven up shipping prices.

    To understand the magnitude of Chinese carriers’ freighter capacity supply shortfall towards the above mentioned situation, number of tracked outbound freighter aircraft from China by domestic carriers is assessed below, and is compared with number of tracked outbound freighter aircraft by foreign carriers from China.  

    commercial widebody & single aisle freighters

    Source: Cirium Core, commercial widebody & single aisle freighters

    As shown in the above chart, number of tracked outbound freighter aircraft by domestic freight carriers has been more than doubled during the first 10 months of 2024, compared with the pre-pandemic level.

    During this period, according to Cirium’s fleet data, China’s freighter fleet (including both narrowbody and widebody) has grown from just less than 160 aircraft in 2019 to around 230 in 2024, with widebody freighter fleet grown from less than 50 aircraft to around 90.

    The growth of domestic freighter fleet seems to be fast but is such growth enough to fulfill the demand?

    As shown in the below chart, when compared with the above chart, number of tracked outbound freighter aircraft from China by foreign freight carriers is 126% more than domestic freight carriers.

    In addition, when compare with pre-pandemic level, number of tracked outbound freighter aircraft from China by foreign freight carriers has grown by 51% after the pandemic.

    commercial widebody & single aisle freighters

    Source: Cirium Core, commercial widebody & single aisle freighters

    In the short term, the outlook for air cargo market is positive, with businesses replenishing inventories in preparation for the year-end festive season. In the longer term, if China can withhold its position as the global manufacturing centre as well as sustaining the robust development momentum of its e-commerce sector, despite the challenges it also faces with ongoing geopolitical tensions with other countries and regions which may impact China’s export and international trading, the country will need to further expand its domestic freighter fleet power especially in the widebody category as a means to compete with foreign operators for dominance in the local market.

    Nevertheless, persistent OEM delays and supply chain disruptions continue to pose challenges to carriers in acquiring either new freighters or converted freighters.

    This requires domestic carriers to have a long-term strategic vision in terms of anticipating future growth needs, and decisively place orders with OEMs to lock in earlier future delivery slots before OEMs’ slots are filled by orders from other carriers.

    Chinese carriers currently have around 10 remaining orders for the current generation 777 freighters, but no orders have been placed yet for the new A350F and 777-8F. The latter two types have a combined orderbook of well over 100 aircraft to date, and deliveries are expected to only begin after 2026 and 2028 respectively.

    Cirium Ascend Consultancy’s recent webinar on the freighter market is available to view on demand. WATCH NOW.

  • Advanced Air Mobility – Snapshot October 2024

    Cirium Ascend Consultancy is trusted by clients across the aviation industry to provide accurate, timely, and insightful aircraft appraisals. The team provides the valuations and analysis the industry relies on to understand the market outlook, evaluate risks and identify opportunities.

    Discover the team’s industry reports & market commentaries. Read their latest expert analysis, viewpoints and updates on Thought Cloud.

    Eric Tamang
    Eric Tamang

    Eric Tamang, Valuations Analyst, Cirium Ascend Consultancy

    Towards the end of the year, the advanced air mobility (AAM) market reflected the changing seasons with a gradual cooling, influenced by spiking interest rates and the rising cost of capital. Yet, in the face of these headwinds, the number of commitments recorded in Cirium’s database increased to over 14,815 as of 11 October 2024, with over 900 secured since our last update in July 2024.

    eVTOLs – Urban Air Mobility (UAM)

    The eVTOL – UAM sector has generated the most activity in the market both in terms of the number of aircraft in development, and commitments received to date. Since the last update in July 2024, the sector has attracted 416 new order commitments. The space now has a total of slightly over 11,000 order commitments captured by Cirium Fleets Analyzer. Eve Air Mobility and Vertical Aerospace continue to lead the sector with 2,900 and 1,550 commitments respectively.

    Source: Cirium Fleets Analyzer, as of 11th October 2024

    The global market for eVTOLs shows a varied regional distribution, with strong order commitments in North America (4,686), Asia-Pacific (3,903) and Europe (1,938), driven by differing levels of technological advancement, regulatory backing and investment interest.

    Source: Cirium Fleets Analyzer, as of 11th October 2024

    Certification Issues Delay Demonstration

    There have been a number of exciting announcements where we hoped to see the AAM sector take off. One such instance was the Paris Olympics, where Volocopter intended to operate an air taxi service, but this did not happen due to delays in certification of the aircraft’s engines.

    Another much anticipated event is the 2025 World Expo in Osaka, where there were plans to operate flying taxis.

    However, all four operators (Japan Airlines, ANA Holdings, Marubeni and SkyDrive) have cancelled these plans due to safety certification delays, and the operators are still planning to conduct demonstration flights without passengers.

    So What Are the Different Aspects That Need Certification?

    Governing bodies like EASA, CAA and FAA collaborate with aircraft manufacturers to develop a set of regulations that guarantee the safety and airworthiness of an aircraft throughout its design, production, and modification phases. Manufacturers are required to carry out extensive testing programmes to demonstrate compliance with these standards.

    eVTOLs are a new type of aircraft with technologies and concepts that have never been certificated before. As such, authorities are collaborating with manufacturers to write the rulebook on eVTOL certification.

    According to David Solar, head of general aviation and vertical take-off and landing at EASA, the certification process for an eVTOL propeller differs from that of a conventional aircraft.

    The design of the propeller is tailored to the specific aircraft configuration, considering factors such as the aircraft’s objectives and the transition from vertical to horizontal flight.

    Manufacturers must evaluate loading conditions, perform fatigue tests, and demonstrate that the propeller is suitable for flight.

    In addition, the different flight paths of cargo and passenger aircraft could result in different certification requirements. Cargo aircraft operating outside of cities can have lower security standards, but more stringent requirements could apply to passenger aircraft and cargo operations over congested areas.

    Another aspect to certify is the use of modern electric powertrains. One major challenge is balancing battery energy density with payload capacity. The battery’s weight affects the propulsion required to keep the aircraft airborne, ultimately impacting range performance. Advances in battery weight-to-power ratio and aerodynamic efficiency are crucial for improving eVTOL performance.

    Last but not least are certification of the infrastructure needed to support the operation of these aircraft such as the airspace and vertiports. With vertiports being scattered around the city, the impact of noise could be detrimental. As for airspace, these aircraft would utilise low attitude airspace which is already quite congested in certain cities with general aviation aircraft. Ensuring proper airspace management and separation could be a challenge.

    Rolls-royce to Divest Electric Engine Division

    Engines for eVTOLs will be provided by specialist engine manufacturers rather than the aircraft OEM, following the same model as traditional aircraft designs. In the market, there are several electric engine suppliers, including both traditional engine OEMs and new entrants.

    Towards the end of 2023, Rolls-Royce, a high-profile engine OEM, announced that it was open to offers from prospective buyers for its Electrical engine division.

    However, at the end of September 2024, Rolls-Royce made an announcement stating that it had elected to shut down its electrical propulsion unit called Rolls-Royce Electrical. This decision came after failing to find a buyer for the business, according to Aviation Week.

    As a result of this development, UK-based Vertical Aerospace’s VX4 is now left searching for alternative options since Rolls-Royce was its chosen engine partner. Despite this setback, Vertical Aerospace insists that they are still on track to meet the CAA certification timeline which has been revised from 2024 to either 2025 or 2026.

    According to Aerospace Global News reports, Rolls-Royce’s decision to divest from its electrical propulsion unit is “driven by their need to readdress their balance sheet and focus on investments with short- and medium-term returns”. This suggests that Rolls-Royce anticipates any returns in the electric space will be a long-term prospect, which begs questions such as –

    • Will there be a domino effect, with more similar announcements of divestment or changes in strategy, from other major players within the industry? Such announcements could have cascading effects on the overall landscape of electric aviation, including the eVTOL sector.
    • Will the announcement affect investor confidence in the electric aviation industry? Investor sentiment plays a crucial role in the growth and development of emerging industries, and any shifts in sentiment may have repercussions on funding and future investments.
    • Will this divestment announcement alter the competitive dynamics within the eVTOL industry? It could create gaps or opportunities that other companies or new entrants may seek to fill. New partnerships or collaborations could also emerge as companies reevaluate their strategies and seek alternative solutions.

