|Could London Heathrow Runway expansion become the latest Brexit casualty?|
Julian Bray writes: On a day when scientists are now saying we should eat ten not five pieces a fruit a day. Just who can you believe? We are now nearly three months into 2017 and finds manufacturers producing wide-body aircraft at historically high production rates.
This follows earlier periods of productive famine and other fiscal constraints fanned by poor economic conditions and corresponding delays in new-technology replacement programs.
But consider the likes of Boeing and Airbus are now seeing reduced orders in a softening primary and weak secondary marketplaces. They are unable to fill production slots currently available before the production and rollout of next generation Airbus A350 and Boeing 777 aircraft.
To add to the complications, the quantity of wide-body aircraft in storage remains impossibly high, and the majority are younger ex-lease aircraft well below 20 years of age.
Also consider the growing numbers of current generation Airbus A330 and Boeing 777 aircraft being returned off lease in the next few years, some being returned early or swapped over for narrow body single aisle aircraft. A wide-body aircraft after or secondary market, which is now dominated by lessors, increasing unable to sell on or secondary lease their property.
The current twin-aisle wide-body market is also affected negatively by the increasing range and capacity of larger narrow-body aircraft such as the Airbus A321LR and soon by Boeing’s new 737 MAX family of aircraft which can easily operate point-to-point more than half of present wide-body routes
As a result airlines are increasingly hesitant to acquire larger wide-body aircraft as they can only be filled on densely travelled routes. It is also ironic that premium fares are still financially supporting economy price points.
The switch coincides with the general trend towards 'point to point operations' rather than hub connectivity. This trend does help our smaller regional airports, such as Stansted with operators such as Ryanair demanding a less than 25 minute turnaround for their aircraft and competitive landing and handling charges.
But despite assurances from local airline management, all is not settled. Brexit is looming...
With the outcome of Brexit negotiations still very uncertain and the UK Government, seemingly with very few seasoned negotiators facing highly experienced EU counterparts, the UK having over the last few years under the Cameron Government reduced the number of experienced civil servants - Post Brexit and still uncertain in terms of post EU access and negotiated agreements.
UK Airport managements should not be surprised if long standing established airport contracts with airlines are also rapidly renegotiated, as the new world order presents itself. Moving house for any airline is so easy, you just immediately reroute your aircraft.
Third-party operated ground handling resources are usually hired in, so no problem there either. Both EasyJet and Ryanair have operating companies set up within Europe...
Financially Sterling has taken a hammering as brokers scrabble to go long on dollars (ie dump Sterling) its called the FOMO effect (FOMO - Fear Of Missing Out!)
Curiously Nomura bank (alone) is suggesting the Pound may nervously recover by the end of 2017.
The first Airbus A380 end of lease returns will start during 2017. There has been very limited secondary market for the A380.
Given the aircraft’s no longer fashionable size, there are very few operators in current market conditions willing to risk using them.
Reconfiguration costs are likely to be substantial for a traditional 3-class layout. Further damaging the secondary or after market, operators are now very thin on the ground and dominated by Emirates which accounts for nearly half of the aircraft in-service and on firm order backlog.
Observers suggest that such operator concentration is detrimental to asset liquidity and opportunities to place used aircraft.Present first-tier operators have configured the aircraft with now outdated premium seating layouts effectively well below 500 seats. Airbus and lease company Amedeo, are hopeful that the A380 will enter service with low cost and charter carriers in configurations approaching 700 seats for long haul leisure markets, thus maximising the revenue potential of the aircraft.
Market participants are also optimistic that growing hub congestion (and the rush to point-to-point in some regions) will eventually influence operators to order or lease VLA aircraft such as the A380 and 747-8i.
Potential opportunities may also lie with operators such as International Airlines Group (IAG) - owners of the British Airways brand- which sees second-hand A380s as an attractive proposition.
Further complicating the outlook for a secondary market for the A380s is the lack of a freighter conversion program as well as possible derivative developments – fuselage stretch (-900), re-engined (A380neo) - being explored by the OEM.
Most affected in terms of value diminution are low gross weight early-build examples, which encountered wing component cracking issues requiring extensive repair work.
Fasten seat belts, the ride will be bumpy, for all of us...
JULIAN BRAY +44(0)1733 345581, Journalist & Broadcaster, Aviation Security & Airline Operations Analyst/expert, Travel / Maritime & Cruise Industry, NUJ, EQUITY, LIVE ISDN LINK, Broadcast ISDN COOBE ++44 (0)1733 345020 e&oe Old faithful NOKIA: 07944 217476 www.aviationcomment.com