Category: Program

July 29, 2024

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

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

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.
July 11, 2024

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, 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.
July 9, 2024

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, 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.

July 8, 2024

AAM Snapshot 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.

Yiru Zhang, Senior Valuation Analyst, Cirium Ascend Consultancy

At the mid-point of the year, the Cirium Ascend team has noticed that the advanced air mobility (AAM) sector is getting more and more attention. This is reflected in the number of commitments and orders recorded in Cirium’s database, which has increased to over 14,500 as of 24 June 2024, with over 1,000 new commitments and orders since our last update in April 2024. Data coverage includes:

MARKET GROUPING		MANUFACTURER	TYPE	COMMENT
Regional Electric – Small	Aura Aero		ERA
Regional Electric – Small	~~Heart Aerospace~~		~~ES-19~~	Programme cancelled, and revised to ES-30
Regional Electric – Small	Heart Aerospace		ES-30
Regional Electric – Small	LYTE Aviation		LA-44 Skybus
Regional Electric – Small	~~Maeve Aerospace~~		~~Maeve 01~~	Programme cancelled, OEM revised to M80
Regional Electric – Small	Jekta		PHA-ZE 100
eVTOL – Urban Air Mobility	Aerofugia		AE200
eVTOL – Urban Air Mobility	Dufour Aerospace		Aero3
eVTOL – Urban Air Mobility	BETA Technologies		ALIA-250
eVTOL – Urban Air Mobility	Manta Aircraft		ANN2
eVTOL – Urban Air Mobility	Ascendance Flight Technologies		Atea
eVTOL – Urban Air Mobility	Overair Inc		Butterfly
eVTOL – Urban Air Mobility	Horizon Aircraft		Cavorite X7	Newly added
eVTOL – Urban Air Mobility	Plana		CopterPlane CP-01
eVTOL – Urban Air Mobility	Wisk Aero LLC		Cora
eVTOL – Urban Air Mobility	TCab Tech		E20 eVTOL
eVTOL – Urban Air Mobility	EHang		EH216
eVTOL – Urban Air Mobility	Eve Air Mobility		Eve
eVTOL – Urban Air Mobility	Crisalion Mobility		Integrity	Newly added
eVTOL – Urban Air Mobility	Jaunt Air Mobility		Journey
eVTOL – Urban Air Mobility	Lilium GmbH		Lilium Jet
eVTOL – Urban Air Mobility	Archer Aviation		Midnight
eVTOL – Urban Air Mobility	Odys Aviation		Odys eVTOL
eVTOL – Urban Air Mobility	AutoFlight		Prosperity 1
eVTOL – Urban Air Mobility	Joby Aviation		S4
eVTOL – Urban Air Mobility	SkyDrive		SD-05
eVTOL – Urban Air Mobility	Sirius Aviation		Sirius Jet
eVTOL – Urban Air Mobility	XTI Aircraft Company		TriFan 600
eVTOL – Urban Air Mobility	AMSL Aero		Vertiia	Newly added
eVTOL – Urban Air Mobility	Volocopter GmbH		VoloCity
eVTOL – Urban Air Mobility	Volocopter GmbH		VoloConnect
eVTOL – Urban Air Mobility	EHang		VT-30
eVTOL – Urban Air Mobility	Vertical Aerospace Group Ltd		VX4
eVTOL – UAV/UAS	BETA Technologies		ALIA-250c
Business Electric – Single Engine	VoltAero		Cassio 330
Business Electric – Single Engine	BETA Technologies		CX300
Business Electric – Multi Engine	Eviation		Alice
Business Electric – Multi Engine	Bye Aerospace		eFlyer 800
Business Electric – Multi Engine	Electra		Electra eSTOL
Business Electric – Multi Engine	Electron		Electron 5
Business Electric – Multi Engine	Airflow		M200

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 April 2024, the sector has attracted 640 new order commitments. The space now has a total of slightly under 11,000 order commitments captured by Cirium Fleets Analyzer. Eve Air Mobility and Vertical Aerospace continue to lead the sector with 2,900 and 1,553 commitments respectively.

Source: Cirium Fleets Analyzer, as of 24 June 2024

At the same time, the first certificated type – EHang – has made it to third place with 500 new commitments (including 50 on orders and 450 on options) from Xishan Tourism gained in May 2024. After the newly placed commitments, Xishan Tourism is now EHang’s largest customer and also its second buyer from China. The EHang EH216 orderbook is still concentrated in Asia, with the above mentioned China’s Xishan Tourism ordering 500 units, Indonesia’s Prestige Aviation at 101, United Arab Emirates’ Wings Logistics Hub at 100, China’s Shenzhen Boling Holding Group at 95 units, Malaysia’s Aerotree Flight Services Sdn Bhd at 61 units and Japan’s AirX Inc at 50 units.

The global market for eVTOLs shows a varied regional distribution, with strong presence in North America (3,390), Asia-Pacific (3,185) and Europe (1,705), driven by differing levels of technological advancement, regulatory backing and investment interest.

Source: Cirium Fleets Analyzer, as of 24 June 2024

By looking at the chart below, North America has been accumulating a large number of orders at an early stage and has continued to lead since. As of 24 June 2024, North America is still leading at over 3,350 orders, driven predominantly by the USA (over 3,200). Asia-Pacific followed with rapid and sustained growth to nearly 3,200 orders, where India (900), China (501), Japan (402), South Korea (220) and Vietnam (200) were the top contributors. Europe’s total orders stood at slightly above 1,700, with Ireland now at 755, becoming the largest share and exceeding that for the UK at 473. Latin America and the Middle East followed, showing substantial orders of 550 and 355 respectively. In Latin America, Brazil dominates with 530 orders. In the Middle East, the known only contributors are UAE and Saudi Arabia with 245 and 110 orders separately.