    Time will be the ultimate judge of how sentiments regarding this divestment will resonate across the eVTOL industry.  

    Business Electric – Multi-Engine

    In the business electric sector, Electra’s eSTOL has received almost 1,350 order commitments, including from notable clients like the helicopter lessor Bristow Group. However, the identities of the majority of these order commitments remain undisclosed. Aura Aero’s ERA holds second place with 570 order commitments. Heart Aerospace’s ES-30 follows in third place with over 530 order commitments after the ES-19 programme was cancelled and switched to the ES-30.

    Most order commitments

    Source: Cirium Fleets Analyzer, as of 11th October 2024

    The Cirium Ascend Consultancy AAM team will continue to provide valuable insight to the market. We would be pleased to hear any thoughts, comments or feedback you may have, so do not hesitate to contact us.

    Sara Dhariwal

    Lead Appraiser – Helicopters & AAM

    Ascend analyst Tim Chun Hing Li
    Ascend analyst Tim Chun Hing Li

    Tim Chun-hing Li

    Aviation Analyst

    YIRU ZHANG
    YIRU ZHANG

    Yuri Zhang

    Senior Valuations Analyst

    Eric Tamang
    Eric Tamang

    Eric Tamang

    Valuations Analyst

  • The Resurgence of Regional Aircraft: A Market Analysis

    Cirium Ascend Consultancy is trusted by clients across the aviation industry to provide accurate, timely, and insightful aircraft appraisals. The team provides the valuations and analysis the industry relies on to understand the market outlook, evaluate risks and identify opportunities.

    Discover the team’s industry reports & market commentaries. Read their latest expert analysis, viewpoints and updates on Thought Cloud.

    Solayappan-Ganesaan
    Solayappan-Ganesaan

    Solayappan Ganesaan, Aviation Consultancy and Valuations Intern, Cirium Ascend Consultancy

    The latest webinar, Regional Aircraft: Is the Market Bouncing Back? hosted by Cirium Ascend Consultancy, sheds light on key developments in the turboprop and regional jet market. Alex Vathylakis, principal valuations analyst, Arjan Meijer, president and chief executive of Embraer Commercial Aviation, and Ron Baur, president of Azzora, formed the panel, which was moderated by Delphine Wermeister-Levert, senior account manager. The panelists arrived at the following conclusions:

    • In the US regional jet market, there is a noticeable shift from 50-seater aircraft to 70-seaters, but no imminent scope clause changes on the horizon that might drive this shift further towards even larger aircraft.
    • MRO bottlenecks continue to pose challenges for regional turboprops as well as regional jets.
    • The focus of Embraer on the E195-E2 shows the OEM’s intention to expand in the small narrowbody segment and to compete with aircraft types such as the A220-300.
    • Secondary market values of turboprops are trending up, and this trend is also observed for the E190/195-E1s.

    Single-aisle jets are leading the global recovery in the aviation industry post-pandemic. While regional jets and turboprops have initially experienced a faster recovery in terms of utilisation, it has significantly slowed in the past two years.

    Regional Turboprops

    A common challenge currently faced by regional turboprops is MRO bottlenecks, resulting in a significant portion of the fleet being stored, and with only a very small number of ready-to-go aircraft available for sale or lease. In terms of flights tracked, the ATR 72-600 remains in growth mode as the only in-production regional turboprop today. Utilisation of the ATR 72-500 and Dash 8-400 has stagnated below 2019 levels, which, apart from the MRO challenges, can be attributed to part-outs and freighter/firefighter conversions respectively over the past four years.

    The outlook for the turboprop fleet varies by region, with all regions except Africa witnessing a decrease in fleet size. Africa stands out as the region that has fuelled growth by acquiring used aircraft.

    A notable observation is the absence of new orders for turboprops in the North American market, particularly in Canada. In the USA, passengers have long eschewed the use of turboprops in favour of regional jets, but in Canada, airlines may soon look to implement measures to address an aging turboprop fleet issue.

    Shifting the focus to OEMs, ATR is still yet to benefit from its monopoly (as DHC no longer manufactures new aircraft), but they do have a stable orderbook for three to four years as they look to renew aging fleets and enter new markets.

    Leasing activity in the regional turboprop market is influenced by an MRO bottleneck, resulting in a significant number of aircraft awaiting transition and placement. Concurrently, data from Cirium’s Fleets Analyzer indicates that some lessors have offloaded a considerable number of turboprops, mainly Dash 8-400 from their portfolios. Consequently, there is upward pressure on Market Lease Rates in the near future.  

    Regional Jets

    Smaller regional jets, such as the CRJ 100/200 and E145s, have experienced a significant increase in storage of aircraft, primarily due to the departure of several US operators from these fleets. Additionally, challenges like pilot shortage and the difficulty to overhaul the engines have driven the 50-seater aircraft out of the market due to the function of aircraft age. As a result, tracked flights for these aircraft have remained 60% below the levels recorded in 2019. Consequently, many operators have shifted their focus to 70-seater medium regional jets as a more favourable alternative in the scope clause compliant market (Scope clause in the USA, negotiated by pilot unions, limits regional aircraft to a maximum of 76 passengers and introduces a cap to the number of regional jets operated on behalf of major US airlines).

    The E175s have surpassed 2019 utilization levels, driven by two primary factors: increased deliveries of E175 aircraft and very low storage rates.

    This positive trend is expected to continue as the US heavy aircraft market anticipates ongoing demand for new aircraft, underscored by American Airlines’ order for 90 E175s, which may even replace the earlier models of the E175. This development highlights the role of medium regional jets in addressing the gap left by the retirement of the 50-seater fleet while US Scope Clause is not expected to change any time soon.

    With regards to the E2 GTF issues, storage rates are comparatively lower at 16%, in comparison to the storage rates of 22% for A220s and 36% for A320neos powered by GTF engines.

    Orders indicate a potential upward trend comparable to levels seen in 2018 as demand for more efficient and larger capacity regional jets continues to shape the regional aviation market.  If “crossover” types are included, it can be seen that interest has picked up and that competition has stimulated the wider 150 seat segment.

    Several factors contribute to this trend. Ron Baur notes, “The narrowbody market is sold out, and the E2 jets provide a cost-effective alternative to add frequency and open up new markets,” similar to what Scoot has accomplished. Additionally, the E2 offers a 25-30% reduction in trip costs and similar seat costs compared to smaller narrowbodies, according to Arjan Meijer.

    Lease Rates

    Much like most flight paths converge at a major hub, the market review naturally leads us to an analysis of Market Values and Market Lease Rate changes for regional jets over the past few years.

    The fleet weighted Market Value change for the ATR 75-500 is currently about 10% lower than pre-Covid levels. In contrast, the ATR 72-600 appears to be recovering well.

    However, the Dash 8-400 still has significant ground to cover, despite its very low availability. Ready-to-go aircraft in this category command a premium, but this price gap is expected to narrow in the coming months.

    The values for E175s remain stable, and this type continues to enjoy a dominant position in the market. On the other hand, the CRJ-900 has seen its value still significantly below pre-Covid levels, driven by softer demand. The E190 and E195 remain slightly lower than their pre-Covid values but show a slow but steady recovery, as noted by the transaction data gathered by Cirium (increases, especially in Market Lease Rates, were announced after the webinar in our October value review).

    The fleet-weighted Market Lease Rates for the ATR 72-500 have surpassed pre-Covid levels while the ATR 72-600 is showing signs of resilience, with current deals being negotiated north of the $100,000 mark – an amount not seen in the past four years in the secondary market. The Dash 8-400 reflects a similar trend with a slight lag.

