Aviation’s recovery is gathering momentum


The recovery in air traffic is starting to gather momentum on both international and domestic routes, according to IBA data. There were almost 400,000 international passenger flights in June 2021, the highest amount since March 2020 before the full effects of the Covid-19 pandemic, according to research from IBA’s InsightIQ intelligence platform. While domestic services still account for the majority of passengers, the proportion of these flights has fallen from 85% in March 2021, to 79% in June.

Almost all global regions are now showing a sustained growth in passenger flights, with the exception of Asia Pacific, where some recent Covid-19 outbreaks have caused the reinstatement of travel restrictions. Passenger flight traffic in North America leads the globe, with levels in June 2021 at 75% of that month in 2019, closely followed by Latin America at 68%. Europe, which had been significantly lagging behind other markets in early 2021, accelerated from 34% in May, to 47% in June.

Orders for the Boeing 737 MAX have surged since the start of 2021, with 490 orders for the model, compared to 137 for Airbus A320neo family aircraft. However, the order backlog for the A320neo still significantly surpasses the Boeing 737 MAX, at 5,638 to 4,176. Airline commitments for widebody aircraft remain subdued, with just over 150 orders since the start of 2021, 84 of which were for the Boeing 777.

IBA forecasts that overall deliveries will return to pre-pandemic levels in 2025, when it predicts around 1,900 new commercial aircraft will enter service.

The number of airline failures and restructures thus far in 2021 has fallen to pre-pandemic levels. However, IBA believes the third calendar quarter of this year will be a challenging period for some airlines as they review whether normally buoyant (Northern Hemisphere) summer revenues will provide sufficient liquidity for the winter period.

The airline failures in 2020 are having a sustained effect on the aviation market, with 447 aircraft still grounded. 172 remain grounded as a result of airline restructurings, including some current-generation types such as the Boeing 787 and 737 MAX, and the Airbus A350. The leasing community has also been disproportionately impacted, with ownership of 80% of all aircraft from airlines that failed in 2020.

This surplus of available aircraft is driving an increase in passenger-to-freighter (P2F) conversions, with over 70 completed in the first half of 2021 – greater than the overall total in 2020. The 30 Boeing 737NG conversions thus far in 2021 are double the number for all of 2019, with A320ceo and A330ceo conversions also growing.

Governments across the globe have committed approximately US$170 billion in airline industry support as of June 2021, with the mature airline markets of North America and Europe & CIS accounting for US$77.4 billion and US$44.2 billion, respectively. When measured as a proportion of 2019 GDP, Government support to airlines in the Middle East was the highest, at 0.36%, with Latin America the lowest at 0.09%.

We are starting to see a recovery in air traffic in many parts of the globe and, with it, greater confidence from some airlines with significant aircraft orders. However, the long-term effects of Covid on the industry should not be underestimated, and will affect aircraft availability, values, and lessor portfolios for several years to come.

IBA forecasts that aircraft trading activity in 2021 will return to 2019 levels, with transactions set to reach 3,800 by the end of this year, with much of it driven by lessor acquisition and M&A activity.

The acquisition of GECAS by Aercap is also set to change the dynamics of the aircraft leasing market. The newly combined entity will have a fleet size three-times the size of its nearest competitor. IBA predicts that it will sell-off a significant amount of the older aircraft in its fleet, following a trend set in previous lessor mergers and acquisitions, with a possible knock-on effect on aircraft availability and values.

Flexibility from the major OEMs in airline delivery timescales in 2020, extensions and rental deferrals have suppressed the level of aircraft lease ends to around 1,300. However, IBA forecasts that this will now increase to over 1,600 in both 2021 and 2022.

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