Source: Cirium Fleets Analyzer, as of 24 June 2024

The sector has drawn significant private investments and has also received support from various countries and regions. The research and development of AAM is also part of the technological competition between different countries. In the USA, NASA’s Advanced Air Mobility (AAM) National Campaign and the FAA’s UAM (Urban Air Mobility) Concept of Operations aim to integrate eVTOLs into the national airspace, which involve substantial government investment and collaboration with private industry to develop safe and efficient eVTOL operations. The UK government launched the Future Flight Challenge, a £300 million ($380 million) programme that includes significant investment in eVTOL technologies to revolutionise air transport. The Chinese government is heavily investing in smart city projects, from which EHang received strong support. There are also Germany’s BMVI funding programme, Japan’s Public-Private Conference for Future Air Mobility Revolution, Dubai’s Roads and Transport Authority (RTA) partnership with Volocopter, and South Korea’s K-UAM (Korea Urban Air Mobility) Roadmap, etc.

All of the above-mentioned programmes and support indicate that the AAM sector will experience rapid growth in the next decade.

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. Heart Aerospace’s ES-30 follows with over 750 order commitments after the ES-19 programme was cancelled and switched to the ES-30. Aura Aero’s ERA holds third place with nearly 500 order commitments.

Source: Cirium Fleets Analyzer, as of 24 June 2024

Learn more about Cirium Fleets Analyzer.

Sara Dhariwal

Lead Appraiser – Helicopters & AAM

Tim Chun-hing Li

Aviation Analyst

Pascal Chui

Valuations Analyst

Yuri Zhang

Senior Valuations Analyst

Eric Tamang

Valuations Analyst

July 3, 2024

A Hot July for U.S. Travel — And a Surprisingly Cool Destination

The story last summer in the closely-watched U.S. domestic and transatlantic markets was growth. The story this summer? More — a lot more. The insights below are from an analysis of Cirium Diio Mi schedule data.

The U.S. Domestic Market: Up 6% in July 2024

The major U.S. airlines have scheduled around 6% more domestic capacity this July than last year — with a notable exception. This July, JetBlue has scheduled 9.2% fewer domestic capacity compared to last. (JetBlue announced capacity cuts earlier in the year primarily due to staffing and the congested network on the East Coast of the U.S.) Southwest Airlines will schedule only 1.4% more seats for this July compared to last, having reduced its plans due to availability of the Boeing 737 MAX aircraft they rely on.

The airlines’ plans differ substantially depending on the type of carrier. Three ultra-low cost carriers Frontier, Spirit, and Sun Country will bring significantly more capacity to their markets.

Breeze Airways — which now boasts a fleet of 40 aircraft (of which 25 are Airbus A220) — shows a 33% increase in scheduled seats. In the aggregate, these carriers fly substantially fewer seats than the Big 4 U.S. airlines. American Airlines will fly the most seats out of any carrier at more than 20.5M scheduled seats, followed closely by Southwest Airlines.

Scheduled Seats in July 2024

Airline	July 2024	July 2023	Percentage Change
Alaska Airlines	5,152,741	4,789,066	7.59%
Allegiant Air	2,263,716	2,154,822	5.05%
American Airlines	20,519,680	18,973,829	8.15%
Avelo Airlines	294,490	291,944	0.87%
Breeze Airways	542,516	406,810	33.36%
Delta Air Lines	18,659,453	17,777,347	4.96%
Frontier Airlines	3,989,472	2,939,326	35.73%
Hawaiian Airlines	1,105,705	1,124,554	-1.68%
JetBlue	2,993,542	3,298,323	-9.24%
Southwest Airlines	20,325,414	20,051,083	1.37%
Spirit Airlines	4,740,135	3,906,194	21.35%
Sun Country Airlines	576,414	462,210	24.71%
United Airlines	14,407,786	13,987,654	3.00%

Transatlantic Flying: Up 7.8% in 2024

Airlines increased capacity in summer 2023 compared to 2022 by 18%, and are poised to do the same for July 2024. The transatlantic carriers — including the European operators — will deploy additional capacity from the U.S. to Europe, with schedules showing a 7.8% increase in seats flown over July 2023.

The top carriers? United and Delta are following the lead they set last summer, finding opportunities for revenue premiums. This summer, watch for the Europe carriers to add — including Air France with a 15% increase in scheduled seats — perhaps betting on the strength of demand for the Paris Olympics.

Airline Name	July 2024	July 2023	Difference	% Difference
United Airlines	722,428	701,075	21,353	3.0%
Delta Air Lines	719,985	685,497	34,488	5.0%
American Airlines	565,077	533,377	31,700	5.9%
British Airways	419,169	411,567	7,602	1.8%
Lufthansa	323,584	292,854	30,730	10.5%
Air France	279,426	242,508	36,918	15.2%
Virgin Atlantic	242,973	223,517	19,456	8.7%
Turkish Airlines	209,672	187,291	22,381	11.9%
Aer Lingus	163,591	154,674	8,917	5.8%
Iberia	131,072	114,428	16,644	14.5%
Icelandair	117,360	104,600	12,760	12.2%

Where Are the Destinations of Choice?

For the European market, Denmark, Croatia, and Spain show the most growth in capacity from the U.S., with double-digit growth in flying.

Denmark	27%
Croatia	17%
Spain	16%

For the U.S. domestic market, the usual U.S. domestic city-pairs always factor — between New York, Chicago, and Los Angeles. However, it may surprise readers to know that Seattle, Washington to Anchorage, Alaska will have the most seats flown in July 2024 — around 146,000 seats, some 2,000 more seats than between New York-LaGuardia and Chicago O’Hare. Alaska Airlines will fly almost 80% of these north-south flights.

Learn more about Cirium Diio.

June 28, 2024

Improved On-Time Performance and Competition in Canada

Improved On-Time Performance

It’s not easy operating an airline in Canada — a large country with three major hub airports in Toronto, Montreal, and Vancouver, and a variety of weather challenges no matter the time of year. Nevertheless, the Canadian carriers demonstrated solid on-time performance in spring 2024, which bodes well for summer travel. Indeed, among North American airlines, WestJet was third, and Air Canada sixth, for on-time performance in May 2024.