    In contrast, the E2 and A220 have shown Market Lease Rates improvements of around 10% compared to pre-Covid levels, indicating a positive demand for these aircraft while the new types are also naturally less volatile.

  • The US Market Overview: Airlines

    Cirium Ascend Consultancy is trusted by clients across the aviation industry to provide accurate, timely, and insightful aircraft appraisals. The team provides the valuations and analysis the industry relies on to understand the market outlook, evaluate risks and identify opportunities.

    Discover the team’s industry reports & market commentaries. Read their latest expert analysis, viewpoints and updates on Thought Cloud.

    Yinan-Qin
    Yinan-Qin

    Yinan Qin, Senior Aviation Analyst, Cirium Ascend Consultancy

    PART THREE OF THREE – READ PART ONE: TRAFFIC AND PART TWO: AIRCRAFT ABS

    Q2 Financial Performance of US Airlines

    Given that major airlines will issue their Q3 results around the end of October, we are currently focusing on 2024 Q2 results to take a brief look at the financial performance of airlines in the United States.

    US airlines EBIT

    Source: Cirium Core, Airlines 2Q24 Financials

    The majority of the selected US-based airlines experienced moderate revenue increases during the second quarter of 2024, with year-on-year growth ranging from 2.0% to 6.9%.

    However, overall revenue growth momentum slowed compared to the same quarter last year due to softening yields and the slowing of passenger traffic growth from its recent Covid recovery to a longer-term mature market trend.

    JetBlue and Spirit Airlines in particular experienced revenue declines, blaming the intensified competition on domestic routes from market “overcapacity” and high sensitivity to passenger yields in their low-cost carrier (LCC) markets. Both airlines outlined a plan to cut underperforming routes, focus more on core leisure markets and enhance ancillary revenues.

    When it comes to profitability, six of the seven selected US airlines reported positive EBIT with only Spirit reporting losses.

    However, EBIT margins for most airlines narrowed compared to 2023 as most faced higher operating costs, driven primarily by increased labour costs due to new post-Covid contracts for pilots and cabin crew, as well as increased maintenance and fuel expenses associated with increased capacity and expanded fleet size.

    US airlines gross debt
    Leverage (Net Debt / TTM EBITDAR)
     AmericanUnitedDeltaSouthwestSpiritJetBlueAlaska
    23Q23.7x2.4x2.7x-1.3x25.3x3.1x1.6x
    24Q26.1x2.1x2.2x-0.6x717.7x-33.2x1.3x

    Source: Cirium Core, Bloomberg, Airlines 2Q24 Financials

    Several airlines continued their efforts to strengthen their balance sheets, achieving a year-on-year decline in gross debt by consistently paying down their obligations. However, JetBlue and Spirit saw an increase in gross debt. Leverage ratio measured by net debt/ Trailing Twelve Month (TTM) EBITDAR declined for most airlines while Spirit’s leverage ratio soared due to an increase in net debt position.

    On the other hand, Southwest reported a net cash position of $893 million as of June 2024 with substantial liquidity on hand, resulting in a negative leverage ratio.

    The negative leverage ratio position for JetBlue is, however, due to its deteriorated operating results in the first quarter of 2024, which led to a negative TTM EBITDAR. It is critical for carriers to enhance or maintain liquidity positions to rebuild their balance sheet and continue funding near-term aircraft deliveries.

    It is worth mentioning that Spirit’s financial health deteriorated substantially among the selected US airlines. According to Cirium Fleets Analyzer, Spirit is the largest US carrier operating an Airbus A320neo fleet equipped with PW1100G engines (116 out of 217 total aircraft), and the carrier grounded 20 aircraft per month on average during 2024. Although the carrier will receive $150 million to $200 million in credits as compensation from Pratt & Whitney for the full year 2024, this has largely disrupted the carrier’s operation since the onset of the GTF powder coating issue. While the airline failed to return to profitability and generate stable operating cash flow, its liquidity significantly diminished as a result of mounting debt obligations, extensive lease payments and pre-delivery payments. Additionally, the termination of the Spirit-JetBlue merger worsened the situation and left Spirit careening towards an unavoidable liquidity shortfall. As of June 2024, Spirit’s debt maturity schedule showed $1.3 billion in debt principal obligations (40.2% of total long-term debt outstanding) due by the end of 2025. According to a report by the Wall Street Journal on 3 October 2024, Spirit was in talks with its bondholders over the terms of a potential Chapter 11 filing. On the same day, Spirit’s stock price plunged by approximately 40%.

    Near Term Outlook and Countermeasure

    In 2024, US airlines are encountering increasing challenges in both revenue generation and cost management. Cash flows are under significant pressure due to tight profit margins, rising capital expenditure, heightening labour cost and potential spikes in fuel prices. Consequently, US airlines highlighted the near-term plan on the following aspects to weather the industrial headwinds:

    • Adjusting capacity to align with demand expectations: For example, American has scaled down its planned capacity growth, with a 3.5% increase for the second half of 2024. Delta also anticipates a decelerating capacity growth for the same period.
    • Rationalising route networks to improve yields: LCCs such as JetBlue and Spirit are eliminating less profitable routes and prioritising those with higher demand and yields. Additionally, American and Delta are expanding their transatlantic routes in summer 2025 to tap into the potential of this market segment.
    • Implementing effective cost-cutting initiatives: US airlines are focusing on reducing labour costs and fuel expenses to restore profit margins. While employee contract renegotiation is unlikely in the near future, airlines may right-size overhead and non-crew positions to reduce discretionary spending. Additionally, airlines may also need to develop fuel hedging strategies to mitigate the higher volatility in fuel prices amid the Middle East conflicts.
    • Strengthening balance sheet and deleveraging to enhance financial resilience: Carriers remain committed to paying down debt obligations and refinancing existing high interest debt structures. Take the big three airlines for example: American Airlines reduced its total debt by $1.8 billion during the first half of 2024 and highlighted its goal to reduce total debt by $15 billion by the end of 2025. Delta repaid $2.1 billion in debt in the first half of 2024, targeting a return to investment-grade ratings. United Airlines reported $6.2 billion in debt repayment in its six-month cash flow statement to reduce the airline’s interest burden in the years ahead.

  • The US Market Overview: Aircraft ABS

    Cirium Ascend Consultancy is trusted by clients across the aviation industry to provide accurate, timely, and insightful aircraft appraisals. The team provides the valuations and analysis the industry relies on to understand the market outlook, evaluate risks and identify opportunities.

    Discover the team’s industry reports & market commentaries. Read their latest expert analysis, viewpoints and updates on Thought Cloud.

    Yinan-Qin
    Yinan-Qin

    Yinan Qin, Senior Aviation Analyst, Cirium Ascend Consultancy

    PART TWO OF THREE – READ PART ONE: TRAFFIC AND PART THREE: AIRLINES

    The aviation asset-backed securities (ABS) market has encountered considerable challenges during and since Covid-19, further exacerbated by geopolitical conflicts and a relatively gloomy global economic outlook. These factors have collectively led to the downgrade of several ABS portfolios and a silent ABS market in the past two years, with a total of less than five portfolios issued in 2022 and 2023.

    After two years of market stagnation, lessors are now cautiously re-entering the market. In the first nine months of 2024, six new ABS portfolios were issued. Four of these consist purely of passenger aircraft, while the two PKAIR portfolios are essentially loan pools. The basic information of these portfolios are as follows:

    Note: *No information available for this tranche from Bloomberg Source: Cirium Core, Bloomberg

    Several Key Changes Observed Between Current Market vs Pre-pandemic Market

    Covid-19 has altered investor’s risk appetite with respect to airlines and aircraft, with an emerging preference for airline with robust credits and assets with higher liquidity. Comparing the four 2024-issued portfolios with those from 2019 within Cirium’s watchlist, there has been a notable shift towards next-gen aircraft. As more airlines upgauge and modernize their fleets with newer generation aircraft for better fuel efficiency and operational performance, lessors are naturally following this trend and building portfolios that feature these advanced aircraft.

    Single-aisle aircraft remained the dominant type in the new 2024 portfolios, representing 94% of the total asset pool measured by aircraft count.

    Popular variants continue to be the Boeing 737 Max 8, Airbus A320ceo and A320neo. On the twin-aisle side, all variants in the asset pool are newer generation aircraft, including the 787-9, A330-900neo and A350-900. This contrasts with the 2019 market where the A330-300 and 777-300ER were popular options.

    With regard to aircraft operating regions, lessees based in Asia-Pacific, Europe and North America were the top three in 2019 while Latin American lessees have become the largest market segment in the 2024 portfolio. There are no aircraft operating in Russia due to sanctions, while exposure to the Chinese market has declined significantly in 2024. This reflects investor concerns about the stagnant Chinese economy and increasing political tension between the USA and China.

    Coupon rates have inevitably increased for comparable tranches to reflect the higher interest rate environment. For instance, examining Carlyle’s ABS portfolio over the last couple of years reveals that the tranche A coupon rate has risen from around 4.0% (AASET 2019-1, AASET 2019-2, AASET 2020-1) to over 6.0% (AASET 2022-1, AASET 2024-1). Additionally, the tranche structure has been simplified with limited subordinate tranches and E notes issued after 2022.

    Overall, it is quite evident that the market preference is now leaning towards single-aisle, advanced technology younger aircraft with limited exposure to secondary market deals.

    Meanwhile, investors require higher yields during the post-pandemic period to mitigate the risk associated with higher interest rates and market volatility.

    Near-term ABS Market Outlook

    The ABS market has shown several positive signs that have further improved investor confidence. Meanwhile there is robust recovery in global traffic, an undersupplied market and an increasing presence of newer generation aircraft driven by fleet modernisation. Additionally, airlines have shown improved financial performance, bottom-line growth and balance sheet deleveraging, which have enhanced their credit ratings since the pandemic.

    More importantly, a confirmed interest rate drop will further enhance the market.

    The recent Federal Reserve interest rate cut of 50 basis points (rather than the expected 25 basis points) reflects improvements in inflation and employment rates and indicates lower likelihood of a tightening monetary market again. This reduction in interest rates will increase margins in asset pricing. Therefore, an increase in aviation ABS portfolios is anticipated in the future, although a return to levels seen pre-pandemic is unlikely in the near term. Investors are expected to re-enter the market cautiously, focusing more on asset quality than quantity.

  • Delta’s Recovery From Tech Challenges Earns Platinum

    By Mike Malik, Chief Marketing Officer at Cirium

    Technology disruptions are always a challenge, but when they hit during the peak summer travel season, like Delta experienced, the stakes are even higher. This past summer, on July 19th, Delta’s operations were upended by a worldwide malfunction of computers running Microsoft Windows, caused by a flawed software update by the cybersecurity firm CrowdStrike. Airlines from around the world were affected, but none more so than Delta, a big user of both Windows and CrowdStrike software.

    The Atlanta-based airline had to cancel nearly 7,000 flights over five days, costing it an estimated $500 million. That included roughly $380 million in lost revenue, plus $120 million in additional costs. At the same time, Delta suffered damage to its reputation as an airline renowned for operational reliability. Just last year, it was the recipient of Cirium’s prestigious Platinum Award, given to carriers that excel in on-time performance while navigating considerable operational complexities. Delta won the award in 2021 and 2022 as well. As Cirium CEO Jeremy Bowen said at the award ceremony, “Delta’s achievement sets a high standard for operational performance in the airline industry, and it is an inspiration for others.”

    Delta

    Ed Bastian (center) and team receiving the Cirium’s Platinum Award for the third year in a row.

    The Delta team representatives proudly show the award to their colleagues.

    How Badly Did the CrowdStrike Disruption Impact Delta’s Relative Operational Performance?

    During June, the month before the CrowdStrike incident, Delta recorded an on-time performance rate of 80.05%. This was best among all airlines in North America, based on data from the Cirium On-Time Performance Program. It was eighth best among all airlines worldwide. For comparison, United’s on-time rate in June was 77%, American’s 74%, and Southwest’s 72%. Delta’s completion factor, which measures the percentage of flights operated rather than cancelled, topped 99%.

    What about July? Unsurprisingly given all the CrowdStrike-related cancellations, Delta’s monthly completion factor dipped below 95%, the lowest rate among U.S. airlines. But for flights that did operate, punctuality remained solid. Delta’s July on-time rate was 72.36%, a decline from its normal rate but still third best across all of North America. Only Alaska Airlines and United posted a better July rate. Cirium’s monthly on-time performance reports provide an even more detailed look at the numbers. Delta, for example, operated 74% of its July flights within their scheduled block times (this was 77% in June). Its planes during the month departed on-time rate of 72.36% (80.5% in June). They arrived on time at a rate of 72.85% (79.88% in June).

    North American Airlines: On-Time Performance in June 2024

    North American Airlines: On-Time Performance in July 2024

    What About August and September?

    Delta’s operational performance quickly bounced back after the difficult month of July. Cirium’s August report on industry on-time performance showed the Atlanta airline once again atop the North American charts, registering an on-time arrival rate of 80.9%. Its completion factor rebounded to 98.2%. In September too, it was number one in North America, lifting its punctuality to 87.81%. This was good enough to rank Delta number four on Cirium’s global ranking for September.   

    Speaking at a Morgan Stanley event on September 12th, Delta’s chief financial officer Dan Janki told investors, “The operations continue to run very well. Delta remains the industry leader. If you look across all on-time performance metrics, we lead all carriers in that position. On completion factor, we’re number one related to network carriers. And that’s even with a tough five days that we had [from] the tech outage in July… the Delta team managed to return us to an industry-leading position.” CEO Ed Bastian gave the same message during the carrier’s third quarter earnings call on Oct. 10th. “Year-to-date, our on-time performance is best in the industry, and our completion factor leads the network carriers even when including the impact of the outage.”

    North American Airlines: On-Time Performance in August 2024

    North American Airlines: On-Time Performance in September 2024

    AC – Air Canada, AS – Alaska, AA – American Airlines, F9 – Frontier Airlines, B6 – JetBlue, WN Southwest, NK – Spirit Airways, UA – United, WS – Westjet

    Where Does Delta Go From Here?

    Janki said the airline is reviewing how it handled the CrowdStrike disruption. “There’s definitely a set of learnings related to all elements: people, process, policy.” The airline will continue, he added, to invest heavily in new operations technology. Looking ahead, Cirium’s Diio network planning system shows that Delta is planning to operate more than 430,000 flights in the fourth quarter of 2024, with more than 60 million seats. Both figures represent a roughly 5% increase from last year’s fourth quarter. Running an airline with that much capacity and complexity is no easy task!

    What’s Delta’s Secret?   

    How exactly did Delta win Cirium’s Platinum Award three years in a row? How did it bounce back from July’s IT disruption to once again lead North America in on-time arrivals during August and September? One answer is close cooperation with its most important hub airports. Cirium, in addition to its monthly on-time performance reports for airlines, publishes monthly reports for airports too.

    Atlanta, Delta’s busiest hub, which is also the world’s busiest airport, ranked 16th in the world among global airports during both August and September.

    Other important Delta airports like Minneapolis-St. Paul (MSP), Detroit (DTW), Los Angeles International (LAX) and Salt Lake City ranked high on Cirium’s latest rankings as well.

    Ever since merging with Northwest in 2008, Delta has strived to improve its operational reliability. Many of its efforts are described in the 2016 book Glory Lost and Found, How Delta Climbed from Despair to Dominance in the Post-9/11 Era, by Seth Kaplan and Jay Shabat. The airline has since continued to adopt new technology and is now exploring new applications that use artificial intelligence. Delta speaks often about leveraging data and empowering employees. It owns Delta Tech Ops, which calls itself the largest airline maintenance, repair, and overhaul (MRO) provider in North America. This is particularly helpful with so many current challenges in the aviation supply chain, including parts and engine shortages.