In June 2024 (at the time of writing), the major Canadian carriers had comparatively high completion rates. Completion factor measures the number of flights flown compared to those scheduled. At the time of writing, Porter Airlines had a 99.52% completion factor, Flair Airlines at 99.27%, WestJet at 98.58%, and Air Canada posted 97% — with the latter on a significantly higher number of flights than its Canadian brethren.

Toronto-Pearson Airport: Marked Improvement

Toronto-Pearson Airport has faced challenges related to on-time performance in recovery from the pandemic. However, the airport has demonstrated consistent and improved departure performance in 2024 to date — even in the winter months of 2024. Toronto-Pearson’s D14% — the percentage of flights scheduled that departed within 14:59 of the scheduled departure time — consistently averaged around 70% in the first half of 2024 and into late June 2024. (Last June, Pearson’s D14% was around 59%). In May 2024, Toronto-Pearson had 70.96% of its flights depart on time, on around 14,500 flights. By way of comparison, the best performing U.S. airport in May 2024 was Salt Lake City, with 82.69% of flights departing on-time on around 10,000 flights. The best performing Canadian airport, Calgary International Airport, had a D14% of 77.07% on around 6,000 flights.

The Canadian Domestic Market: Seats Flown Up 6% in 2024

The Canadian airline industry has witnessed many changes in 2024 to date. Indeed, ultra-low cost carrier Lynx departed the market in bankruptcy, and long-time premium carrier Porter Airlines has taken delivery of Embraer E2-195 jets. At the time of writing, Porter has 33 jets in service, and is primed to increase its Canadian domestic flying by 63% (measured on seats flown) this July compared to last. WestJet will increase their July seats flown by 8% compared to last July. In contrast, ultra-low cost carrier Flair will fly 7.5% fewer seats this July 2024, compared to last July.

Transatlantic Flying from Canada to Europe: Up Almost 7% in 2024

Air Canada, Transat, and WestJet are the perennial airlines flying Canadian customers to European destinations, and vice-versa. Air Canada will fly twice as many seats as Air Transat, increasing its seat count by 3.3% this July compared to last. (These carriers will benefit from the general transatlantic demand, and phenomena such as North American customers seeking to enjoy Taylor Swift concerts or the Paris Olympics). Transat is up 6.2% on seats in July 2024 compared to July 2023, with WestJet increasing its seats flown by almost 20,000 seats in the month of July 2024 alone compared to July 2023.

	Jul 2024	Jul 2023	Diff	Percent Diff
Airline Name	Seats	Seats	Seats	Seats
Air Canada	451,984	437,607	14,377	3.3%
Air Transat	216,433	203,756	12,677	6.2%
WestJet	71,428	52,480	18,948	36.1%
TOTAL	739,845	693,843	46,002	6.6%

Learn more about Cirium On-Time Performance Reports.

June 24, 2024

Airline Failures – Opportunity for Some?

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.

Chris Seymour, Head of Market Analysis, Cirium Ascend Consultancy

The recent failure of Australian low cost carrier Bonza, after less than 18 months of flying, highlights the fragility which startups can face in their first years. In an environment of delivery delays and capacity squeeze, airline failures can provide other airlines with opportunities to add capacity at short notice by leasing aircraft which suddenly become available. What is the recent experience?

Over the past 18 months, since the start of 2023, looking at operators of the popular A320 and 737 family aircraft in particular, 18 carriers operating 177 aircraft have suspended or ceased operations.

To date, some 50 of these aircraft, or just under 30%, have returned to service, while only three have been parted out.

Bonza’s four leased 737-8s have ferried to Europe awaiting new lessees. With lessors accounting for over three quarters of the 177 total, returning aircraft represent a problem in dealing with the cost of an unexpected return, but also an opportunity to place with a better credit at increased rates in a capacity constrained market.

It has averaged around 120 days to get these 50 aircraft placed and back in service and the average age of these aircraft is around 8 years.

When Norwegian low cost airline Flyr ceased at the start of 2023, its six Max 8s were idle for only around seven weeks before rival Norwegian snapped them up; and its six 737-800s took a little longer but are all flying, most with Jet2.

The Colombian market saw the cessation by Ultra Air and then Viva Air in March-May 2023, putting 29 A320s into the market. All but one are back in service, these have averaged 144 days to place and the majority have stayed in the local market with Avianca and LATAM Airlines Colombia, thereby minimising the cost of transition for the lessors.

A320s and 737s From Ceased/suspended Operations – Current Status

Source: Cirium Fleets Analyzer (data since Jan 1 2023)

MYAirline in Malaysia ceased last November but six of its ten mid-life A320s averaged just 90 days before re-entering service, with Air Asia, GlobalX and Corendon Dutch, while three others are placed with IndiGo and Vueling and due to re-enter service.

So what of the remaining 120 aircraft, which have an average age of 13 years and are averaging 267 days inactive to date?

Cirium Fleets Analyzer records only 11 as being placed to date. These include five of nine leased 737-8s with Lynx Air, which stopped in February, going to fellow Canadian carrier WestJet. Six young A320s returned by Pacific Airlines of Vietnam after it suspended flights in March have yet to find new homes.

54 aircraft (44%) are from the fleet of GoFirst of India, perhaps the highest profile casualty, which suspended flying in May 2023.

With an average age of under 5 years and all but five being A320neos, these are obvious candidates for quick placement.

But the drawn out process the lessors are having to go through to get them back, with courts ordering deregistration only last month, as well as issues with the GTF engines, mean that they all remain parked, frustratingly as the peak 2024 season is in progress.

At the other end of the spectrum, the 30-strong fleet of charter carrier iAero Airways of North Carolina, which entered Chapter 11 and stopped flying in April, average almost 30 years old, being mainly 737-300/400s. Eastern Air Express has acquired these assets.

So there is limited availability of young and newer generation aircraft available in the short term, with the prospect of the GoFirst fleet coming back into service in the coming year(s). Most recently the failure of Air Vanuatu has seen a young 737-800 returning to its lessor and one would expect that to be quickly placed.

LEARN MORE ABOUT CIRIUM FLEETS ANALYZER.
June 20, 2024

Aircraft Value Dynamics

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.

Yiru Zhang, Senior Valuation Analyst, Cirium Ascend Consultancy

Let’s begin by examining where values and lease rates stand today by aircraft category, and how they’ve moved during the last 12 months and last 60 months. The last 60 months effectively represents a benchmark against 2019, meaning pre Covid.

You can see that in the last year, there were very large improvements in values and lease rates of narrowbody and widebody jets. For narrowbodies, the increases have been in the high teens on a fleet-weighted average basis.

For widebodies, lease rates on a fleet-weighted average basis have risen almost 30%.

But given the significant decreases during Covid, on a weighted average basis this shouldn’t be a surprise.

And in fact, you can see that for widebody lease rates there is almost no visible rent bar, which means they’ve only just come back to the pre-Covid level.

Values are still almost 20% down over 2019 and we think that is because a big portion of the fleet were relatively young A330ceos and 777s, production of which concluded during the Covid period. Some of these young fleets, i.e. aircraft that are seven to 10 years old, had significant value declines which may never be fully recovered.

Narrowbodies on the other hand have seen lease rates recover to 2019 levels, but values are actually ahead, by about 15%.

The regional aircraft market remains significantly below 2019 levels.
That’s largely driven by a lack of flying activity in the USA, largely due to the pilot shortage, especially for the regional jet sector. There are also additional factors contributing to this decline, such as rising fuel costs and increasing operational expenses. And in the turboprop market, production has now ended for a lot of types. The DHC 8-400, for which production has been suspended, has seen a lot of market availability.

Source: Cirium Core, passenger jets only

To appreciate this chart, the concept of base value must first be understood. Base value is defined as the theoretical market where supply and demand are exactly balanced. So in good economic times when demand exceeds supply, market to base value should be above one, while in the obverse market value will be lower base and therefore the ratio is below one.

The chart illustrates the “hot” market that existed at the beginning of 2019, then the downturn triggered by Covid, followed by the recovery starting in Q3 2021 leading through to today. Single-aisle market value exceeds base by 25%, while twin-aisle market value is also more than 15% above base. The twin-aisle increases are driven by some recent market value revisions, the latest of which being the A330ceo, which obviously has a large inventory that impacts the fleet-weighted result here.

Source: Cirium Core Current Market Values, Current Base Values and fleet counts as at 14 Jun 2024

Meantime the single-aisle ratio is largely being driven upwards by mid-life and older aircraft where demand remains very strong as a consequence of new aircraft delivery deficits which is presently driving strong demand and hence strong market values for those older aircraft. As shown in the above chart, the single-aisle MV/BV ratio is close to parity for new aircraft but increases with age, reaching approximately 160% by retirement age.

Source: Cirium Core, passenger jets only

The long term picture using the same data illustrates how today’s MV/BV ratios are at record levels. It also shows how widebody aircraft ratios did not fully recover after the global financial crisis of 2007/2008. They never even exceeded base for an entire 15-year period, only finally transitioning to positive from late last year, beginning of this year.

Read more Ascend Consultancy articles. Learn more about Cirium Fleets Analyzer.
June 18, 2024

Lessor Direct Orders – A Good Bet Paying Off

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.

Thomas Kaplan, Senior Valuations Consultant, Cirium Ascend Consultancy

During the depths of the pandemic, airlines and operating lessors with new aircraft deliveries due from Airbus or Boeing were typically happy to defer those deliveries if they could. The strategy of lessors having speculative orderbooks was in question as there was increased risk of having to accept delivery of unplaced aircraft, or placing those deliveries at depressed lease rates. In today’s strong demand environment with reduced delivery rates of new aircraft, a near term delivery slot is suddenly rare and highly prized. With strengthening Market Lease Rates, the lessor strategy of having speculative orders now appears to be paying off.

Who are the lessors with the largest orderbooks and who have access to the prized near-term slots?

We will limit the analysis to Airbus and Boeing as they are the most backed-up in terms of orders with almost no availability before 2030, especially in the narrowbody segment. The operating lessor orderbook with Airbus and Boeing is over 2000 aircraft, with most due for delivery this decade.

Source: Cirium Fleets Analyzer fleet data; Airbus and Boeing aircraft

As we expect the current supply and demand imbalance to persist at least through 2026, the conditions for placing lessor orders should remain favourable in this period. The below chart shows which lessors have scheduled deliveries from their orderbooks from now to the end of 2026. Avolon has the largest lessor orderbook with over 400 aircraft, however only a quarter of these are expected to be delivered in the next two and a half years. This also includes 32 A330-900neos, which do not have the same supply constraints as other types and thus lessens their early-slot advantage.

Source: Cirium Fleets Analyzer fleet data; Airbus and Boeing aircraft

Air Lease Corporation and AerCap have the largest number of aircraft delivering in this time frame at over 200 and 150 respectively. However, in both cases according to Cirium fleet data, two thirds of these are already placed with airline lessees. If these placements were not negotiated recently during the tighter market conditions, that leaves only around 60 available jets with each lessor to place at good rates. Our database estimates that SMBC Aviation Capital has 75 unplaced narrowbodies due for delivery by 2026 which puts them in a strong position in this seller’s market. Our database may not capture all the negotiated placements and letters of intent, so remaining availability may be even less.

While stock prices move based on many factors, we note that Air Lease (AL) and AerCap (AER) stocks have performed well this year, increasing by ~10% and ~24% respectively since January.

In contrast, BOC Aviation, another publicly traded large lessor but with a fewer near-term orderbook positions, has seen its stock more flat, down around 4% YTD. Of course, these stock movements are not just because of an OEM backlog, but investors may want to take note of the current advantage these positions hold.