    The in-house maintenance expertise also helps Delta deliver strong reliability on older planes, even as it introduces many new planes.

    According to Fleets Analyzer, Cirium’s leading analytics database of worldwide aircraft data, Delta has more than 300 new Airbus and Boeing planes on order, including A350s, A330s, A321s, B737 Max 10s, and A220s.

    https://infogram.com/deltas-monthly-on-time-arrival-rate-2024-1h7v4pdpjlel84k?live

    More Platinum Awards on the Horizon?

    Managing a global airline with a diverse fleet is no small task, yet Delta continues to set the standard for reliability, as highlighted in Cirium’s monthly on-time reports. While the CrowdStrike issue in July posed a challenge, Delta quickly regained its stride, delivering strong operational performances in August and in September. As the year unfolds, the question remains: how high can Delta climb? Stay tuned to our monthly reports to track their continued success.

    Learn more about Cirium On-Time Performance. View all the Monthly On-Time Performance Airlines reports.

  • Cirium Unveils Aircraft Maintenance Tracking & Projection Tool

    Cirium Ascend’s new Ground Events analytics tool is set to revolutionize the aviation aftermarket by providing the first truly global view of historical and projected aircraft maintenance events using satellite-based flight tracking.

    Ground Events, the latest addition to the Cirium Ascend portfolio, provides MROs, OEMs, aircraft parts suppliers and airlines with the ability to generate comprehensive analytics which includes market share trends, turnaround times to derive strategic insights on markets for airframe maintenance, cabin retrofits and aircraft paint work.

    The solution’s easy access to data makes Ground Events a powerful tool, helping users better understand aircraft maintenance events. Businesses such as MRO providers can analyse market share, forecast future ground events, and improve cost efficiency.

    Mehmet Erdogan
    Mehmet Erdogan

    “We collaborated with the market, including a major European OEM, to launch a first-of-its-kind solution which pinpoints when the last maintenance check actually occurred and predicts future events based on this. It’s our mission to support the industry to inform their analysis of aircraft maintenance and better plan for future checks and events, saving significant time and costs,” said Mehmet Erdogan, VP of Ascend.

    Cirium’s Ground Events tracks aircraft locations and dates on the ground, along with maintenance contract details, to analyze why a commercial aircraft has been grounded for seven or more consecutive days. It also offers insights into historical maintenance patterns and usage trends, allowing for future maintenance projections at the tail number level.

    In accessing Ground Events users can select from a range of maintenance events such as C-checks, Heavy checks, strip/painting, retrofits and/or a combination of any of the above for a customizable search over a chosen date range.

    The results can then be filtered by a variety of different fields such as operator, MRO provider, location, aircraft and engine data. The results are then displayed in an easily digestible format of tables and charts that can be compared to historical data and exported as required.

    The tool enables businesses to analyze the data to precisely place aftermarket services and parts where they are needed, understand maintenance patterns of different aircraft types, identify retrofit opportunities and overall, optimize how aircraft are being utilized.

    Ground Events shows, for example, that FedEx Express, a global delivery service company, permanently retired 22 Boeing 757s between March and May 2024 for fleet modernization. This anticipated the supply chain issues involving heavy maintenance for the 757 which peaked from Q2 2021 to Q1 of the following year, with a decline in fleet size and flight hours by the end of 2022.

    Similarly, the tool shows over 450 Airbus A330-200/300s are expected to undergo C or Heavy maintenance checks during the next eight quarters. For this, Cirium tracked nearly 650 A330ceos undergoing checks with 47 MRO providers in the past two years.

    Ground Events uses detailed data on aircraft maintenance from around 57,000 ground events dating back to 2018 to help predict trends and upcoming peaks and troughs in demand.

    It integrates proprietary fleet maintenance intelligence and satellite-based flight tracking to ensure precise locations and dates of aircraft on the ground. The data is supported by a team of fleet data experts and flight data analysis to ensure accurate and up to date information is shared, with an average of 2,700 updates per week.

    Find out more about Cirium Ascend Ground Events, and access a demonstration video of the tool.

  • The US Market Overview: Airline Passenger Traffic

    Cirium Ascend Consultancy is trusted by clients across the aviation industry to provide accurate, timely, and insightful aircraft appraisals. The team provides the valuations and analysis the industry relies on to understand the market outlook, evaluate risks and identify opportunities.

    Discover the team’s industry reports & market commentaries. Read their latest expert analysis, viewpoints and updates on Thought Cloud.

    Yinan-Qin
    Yinan-Qin

    Yinan Qin, Senior Aviation Analyst, Cirium Ascend Consultancy

    PART ONE OF THREE – READ PART TWO: AIRCRAFT ABS AND PART THREE: AIRLINES

    US Market Traffic Overview

    Passenger traffic

    Source: Cirium Core

    Airline passenger traffic in the US market has seen a robust recovery post-Covid and through 2023, with key segments such as US-Europe, US-Latin America and domestic US fully rebounding and surpassing capacity from the same month in 2019. In contrast, the recovery of trans-Pacific routes remains sluggish with volume still significantly below pre-Covid levels as of today.

    One factor contributing to this slow recovery is the heightened political tensions between US and China – one of the main markets in Asia contributing 31% of total flights in 2019. These tensions have created unfavorable market conditions, dampening travel demand between the two countries and perhaps making routes unprofitable for US carriers. According to the Cirium SRS Analyzer, the number of US-China direct flights original-destination (OD) pairs declined by 57.8% from 64 in 2019 to 27 in 2024. Meanwhile, the number of flights dropped from over 11,600 in 2019 to below 3,800 in 2024, marking a 67.4% decrease. It is reported that American Airlines, Delta Air Lines and United Airlines requested another extension from the US Transportation Department (DOT) in September 2024 for unused flights frequencies on routes connecting China to avoid losing those routes.

    Another factor to consider is that the US in-service twin-aisle fleet has hardly grown since 2019. Flights between the US and China require approximately two widebody aircraft just to service a single daily frequency.

    Considering that US carriers have redeployed a lot of capacity formerly serving China to other markets in the last five years, and also retired some older aircraft during Covid, and considering slow deliveries of 787s and A350s, the US carriers wouldn’t have the necessary aircraft anytime soon to return to their full, pre-Covid China timetable even if they wanted to and the demand existed. In light of this, we do not expect US-China capacity to return to pre-Covid levels in the short-to-medium term.

    US-based Airlines Fleet Overview

    Source: Cirium Core

    The current passenger fleet operated within the US market has grown from just over 6,200 aircraft in September 2019 to almost 7,000 in September 2024, reflecting a 2.3% CAGR. Meanwhile, the stored fleet ratio has declined from a peak of 51.9% in April 2020 to 8.6% as of September 2024, albeit still being 2.8 percentage points higher than pre-Covid levels. Both single-aisle and twin-aisle fleets maintained a below-average storage rate while turboprops and regional jets experienced a more sluggish recovery primarily due to a shortage of pilots and flight crews. The rise in inactive single-aisle aircraft since early 2024 is attributed to the temporary grounding of 47 Boeing 737 Max 9s following the door plug incident in January 2024 and A320neo GTF engine issue, which has grounded a monthly average of 32 US-operated A320neos equipped with PW1100G engine over the past nine months, most of which are from Spirit’s fleet. This situation is expected to persist until at least 2026 when the engines can be inspected, and any necessary parts can be replaced.

    Overall, the size of the current fleet in the American market is expected to continue growing, with 2,586 aircraft on order and 798 aircraft on option as of September 2024.

    The growth will be at a slower pace due to a stagnant production ramp-up from major OEMs, stemming from supply chain challenges and labour strikes (particularly at Boeing). The ongoing GTF engine issue will further exacerbate the under-supplied market dynamic in the near-term. However, on a positive note, the constrained supply should continue to underpin lease rate strength.

  • The A330neo: Is Airbus’s Middle Child Fighting Back?

    Cirium Ascend Consultancy is trusted by clients across the aviation industry to provide accurate, timely, and insightful aircraft appraisals. The team provides the valuations and analysis the industry relies on to understand the market outlook, evaluate risks and identify opportunities.

    Discover the team’s industry reports & market commentaries. Read their latest expert analysis, viewpoints and updates on Thought Cloud.

    Ascend analyst Tim Chun Hing Li
    Ascend analyst Tim Chun Hing Li

    Tim Li, Aviation Analyst, Cirium Ascend Consultancy

    Since July’s Farnborough air show, the Airbus A330neo has recorded 57 new firm orders and 60 options from four customers, surpassing all other models as the most ordered widebody aircraft in the past four weeks. This begs the questions: Is the A330neo – Airbus’s ‘middle child’ – making a comeback, and how so? Furthermore, how will a change in operator base affect the development of the type?

    Until recent weeks, Airbus’s order books have been dominated by the A320neo family and the A350, with backlogs of over 7,000 and 650 aircraft to date respectively. However, the A330neo is finally making its presence felt, especially with options from Flynas, additional orders from Virgin Atlantic, and particularly striking, new firm orders for 20 aircraft from VietJet Air and 30 from Cathay Pacific. These orders push the A330neo total order tally to 360 aircraft, with a current backlog of more than 200. This also positions Cathay as the second biggest airline customer for the A330neo programme, following Delta Air Lines and preceding TAP Air Portugal.

    Among all these new orders, Cathay Pacific’s is a particularly big shot in the arm for the previously moribund A330neo programme. As the fifth largest A330ceo operator, Cathay is expecting these A330neos to “progressively replace” its existing fleet of A330ceo and 777 classics, a motive which Airbus believed would bring orders from its vast A330ceo operator base due to its “low-risk” and commonality when it launched the re-engined family a decade ago. Looking back, 21 of the 51 airline A330ceo operators with more than five A330ceos originally selected the Boeing 787 as their next generation mid-gauge widebody – a clean-sheet design that entered service some seven years before the A330neo.

    Airbus A330neo and Boeing 787 Fleet Size of the Top 51 A330ceo Operators

    Airbus A330neo and Boeing 787 Fleet Size of the Top 51 A330ceo Operators

    Source: Cirium Fleets Analyser

    Cathay was one of the remaining 20 operators with a fleet of more than five A330ceos that had not placed orders for either the 787 or the A330neo. While ‘significant price concessions’ undoubtedly played a role in this final decision, one can infer that Cathay had the bargaining power to negotiate a similar discount from Boeing for the 787 or Airbus for more A350s. Therefore, it appears that primary drivers for Cathay to opt for the A330neo were the smaller backlog and more-favourable mix of operating and ownership costs and payload-range performance.

    The A330neo’s smaller backlog enables an earlier delivery timeline compared with the 787 and A350. OEMs have struggled for some time to crank up their production rate to go through their backlogs.

    The 787 backlog is 780 aircraft currently. Coupled with concerns over Boeing’s quality control arising from multiple incidents recently, even if Boeing was to increase its production rate to 10 per month, the earliest availability would not be until the end of the decade. In contrast, delivery for A330neo is achievable as early as 2028, given a delivery rate of four per month. Given that Cathay’s oldest aircraft is now 24 years old, beginning replacement three years earlier seems timely.

    Expected Number of Delivery and Current Yearly Delivery Rate

    Expected Number of Delivery and Current Yearly Delivery Rate

    Source: Cirium Fleet Analyser, Airbus, Boeing

    Although Cathay’s 48-strong A350 fleet can support all its operations, the airline needed an optimal solution to scale up capacity for its high-demand regional network. This is where the A330neo comes in. Ascend’s opinion on current delivery value suggests that an A330-900 is 33% cheaper than an A350-900. Even though the type is currently a less popular option comparing to the A350, it has seen lower volatility during downtime as its new generation technology allows a more efficient operation which is more attractive to operators when demand softens. Furthermore, the operating cost is reduced due to its commonality with the rest of Cathay’s Airbus fleet.

    Value Trends of A330-900 neo and A350-900

    Source: Cirium Value Time Series, On Delivery Market Value as of 22nd August 2024

    With all the above in mind, which of the remaining A330ceo operators would be expected for another major A330neo replacement order? Among the next 10 biggest A330ceo operators that have neither the 787 nor the A330neo, Air Transat and Aer Lingus are switching strategy to narrowbody long haul; Asiana is merging with Korean Air which operates 787s; Aeroflot is under sanction; Swiss’s fleet is younger and its mother group Lufthansa opted for the 787 though “had no immediate plans to introduce 787s to its fleet”, and Philippine Airlines just streamlined its fleet after recovering from Chapter 11. This leaves just Iberia, Sichuan Airlines, Brussels Airlines and Discover Airlines, with Sichuan the only one that does not have to follow a parent group decision. Operating both types simultaneously is unlikely either, with Virgin Atlantic being the only example, potentially joined by Hainan Airlines which hinted that in its stock exchange filing in April this year. The “Big Three” Chinese operators can be on watch as well since their 787 fleets are relatively small, though that also depends on the recovery pace of the Chinese aviation market.

    Instead of viewing it strictly as a replacement for the A330ceo, the A330neo presents itself as an ideal type for operators looking to scale up their network and operations.

    Prime examples include TAP, Condor, Cebu Pacific, ITA Airways and the newly joined VietJet Air. Notably, none of these top 10 A330neo operators have ever had a fleet of more than 10 A330ceos. The induction of the A330neo not only allows them to expand into the long-haul market, even for LCCs, but it also boosts the capacity of their trunk routes.

    These observations suggest that the A330neo operator base may end up being quite different from the A330ceo’s, composed of a higher proportion of mid-tier credit and smaller scale operators, particularly given the model is still in the early stages of its product cycle. This may dissuade some of the more conservative banks from financing the aircraft, leading to less presence in SLB, JOL/JOLCO or other financial markets, and potentially impacting its liquidity and value in the long term.

    Learn more about Cirium Fleets Analyzer.

    Monitor and benchmark key value and liquidity metrics by different aircraft asset classes. FIND OUT MORE ABOUT VALUE TRENDS.

  • Reshaping Air Routes: Focus on the Greater Bay Area

    Cirium Ascend Consultancy is trusted by clients across the aviation industry to provide accurate, timely, and insightful aircraft appraisals. The team provides the valuations and analysis the industry relies on to understand the market outlook, evaluate risks and identify opportunities.

    Discover the team’s industry reports & market commentaries. Read their latest expert analysis, viewpoints and updates on Thought Cloud.

    Lionel Olonga
    Lionel Olonga

    Lionel Olonga, Senior Valuations Analyst, Cirium Ascend Consultancy

    The Hong Kong Airport Authority’s initiative to incentivize airlines to establish new routes and increase flight frequencies is a strategic measure aimed at enhancing the region’s competitive edge. However, while this approach is a positive development, it may prove insufficient in addressing the broader challenges of manpower shortages and regional connectivity. Compounding these issues, some foreign carriers have withdrawn services from China, citing unfair competition due to restrictions on using Russian airspace. These unfavourable conditions in Greater Bay Area (GBA) airports raise questions about the region’s near-term prospects.

    Despite these efforts, Hong Kong International Airport (HKG) continues to operate below pre-pandemic capacity levels. Cirium data indicates that seat capacity departing from Hong Kong in Q2 2024 is 29% lower than in the same period in 2019. HKG is grappling with significant reductions in flights across all regions, with the most pronounced declines seen in routes to Africa, Europe, and Australasia. These challenges may be attributed to various factors, including political instability, economic pressures, and increased competition from neighbouring airports. However, the primary obstacle remains the persistent shortage of human resources.

    For instance, Cathay Pacific has revised its forecast for achieving full passenger capacity recovery, now aiming for the first quarter of 2025 rather than the end of 2024. This delay is attributed to a shortage of pilots and cabin crew. Additionally, ground handling service providers are grappling with staffing deficiencies, which are causing them to either reject flights from foreign carriers or impose excessively high service fees. These labour shortages are notably impeding the city’s connectivity and hindering its overall recovery within the global aviation industry. As a result, ticket prices are expected to stay high, with limited route options available to travellers.