Given the lack of lessor orders for 2029 and beyond, lessors will need to order quickly if they want to make furthers bets on speculative delivery slots. Otherwise, the Purchase and Leaseback market will remain the only option for lessors to grow their fleet of new aircraft organically. This has historically been a far more competitive market and if lessors are not able to renew their speculative orderbooks, then it can only become even more competitive with consequences for pricing. But that is a story for another day.

Learn more about Cirium Fleets Analyzer.
June 17, 2024

Is A330neo Coming to China? – A Suitability 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.

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

Recent market developments suggest the potential introduction of the A330neo, the successor to the popular twin aisle type A330ceo, to China. A June release from Bloomberg indicate discussions are ongoing between Airbus and Chinese airlines for the sale of over 100 A330neo aircraft. While Airbus has yet to confirm these discussions, the market awaits further developments.

This raises the interest to examine the potential of this type to be introduced to the China market. From a cost and performance perspective, the A330 family has been designed primarily for short to medium range dense routes while offers competitive pricing relative to its counterparts, such as the A350s. Cirium’s data illustrates this, with the full life market value of a Trent-powered A330-900neo (built in January 2024) and devoid of additional specifications, estimated at approximately USD107 million. In contrast, the equivalent figure for an A350-900 stands at USD158 million..

“This pricing strategy positions the A330neo favourably in terms of unit cost, operational expenses, and performance balance within its designated market segment, despite its capability to operate long-haul routes.”

Such characteristics clearly differentiates itself from other main twin-aisle types such as the A350, or the 787 and the 777, which primarily target longer-range routes.

The chart below demonstrates the average block range for each of the aforementioned aircraft type operated by Chinese airlines on all flights departing from China since 2015, encompassing both domestic and international routes.

Source: Cirium Schedules data

The average block range flown by the Chinese A330ceo fleet is 2,250km, whereas for the A350, 787 and 777, the ranges are 2,530km, 2,920km and 3,780km respectively.

This underscores that not only does the A330ceo fleet operate on shorter routes on average compared to other main twin-aisle types in China, but the average block range of other long-haul types operated by Chinese airlines is also not significantly longer than that of the ceo fleet.

Analysis of flights operated by Chinese airlines between 2015 and 2023 reveals that only 14% of these flights exceed 5,000km. Given this context, it appears economically prudent for Chinese airlines to utilise more of the A330 fleet on the majority of their short to medium-range routes.

Source: Cirium Fleets Analyzer

From a fleet planning perspective, out of the 212 in-service and stored A330ceo aircraft in China, 33 units (15% of the total fleet) are currently aged 15 years or older.

“These aircraft are likely to face fleet planning decisions before the end of this decade. Additionally, approximately 22% of the fleet is on operating leases with foreign lessors, including Chinese fund-backed lessors registered outside of China.”

The destinies of these leased aircraft upon lease expiries are subject to higher uncertainties, with lessors having the flexibility to decide whether to extend leases, relocate assets to more lucrative markets, retire and part out the aircraft for better value extraction, or covert them from passenger aircraft to freighters based on prevailing market dynamics.

In summary, the cost and performance characteristics of the A330 family aircraft align well with the Chinese market, offering a balanced combination of asset unit cost, operational cost (on a per-seat basis) and type/route suitability. If Chinese airlines intend to maintain or even expand their A330 fleet in the long run, it is advisable to commence planning for the new generation neos. However, major considerations include the scarcity of delivery slots and production rate constraints of OEMs, which have resulted in virtually no available delivery slots for aircraft like the A350 and 787 before the end of this decade. While there may be a limited number of A330neo delivery slots still available during this decade due to the relatively small orderbook of this type, they are unlikely to be plentiful.

Consequently, it may be until the next decade before new A330neos can establish a sizeable fleet within Chinese airlines for replacement or growth, even if orders are confirmed and placed promptly.

Learn more about Cirium Schedules, Cirium Fleets Analyzer.
May 21, 2024

Quantifying Volatility in Aircraft Values

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.

Thomas Sweeney, Valuations Associate, Cirium Ascend Consultancy

In the current supply constrained environment, the majority of aircraft values are on an upward trajectory. All of our existing market analysis indicates that this constrained supply will continue for several years yet and potentially for the majority of this decade. Demand is projected to resume its growth trend, although there is some risk in this assumption. Having just experienced the extreme downturn of the pandemic we are well placed to assess the risk that each asset presents based both analysis of historical data and understanding of the market dynamics of that type.

To illustrate how various assets have performed, we plot the graphical distribution of Market-to-Base Value ratio around a balanced market, which is represented by a MV/BV ratio of one. Below are examples of these graphs for three different aircraft types on a 10-year horizon which demonstrate the full range from stable to highly volatile.

The Airbus A350-900 is an asset which has proved very popular with operators and investors. An efficient new generation aircraft, it is an optimal size for many operators’ long-haul networks and production has been more stable than for its competitor, the Boeing 787. This has resulted in relatively stable values for the type:

It is unsurprising that Market Values for the type have mostly been below Base, given that a large proportion of its in-production life has been taken up with the pandemic.

It is more noteworthy that Market Values have barely gone below 90% of Base.

It demonstrates the relatively low volatility of this type. Demand for this aircraft is high with a diverse operator base and it has had time to prove its performance. It is the largest in-production type at present, as the 777X continues to struggle in certification. This is driving the view that demand, and hence values, are unlikely to fall significantly in the near and medium-term.

The newest Boeing 737-700s (2012-2018) have a less stable profile, with Market Values showing significant time spent between 75% and 90% of Base:

The Boeing 737NG family has been a very successful programme and demand for this key narrowbody type can only fall so far. However, this variant of the family is one of the more volatile types. The smallest variant in a family is generally less popular as a consequence of its relatively poorer seat mile economics. The -700 is highly concentrated with Southwest Airlines, which has 380 aircraft, comprising over half of its in-service commercial fleet. These younger aircraft are both a smaller portion of the fleet and face faster depreciation and higher volatility as they are late in the production cycle, already being taken over by newer technology. Despite these aspects, the type retains the same engines as other more popular variants of the 737NG family and as such, is prevented from the extreme volatility that can be seen on other types.