    The Departing Seat Capacity of Major GBA Airports

    The departing seat capacity of major GBA airports

    Source: Cirium Core

    On the other side, the seat capacity of other two major Greater Bay Area (GBA) airports, Guangzhou Baiyun International Airport (CAN) and Shenzhen Bao’an International Airport (SZX), have exceeded the pre-COVID levels, thanks to the strong domestic market recovery. CAN shows overall growth in flight and seat capacity, with particularly strong growth in the Asian markets. However, there is a notable decrease in flights to North America and Australasia. The available-seat-kilometres (ASK) indicates that the recovery of the inter-continental traffic at CAN is still lagging. SZX has seen significant growth, particularly in flights to Asia, Europe, and the Middle East, reflecting its increasing importance as an international hub. However, it also experienced a sharp decline in Australasia and North America.

    The Capacity in Terms of Available-seat-kilometres (ASK) of Major GBA Airports

    Source: Cirium Core

    Flight Capacity by Region From Major GBA Airports

    Flight capacity by region from major GBA airports

    Source: Cirium Core

    Hong Kong is encountering intensified competition from within the Greater Bay Area (GBA), where international airlines are increasingly choosing direct routes to other regional hubs, potentially diverting traffic away from the city. To address this challenge, it is essential for Hong Kong to create a financially appealing environment for airlines to maintain their operations. A key component of this strategy involves addressing the ongoing staffing shortages, including those for pilots, cabin crew, and ground handlers. The government’s Labour Importation Scheme for the aviation sector is expected to alleviate these resource constraints in the near term, thereby supporting Hong Kong’s competitive position in the region. CAN and SZX both demonstrated growth between Q2 2019 and Q2 2024, with CAN increasing by 6.85% and SZX by a significant 18.39%. This suggests that both airports have been strengthening their positions as key regional hubs. The sharp growth in Shenzhen may indicate a strategic shift, potentially capturing market share from Hong Kong. However, both airports have seen a decline in flights to North America, reflecting the impact of geopolitical tensions. Overall, the expansion in these two GBA underscores their growing importance in the region, even as they navigate the challenges posed by shifting global dynamics.

  • How Twin-Aisles Came to the Fore at Quiet Farnborough

    Cirium Ascend Consultancy is trusted by clients across the aviation industry to provide accurate, timely, and insightful aircraft appraisals. The team provides the valuations and analysis the industry relies on to understand the market outlook, evaluate risks and identify opportunities.

    Discover the team’s industry reports & market commentaries. Read their latest expert analysis, viewpoints and updates on Thought Cloud.

    Max Kingsley-Jones, Head of Advisory, Cirium Ascend Consultancy

    A total of 260 new orders and order commitments were disclosed during the Farnborough air-show week in late July.  Although this was the lowest volume of show announcements for many a year Cirium Ascend estimates that the combined value of all the new deals is worth close to $26 billion (in Base Full-Life Value terms).

    The vast majority of the show announcements – 245 – were for the “big two”, with the remaining 15 being for regional turboprops (ATR and De Havilland Aircraft). Two-thirds (164) of the mainline aircraft orders and commitments were on the Airbus books.

    Cirium fleets data shows that there was a relatively high volume of widebody announcements during the week, with total orders and commitments for twin-aisles (including freighters) edging single-aisles,126 to 119. Total twin-aisle orders and commitments were worth $18.8 billion, versus $7 billion for the single-aisles.

    Farnborough Airbus/Boeing Announcements by Aircraft Category & Value

    bar chart: Farnborough Airbus/Boeing announcements by aircraft category & value

    Source: Cirium Fleets Analyzer, *Includes factory freighter. Data includes firm orders and commitments to order

    The emphasis this year on the twin-aisle market is unsurprising, given the excessively long lead times that now exist across the single-aisle production lines. The industry has been relatively under ordered on twin-aisles post Covid, but backlogs are now beginning to extend out towards the end of the decade.

    Together, Airbus and Boeing disclosed 91 new firm orders along with 154 commitments to order.

    Boeing closed on its rival in value terms (44%) thanks its relatively high proportion of twin-aisle/freighter announcements.

    The biggest show announcement in terms of total units came from Saudi low-cost operator Flynas, which disclosed commitments for 90 aircraft – 75 A320neo family aircraft and 15 A330-900s. There was a noticeable absence of the usual raft of Middle East show announcements – although Qatar Airways disclosed a pre-existing order for 20 777-9s placed back in March. Emirates was the only other announcement from the region, placing a new firm order for five 777F factory freighters.

    However, Asia-Pacific operators compensated, with their combined announcements for 106 aircraft from four operators accounting for 43% of show deals by unit. These included JAL (11 A321neos, 20 A350s and 10 787s), Korean Air (20 777-9s and 20 787s), VietJet Air (20 A330-900s) and Drukair (five A320neo family).

    Farnborough Airbus/Boeing Announcements by Region & Aircraft Category

    bar chart-Farnborough Airbus/Boeing category17

    Source: Cirium Fleets Analyzer, *Includes factory freighter. Data includes firm orders and commitments to order

    Other world regions were less represented, with Virgin Atlantic’s order for seven A330-900s being one of just two European announcements, Luxair being the other with two 737-10 Max orders. Just one US customer deal was announced – a commitment for four 777Fs from Miami-based National Airlines. Abra Group – parent of Gol and Avianca – was the sole Latin American announcement: a commitment for five A350s. In Africa, Berniq Airways of Libya placed orders for six A320neo family.

    There was none of traditional flurry of leasing company announcements at this year’s show, with only Macquarie AirFinance announcing an order (20 737-8 Max).

    Embraer was absent in terms of commercial order show announcements but was well represented in the aircraft display with its E-Jet E1 converted freighter, E2 passenger variant and C-390 airlifter present and did receive orders from the Netherlands and Austria for the latter. CEO of the Brazilian OEM’s commercial arm, Arjan Meijer, stated during the show that despite the radio silence, various deals for at least 300 aircraft are currently under negotiation.

    learn more about Cirium Ascend Fleets Analyzer.

  • Japan’s Airport Fuel Shortage – an Inbound Travel Problem?

    Cirium Ascend Consultancy is trusted by clients across the aviation industry to provide accurate, timely, and insightful aircraft appraisals. The team provides the valuations and analysis the industry relies on to understand the market outlook, evaluate risks and identify opportunities.

    Discover the team’s industry reports & market commentaries. Read their latest expert analysis, viewpoints and updates on Thought Cloud.

    Joanna Lu
    Joanna Lu

    Joanna Lu, Head of Consultancy Asia, Cirium Ascend Consultancy

    Japan, celebrated for its rich cultural heritage, technological innovation, and scenic beauty, has consistently attracted significant international tourism. There have recently been reports of critical fuel supply issues at regional and major airports like Narita, typically attributed to an influx of inbound travel. However, closer examination indicates that these challenges stem more from supply chain disruptions and labour shortages exacerbated by Japan’s aging population and stringent immigration policies, than from the increase in travel alone.

    The Japan National Tourism Organization (JNTO) reports a significant increase in tourists from South Korea, Taiwan, and other Asian countries. However, with a lag in outbound tourism from China to Japan, it is essential to examine evolving travel patterns and identify the current top destination markets for Japan. This analysis focuses on Japan’s international travel landscape, specifically seat capacity scheduled on key routes over the next two months and compares these trends with pre-pandemic levels.

    Utilizing Cirium’s schedule data, we observe shifts in airline capacity dynamics in the post-pandemic era. The Chinese market remains a significant gap for Japan, with a 6% decrease in seat capacity in Q3 compared to 2019. However, South Korea has become Japan’s largest international destination market, showing a 10% increase in seat capacity compared to Q3 2019.

    Additionally, Japan sees new market opportunities with Australia and Vietnam, projecting 29% and 9% growth in Q3 2024 versus 2019 levels, respectively.

    When examining the city level, significant variations across different routes indicate shifts in demand patterns.

    Strong Recovery in Key Markets

    The almost 20% increase in departing seats in July and August to Seoul underscores robust recovery, driven by cultural ties and expanded business engagements between Japan and South Korea. Increased diplomatic efforts and eased travel restrictions have also contributed to this surge. Currently, travel between Korea and Japan is quite accessible, with both countries having resumed visa-free travel for short-term visits. South Korean and Japanese citizens can travel between the two countries without a visa for stays up to 90 days for tourism or business purposes.

    Resilience in Business and Tourism Hubs

    Taipei has seen seats increase by 8% in July and 4% in August, signalling a resurgence in business travel and tourism, buoyed by the reopening of international conferences and exhibitions and robust tech industry collaborations between Japan and Taiwan. Shanghai’s seats are up by 2% in both July and August. Bangkok sees an increase in August, reaching pre-Covid levels, although seats are still down by 27% in July. Singapore’s seat capacity is up by 4% in both July and August, reflecting its resilience in facilitating regional travel, supported by robust air connectivity and strategic business ties with Japan. The city-state’s efficient handling of pandemic challenges has reinforced its appeal as a gateway for travellers to and from Japan. The Hong Kong market hasn’t fully recovered, being roughly 14% down in seat capacity mainly due to aircraft supply shortages at Cathay Pacific.

    Challenges in Traditional Outbound Markets

    However, traditional outbound markets such as Busan, Manila, and Honolulu have seen declines in departing seats compared to 2019 due to reduced Japanese outbound travel. Busan faces reduced demand amid competition from Seoul’s expanded connectivity, while Manila and Honolulu contend with decreased tourist spending power amidst economic uncertainties.


    Addressing the fuel supply shortage issue, this is likely driven by supply-side constraints rather than demand-side factors.

    Overall international seat capacity out of Japan in Q3 remains around 7% lower than 2019 levels, with domestic seat capacity down by 2%.

    While the total seat capacity out of Japan (both international and domestic) in Q3 2024 is 6% higher than the same time last year, there is insufficient evidence to attribute the current shortage to surging inbound travel demand.

    Jet fuel, a product of crude oil refining, presently sees declining production due to decreased demand for gasoline and other petroleum products amid energy-saving measures and decarbonization efforts in Japan. Japanese oil wholesalers are consolidating and reducing the number of refineries, with only 20 active refineries as of June 2024 compared to 49 in 1983. Consequently, fuel must travel further to reach airports, compounded by labour shortages impacting both maritime and land transportation operators. Technical issues at Japan’s largest refiner, ENEOS’s Kashima refinery, further exacerbate the situation.

    Fuel shortages are already causing problems at airports across Japan, particularly regional ones. Cirium schedule data by airport reveals significant variations in flight number growth across regional airports, explaining the severity of issues at certain locations. Cirium Ascend Consultancy will continue to monitor the situation but believes the primary driver of the crisis is not the rapid recovery of travel to Japan.

    Japan’s travel industry faces a complex landscape of recovery, resilience, and challenges. Addressing these issues will require strategic planning and collaboration across various sectors to ensure sustainable growth and stability in the face of evolving travel dynamics and supply chain constraints.

  • Cirium Ascend Base Value Updates July 2024

    Cirium Ascend Consultancy is trusted by clients across the aviation industry to provide accurate, timely, and insightful aircraft appraisals. The team provides the valuations and analysis the industry relies on to understand the market outlook, evaluate risks and identify opportunities.

    Discover the team’s industry reports & market commentaries. Read their latest expert analysis, viewpoints and updates on Thought Cloud.

    George-Dimitroff
    George-Dimitroff

    George Dimitroff, Head of Valuations, Cirium Ascend Consultancy

    Cirium Ascend released updated Base Value (BV) forecasts on 1 July 2024. They went live in Cirium’s Values Analyzer platform shortly after midnight BST (GMT +1). Some of the key themes in the latest revisions include:

    1. The BV floor is getting higher

      Engine values have been increasing more rapidly than aircraft values and the portion of an aircraft’s value that is attributable to its engines has been increasing steadily over the last few decades. Higher engine values mean higher part-out values toward the end of an aircraft’s life, which means that the floor at which BVs level off (which itself is not a horizontal line) is now higher than it used to be. This has been observed most recently with older generation aircraft but is also expected to apply in the future with new generation aircraft.

      Our single-aisle aircraft BVs have been relatively stable since 2014, with limited (if any) impairments during Covid.

      “However, it is becoming increasingly evident that older aircraft are “cashing out” at retirement, generating proceeds higher than historical trends suggest.”

      This is not just because of the current heated market environment.

      Our new BV curves for single-aisles are shallower to reflect this fact. They take engine values into account alongside other factors. However, the BV does not necessarily equal the Part-Out Value, even if it may be guided by it.

      Current BVs are broadly unchanged for most younger types but increase with age – be it the current BV of an older aircraft, or the future BV of any aircraft, young or old. Due to the compounding nature of increases, projections further into the future will see greater increases in Half Life values.

    2. Engine green time does not depreciate as fast as previously projected

      A thorough analysis of the change of engine overhaul and LLP stack value over time indicates that engine value green time is depreciating less rapidly than projected previously. We specifically focussed our analysis on how this “green time” depreciates in Phase 2 (out-of-production) and Phase 3 (retirement) of an engine’s life, and while some worse performing engines did have significant double digit percentage drops in certain periods of time, the longer-term trend has been one of more gradual decline.

      We have taken these findings into account to modify some (but not all) of the depreciation rates of engine green time, and in most cases the decline is now less steep.

      Please note that the three-phase methodology for treating engine green time value that was introduced in November 2023 remains in place and we have simply modified some of the parameters within that logic to reflect our new expectations for the future.

    3. Current production delays push some inflection points further into the future

      The ongoing supply chain issues and constrained production rates at all OEMs mean that there will be fewer new deliveries in the coming years than previously expected, and consequently fewer aircraft will be retired in the next few years than projected in the 2023 Cirium Fleet Forecast.  Consequently, the engine programmes powering newer generation aircraft will likely have longer production runs, and thus take longer to enter Phase 2 or 3 of their lives, than previously projected.

      Another factor that contributes to later entry into Phase 2 or 3 for engines is that OEMs have now made it clear that some (but not all) of the technological improvements that they are developing currently and in the next few years are expected to be fully retrofittable to in-service engines at their next shop visit, which means that older engines could be upgraded to the latest production standard.

      Therefore, such engines are now not expected to see their values decline prematurely due to replacement by a more efficient version of the same engine.

      Consequently, inflection points for such engines are moving further out into the future than previously expected.

    4. New years of build see annual BV growth above the long-term trend for longer

      In late 2022 we implemented a change to our new aircraft BVs for what was then the next three years of production (up until 2025), so that those years of build showed slower-than-usual declines in new pricing in real terms (or faster increase in absolute terms) than the historical long-term trend suggested. The current supply shortages, full orderbooks, high escalation rates and our projection that the single-aisle market will not return to a supply / demand balance until at least 2028, result in an extension of this “holiday” period by another 3 years (until 2028). Build years from 2029 onwards return to the long-term new value trend, and we will continue to monitor and review them in light of how OEM new pricing and the supply / demand balance evolve over the next few years.

      The net impact of these changes, each of which in themselves can be relatively small, potentially compound to lead to more substantial increases to some BVs, especially for mid-life and older aircraft, or forecasts further out into the future, especially on a Full-Life basis.  Ultimately, our aim is to continue to refine our forecasts to be able to provide expectations of residual value that are as realistic as possible within the dynamic and rapidly evolving industry landscape. We will be publishing a more detailed Inside Track on Values newsletter in the coming week fully detailing the BV changes type by type, which will be available as usual in the publications section of Values Analyzer.

    Learn more about Cirium Values Analyzer.