The Airbus A380 is an example of a type that has shown very high volatility as scepticism over its economic viability became increasingly widespread over the past decade:

By now, the Airbus A380’s weaknesses are well known – such a large aircraft requires a high load factor to remain profitable and selling enough seats to maintain this load factor is challenging on all but the densest routes.

Its very high concentration in Emirates’ fleet, with which the type is almost synonymous, and very small operator base renders it difficult to trade on the open market.

The pandemic showed that the A380 was amongst the earliest aircraft types to be stored or retired and this is reflected in the third chart, where the Market Values fall below even 50% of Base.

In conclusion, understanding the value trends and market dynamics for different aircraft types is essential in the current supply-constrained environment. These types show that there isn’t one key factor in volatility. Both elements of the physical value of the asset, such as position in production cycle and technical capability, and economic value, such as an optimised size for high load factors and yields, play a part in volatility. A statistically rich historical dataset and understanding of the market position of each asset allows us to both quantify downside value risk and predict future volatility.
May 20, 2024

Can COMAC Truly Challenge the Airbus and Boeing Duopoly?

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.

Rob Morris, Global Head of Consultancy, Cirium Ascend Consultancy

Since the unfortunate 737-9 Max accident in January laid bare Boeing’s continued 737 production woes, we have been asked many times about the potential for COMAC to step up and fulfill single-aisle aircraft demand which is being frustrated by slow Boeing deliveries. The question is further magnified when considering Airbus’s own struggles to ramp A320 family production, which came close to averaging 60 aircraft per month in 2019 before reverting to less than 40 per month through the pandemic, up from the current 50 or so per month towards the planned target of 75 per month in 2026. As one senior leasing executive put it at ISTAT Asia in Hong Kong in early May “Boeing and Airbus have offered a window of opportunity for COMAC”. Another said “AB today becomes ABC in ten-years time”. In essence, the door is open for COMAC but can they step through it?

From a demand perspective, the opportunity certainly exists.

Our latest Cirium Fleet Forecast, published in November 2023, projects demand for more than 40,000 single-aisle and twin-aisle passenger jet deliveries over the next 20 years.

In the 20-year period 2000-2019 Airbus and Boeing between them delivered just under 19,600 commercial passenger jets (including five from the legacy McDonnell-Douglas range which Boeing had acquired in 1997, rendering 2000 the year that the large commercial aircraft market became the duopoly we know today). Hence, unless today’s duopolists are able to double their output through 2043, there is certainly headroom for a third player.

But can COMAC step up with the current C919 to exploit the opportunity in the commodity single-aisle space where that demand projection estimates almost 33,000 deliveries? The orderbook signals optimism, with 998 aircraft currently recorded as on firm order in Cirium’s fleet database to add to the five which have already been delivered. However, as the chart below illustrates that backlog is shown as scheduled for delivery through 2040, a far longer delivery horizon than any competing Airbus or Boeing single-aisle. Only 46% of the backlog is committed to six airlines, all of whom are domiciled in China. The remaining 543 aircraft are on order with 12 operating lessors, all of whom are Chinese owned and domiciled aside from BOC Aviation. These aircraft will need to find customer placements and it is unusual for a new aircraft programme to feature so many lessors so early in its genesis. This perhaps suggests how airlines are viewing the C919 for now, although the recent orders for 100 each from Air China and China Southern are likely to have a much firmer status than many of the lessor orders.

Cirium’s Fleet Forecast also signals optimism, with the current projection for just under 1,700 C919 programme deliveries through 2042. The vast majority of those deliveries are expected to be to domestic customers, with only around 250 aircraft expected to be sold to export customers largely in belt and road countries where political influence can drive sales campaigns. With more than 6,000 new single-aisle deliveries expected in China over the forecast period, C919 is expected to capture around 25% market share compared to Boeing’s 30% and Airbus’s 45%.

With that optimism, how is COMAC performing today as it strives to break into the single-aisle market, and how does that performance benchmark to the most recent successful market entrant which of course was Airbus in the late 1980s? Airbus delivered its first A320 to Air France in March 1988. COMAC delivered its first C919 aircraft to China Eastern Airlines in December 2022. 17 months later, COMAC have now delivered five aircraft to that single customer. Within 17 months of the first delivery of its A320 back in 1988, Airbus had delivered 49 units to nine different airlines in Europe, North America and Asia. Ten times as many aircraft delivered globally by Airbus more than 35 years ago when the market was inter alia much smaller than it is today. Airbus did have one significant advantage over COMAC today, in that since the 1960s Airbus’s partner companies in France and the UK had manufactured and delivered more than 630 passenger single-aisle aircraft, Caravelles, Tridents and One-Elevens, to almost 90 customers globally, facilitating aircraft support networks which Airbus was able to leverage to ensure their customers enjoyed dispatch reliability and performance necessary to establish the A320 family as a credible and global competitor to the then competing Boeing and McDonnell Douglas single-aisle aircraft. COMAC does not have that support network in place and thus has to work very hard to build it to support airline customers who will be expecting performance and dispatch reliability that benchmarks favourably against those delivered by the established Airbus and Boeing products.

How are the aircraft already delivered performing today? Cirium’s data shows that China Eastern’s five aircraft are presently scheduled on three domestic routes from Shanghai Hongqiao to Chengdu, Beijing and Xi’an.

Flight tracking data confirms that in April the aircraft operated a total of 398 flights, averaging 5.9 hours per day.

In the same month, all Boeing 737-8 Max and A320neo in service in China averaged 8.1 and 8.4 hours flown per day respectively, so C919 is clearly being scheduled and flown conservatively for now averaging around 70% of the Boeing and Airbus peers, as the aircraft starts to prove itself in operational service. However, there are already signs of improvement since as recently as February C919 was achieving only around 50% of the average daily hours of 737 and A320. There are also signs of improvement from a route perspective, with a C919 reportedly scheduled to operate a single Shanghai Hongqiao to Hong Kong return sector on 1 June 2024, with further reports that this will subsequently become a regular route for the aircraft type.

What about the future? As already noted, Cirium’s backlog indicates an expectation that COMAC will deliver more than 130 aircraft to customers in 2031. COMAC themselves have stated an intention to develop a production capacity of up to 150 aircraft annually within the next five years. COMAC are also developing a family of aircraft, somewhat akin to Airbus’s strategy with the A320 augmented with smaller and larger A319 and A321 variants. The shorter fuselage ‘plateau’ version was launched in February with an order by Tibet Airlines. At face value the potential to manufacture 150 aircraft annually by 2029 seems ambitious. It took Airbus more than ten years to achieve more than 150 annual deliveries, albeit the 168 A320 family aircraft delivered in 1998 did represent more than 30% market share in the then single-aisle market where Boeing delivered 324 aircraft that year and McDonnell Douglas (by then owned wholly by Boeing) delivered 42 aircraft. Cirium’s forecast projects delivery of around 1,800 single-aisle aircraft globally in 2029, so 150 aircraft from COMAC would represent less than 10% of the total market.

There is no doubt that the door is potentially open for COMAC to step through and join Airbus and Boeing in the large commercial aircraft market. However, this analysis suggests that the pace at which COMAC will walk through that door is relatively slower than Airbus walked through the same door more than 30 years ago. At present Boeing is clearly weakened, but with time Boeing will fix its issues and return the Boeing 737 family to a level of production some four times larger than COMAC’s stated intent in 2029. In the same timescale Airbus is likely to be producing its own A320 family at around six times the scale that COMAC intend.

The barriers to entry in the large commercial aircraft market have always been huge – potentially insurmountable for many as witnessed by Bombardier’s ultimately doomed efforts with its CSeries. COMAC are the latest challenger. COMAC does enjoy is a huge domestic market, where China will perhaps consume as many as 15% of all new single-aisle deliveries. It can leverage that domestic market to generate sales. But for now the relative pace of those sales seems set to be much slower than even Airbus achieved as it entered the market in the 1980s. Hence, it seems likely that it will be a very long time before AB today genuinely becomes ABC.

LEARN MORE ABOUT CIRIUM FLEET FORECAST.
May 16, 2024

Middle East Reshapes Aviation’s Future With Innovation

Alex Brooker, VP of Research, Development and Discovery, Cirium

In the heart of the Middle East, a quiet revolution is taking place. The region’s aviation industry, long a symbol of ambition and growth, is undergoing a remarkable transformation that promises to reshape the future of air travel.

With a commitment to innovation, sustainability, and passenger experience, the Middle East is poised to set new standards for the global aviation community. As global stakeholders gather for the Arabian Travel Market in Dubai this week, let’s explore the initiatives and specific regional opportunities.

At the forefront of this transformation is the United Arab Emirates, home to some of the world’s most renowned airlines and airports. Dubai-based Emirates Airline, a $29 billion entity, has consistently pushed the boundaries of what’s possible in aviation.

With a fleet of over 250 aircraft and a network spanning more than 140 global destinations, Emirates has leveraged the latest technologies to deliver an exceptional passenger experience. From in-flight entertainment systems to biometric security measures, the airline’s commitment to innovation has set a high bar for the industry.

But Emirates is not alone in its pursuit of excellence. Abu Dhabi-based Etihad Airways and low-cost carriers like flydubai and Air Arabia have also made significant strides in enhancing their services and expanding their reach. For pure operational performance, Oman Air won Cirium’s regional OTP award for 2023 and was placed 3^rd globally. In March 2024, King Khalid International Airport (RUH) was the second most on time airport globally with an on time departure of 87.32%. These airlines and airports have recognized the importance of adapting to changing customer needs and embracing sustainable practices to ensure long-term success. To that end, minimising cancelled flights and delays is something everyone can agree is a positive step – in what has been a challenging month for aviation in the region overall.

Cirium’s Middle East and Africa OTP Regional Update – Published April 2024

Middle East & Africa witnessed a 12% surge in the number of flights canceled in March. The region had 1,950 flights canceled compared to 1,739 last month. Safair (FA) was still the undisputed leader in both the Middle East & Africa region and the low-cost carrier category in March.

The airline concluded the month with an outstanding OTP of 96.67%, up nearly three points from 93.96% in February.

This was also the highest performance score among all carriers across all global regions and all categories. Oman Air (WY) followed in second place, also with an impressive OTP of 93.32%. With a remarkable thirteen-point increase over last month’s performance, Royal Jordanian (RJ) climbed from seventh to third place this month with an OTP of 89.68%. Gulf Air (GF) remained in fourth place with an OTP of 88.35%, a 4-point increase over February’s OTP of 84.08%. Qatar Airways (QR) finished the month in fifth place with an OTP of 87.36%, a 4-point increase over the previous month’s OTP of 83.27%. Airports in the region also showed huge improvements in their performance this month. King Khalid International Airport (RUH) secured the second-place spot in the global airports category with an OTP of 87.32% following a 4-point increase from last month’s OTP of 83.13%. Kuwait International Airport (KWI) delivered an OTP of 87.32%, up nearly 7 points from February’s performance of 80.51%. Meanwhile, Izmir Adnan Menderes Airport (ADB) turned in an OTP of 91.61%, a 2-point increase over last month’s OTP of 89.57%.

Innovation Hubs Enable Collaboration

One of the most exciting developments in the region’s aviation industry is the emergence of innovation hubs like Emirate’s Ebdaa in Dubai. Ebdaa serves as a catalyst for creativity, collaboration, and sustainable energy. This state-of-the-art facility brings together the brightest minds from universities, technology suppliers, and startups to drive the development of cutting-edge solutions. From hydrogen-powered aircraft prototypes to advanced air traffic management systems, the groundbreaking projects emerging from Ebdaa are testament to the region’s commitment to shaping the future of aviation.

But innovation is not limited to the development of new technologies. The Middle East’s aviation industry is also pioneering new approaches to training and passenger experience.

Emirates, for example, has also embraced extended reality and immersive experiences to enhance the onboarding and training of its aircrew and employees. By providing realistic simulations of the working environment, these technologies are reducing training times and ensuring a smoother transition for new hires.

Similarly, Dubai International Airport, one of the world’s busiest, is leading the charge with its plans for a fully touchless, walk-through experience through 2024. Passengers will enjoy seamless check-in, security clearance, and boarding processes, thanks to advanced biometric technology. This initiative not only reduces wait times and enhances safety but also provides a more hygienic and convenient travel experience in the wake of the COVID-19 pandemic. Similar advancements are being implemented across the region, revolutionizing the way passengers navigate airports and interact with airline staff.

However, the rapid growth and innovation in the Middle East’s aviation industry are not without challenges. The region faces a shortage of skilled labour, with estimates suggesting that the UAE alone will require around 22,000 pilots and crew members by 2033. To address this issue, countries in the region are investing in training and development programs, partnering with educational institutions to nurture the next generation of aviation professionals.

Another challenge is the need for sustainable practices in the face of climate change. While the Middle East’s airlines and airports have made significant strides in reducing their carbon footprint, there is still much work to be done. The adoption of sustainable aviation fuels, the development of more fuel-efficient aircraft, and the implementation of eco-friendly ground operations are all critical steps in ensuring the industry’s long-term sustainability. To this end airlines and airports across the region are investing heavily in eco-friendly initiatives, such as the adoption of sustainable aviation fuels, the development of fuel-efficient aircraft, and the implementation of green ground operations. Etihad Airways, for example, has pledged to reduce its carbon emissions by 50% by 2035 and achieve net-zero emissions by 2050. These efforts are not limited to operational benefit but are also vital for securing the financial backing for the industry with many deals coming with “green strings attached”. Cirium has also invested heavily in this area and recently secured accreditation for Emerald Sky from the Rocky Mountain Institute for the first climate-aligned finance framework tailored for the aviation industry.

Despite these challenges, the mood in the Middle East’s aviation industry is one of optimism and determination.

The region’s leaders recognize the immense potential of the sector and are committed to investing in its future. From the ambitious plans of Saudi Arabia to the strategic partnerships being forged across the region, there is a sense of unity and purpose in driving the industry forward.

In the coming years, we can expect to see even more groundbreaking advancements emerging from the region. From the development of hydrogen-powered aircraft to the implementation of seamless, touchless travel experiences, the Middle East’s aviation industry is pushing the boundaries of what’s possible. As these innovations take flight, they will not only transform the way we travel but also inspire a new generation of entrepreneurs and innovators. The Middle East’s aviation success story is a testament to the power of vision, collaboration, and innovation. As the region continues to invest in its people, its infrastructure, and its technologies, it is laying the foundation for a brighter, more sustainable future. With its eyes fixed firmly on the horizon, the Middle East is ready to take the global aviation industry to new heights, one innovation at a time.
May 15, 2024

The Impact of Rising Interest Rates on Lease Rent

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.

Toshimitsu Sogabe, Aviation Consultant, Cirium Ascend Consultancy

The US Federal Reserve board has raised interest rates 11 times in a row since March 2022. It announced on May 1 that it would keep the policy interest rate unchanged. This was the sixth consecutive meeting at which there was no change to the federal funds rate target.

Since there is a certain degree of correlation between interest rates and lease rents, it is likely that rising interest rates have contributed to the rise in lease fees. However, there is room for discussion as to whether the increase in lease rent has been sufficient.

Source: Ascend Value Trends, Federal Reserve Economic Data (FRED)

The above chart shows that the market lease rates of Airbus A320neo and Boeing 737 Max jets have reached the $400,000-per-month mark. The lease rate of the A320neo was over $400,000 per month in 2015 but was subsequently on a downward trend before finally recovering to that level this year.

However, a review of interest rates during the same period shows that the yield on the 10-year US Treasury note was much lower in 2015 than the current level.

Similarly, lease rates for the previous-generation 737NGs and A320ceos, whose new-aircraft prices would have been lower by a few million dollars, were at their highest level of over $400,000 per month in 2007/08, yet the yield on the 10-year US Treasury note at that time was again below the current level.

Is the Extent of Lease-Rate Increases Insufficient?

The reasons that lease rates for new aircraft are currently at the same or lower levels than in the past, despite the higher financing costs, are presumably as follows:

(i) While demand for aircraft financing has been increasing, there are not enough sale-and-leaseback opportunities in the leasing market because of a lack of supply of next-generation aircraft, and therefore there has been excessive competition among lessors; and/or (ii) Leasing companies have high expectations for residual values, end-of-lease compensation and maintenance reserves when pursuing a transaction.

As for (i) above, the most recent monthly production rates of Boeing and Airbus highlight a clear shortage of next-generation aircraft. For single-aisle aircraft, Airbus averaged 46 per month in 2024’s first quarter, whereas Boeing averaged 12 in February/March. Although the speculative orders placed by a handful of lessors for the new aircraft were able to secure their pipelines, lessors generally see challenges in securing new aircraft transactions. Some lessors are considering a strategic shift to secure the top line by acquiring mid-life aircraft.

Regarding (ii), it is believed that some lessors are increasing their expectations in anticipating higher residual values at lease expiry as well as lease-end compensations, because of the rising maintenance costs for both next-generation and previous-generation equipment and the fact that the supply of next-generation equipment is not keeping pace with the demand. However, caution is required when considering whether this will become a mid- to long-term trend.

Cirium Ascend Consultancy will continue to monitor market changes in lease rates and any changes in lessors’ approaches to new sale-and-leaseback transactions.