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miegapele
Posts: 140
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Re: Airbus blasted by leasing companies over plans to lift jet production

Sun Oct 31, 2021 8:07 am

So according to some here lessors to aviation has the same role as 757 to fish. That is aviation would collapse without them. They also presumably the smartest people in the world. that's there is starts to not make sense.
So apparently lessors ordered most of the planes, and now Airbus wants to deliver them as those super smart lessors wanted and they start crying? Something does not add up here, either they are not as smart as depicted, or they are not that important as they think.
 
smartplane
Posts: 1915
Joined: Fri Aug 03, 2018 9:23 pm

Re: Airbus blasted by leasing companies over plans to lift jet production

Sun Oct 31, 2021 8:55 am

sxf24 wrote:
They can also make gains on the sale of airplanes to lessors.

Usually an illusion, with the lessor paying more (often because they are funding additional acquisition related costs which are capitalised), offset by the lessee assigning some or all of the retrospective credits for the aircraft involved. The lessee repays over the life of the lease including the balloon payment at the end. Smoke, mirrors and tax effective funding.
 
Gremlinzzzz
Posts: 471
Joined: Fri Jan 24, 2020 4:28 am

Re: Airbus blasted by leasing companies over plans to lift jet production

Sun Oct 31, 2021 10:03 am

miegapele wrote:
So according to some here lessors to aviation has the same role as 757 to fish. That is aviation would collapse without them. They also presumably the smartest people in the world. that's there is starts to not make sense.
So apparently lessors ordered most of the planes, and now Airbus wants to deliver them as those super smart lessors wanted and they start crying? Something does not add up here, either they are not as smart as depicted, or they are not that important as they think.


Eiszeit wrote:
If lessors are hurting or going under due to increased production rates it is because they or rather their employees did a bad job. Providing capital for planes while mitigating some risks, for investors compared to direct investment in airlines is the only job they have.


Too much leverage, too much exposure and a view that the great times will not come to an end. When something does go wrong, their poor planning is explained as an aspect that will lead to the collapse of the industry.
Where have we seen this before if not in every crash envisioned?
.
 
PhilipBass
Posts: 246
Joined: Fri Feb 19, 2021 6:30 pm

Re: Airbus blasted by leasing companies over plans to lift jet production

Sun Oct 31, 2021 10:36 am

If Airbus has miscalculated the potential demand for their product and impact on the market as SXF24 suggests then they'll turn off the spigot until the problem corrects itself.
Airbus has a fiduciary duty to Investors like me to maximise the value of my investment in the long term and I am of the opinion that this policy change is in line with those obligations.
I'm not invested in Leasors. I generally avoid financial companies as their raison d'etre and the value they add to society is hard to gauge at the best of times.
 
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zkojq
Posts: 4961
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Re: Airbus blasted by leasing companies over plans to lift jet production

Sun Oct 31, 2021 11:39 am

The double standards in this thread are amusing. When Boeing raised 787 production to 14 a month, we only heard praise for the move. Nobody here was worrying about the effect it would have on the values of lessor's portfolios of 777-200s, 767-300s and A330s. Nobody suggested it would cause lessors to stop doing business with Boeing. Nobody here was calling it "reckless" nor "arrogant".

Raising production of the A320neo will further lower Airbus' production costs. This will help them to win hotly contested future RFPs (eg Qantas narrowbody replacement) whilst still maintaining healthy margins. Just as it did for Boeing with the 787. Airbus has already proven in recent months that they can win RFPs which appear to have the odds against them (Jet2). At the end of the day, making money is far higher up on Airbus' priority list than protecting the value of old aircraft.

If lessors don't want to put their capital towards A320neos, that's up to them. Maybe they can finance some MRJs instead? Interest rates are low, money is cheap and new lessors will enter the market if others are exiting.
 
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zkojq
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Re: Airbus blasted by leasing companies over plans to lift jet production

Sun Oct 31, 2021 11:39 am

sxf24 wrote:

A lessor can fail with little consequence; AIG & ILFC is one example and there’s an argument to be made that GECAS also failed. What you’re ignoring is that if there’s a systemic disruption in the value of the aircraft assets that support nearly every single dollar of capita that flows into the industry, those sources of capita will choose to invest elsewhere.


And what was the tangible effect on airlines and passengers?

Revelation wrote:
IIRC both A and B proposed earlier in the pandemic that governments set up a fund to acquire and scrap older aircraft to make room for newer ones, but governments declined.


Good. I don't understand why taxpayers should be subsidizing this.
 
frmrCapCadet
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Re: Airbus blasted by leasing companies over plans to lift jet production

Sun Oct 31, 2021 2:15 pm

There is a dance between suppliers, makers, financiers, final customers (airlines) and sometimes even passengers. If someone trips or tromps a partner the dance stops until a new partner can be found. It is not free fight/no rules. Above posts suggesting it is of no concern to Airbus if surplus planes flood and destroy current markets are wrong. There are mutualistic dynamics working in all markets. Kind of basic Adam Smith.
 
sxf24
Posts: 1884
Joined: Wed Aug 15, 2007 12:22 pm

Re: Airbus blasted by leasing companies over plans to lift jet production

Sun Oct 31, 2021 2:23 pm

zkojq wrote:
sxf24 wrote:

A lessor can fail with little consequence; AIG & ILFC is one example and there’s an argument to be made that GECAS also failed. What you’re ignoring is that if there’s a systemic disruption in the value of the aircraft assets that support nearly every single dollar of capita that flows into the industry, those sources of capita will choose to invest elsewhere.


And what was the tangible effect on airlines and passengers?


None, at least independent of the Great Financial Crisis that brought these lessors down. Which is why trying to make this an argument about specific complaints is factious. There is general industry concern about oversupply hurting future aircraft values.

smartplane wrote:
sxf24 wrote:
They can also make gains on the sale of airplanes to lessors.

Usually an illusion, with the lessor paying more (often because they are funding additional acquisition related costs which are capitalised), offset by the lessee assigning some or all of the retrospective credits for the aircraft involved. The lessee repays over the life of the lease including the balloon payment at the end. Smoke, mirrors and tax effective funding.


No, there are real cash gains to airlines. How do you think most ULCCs fund their operation? Indigo buys an A320 from Airbus at $40m, sells to a lessor at delivery for $45m and gets a $5m refund from Airbus.
 
ABMUC
Posts: 37
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Re: Airbus blasted by leasing companies over plans to lift jet production

Sun Oct 31, 2021 2:42 pm

sxf24 wrote:
zkojq wrote:
sxf24 wrote:

A lessor can fail with little consequence; AIG & ILFC is one example and there’s an argument to be made that GECAS also failed. What you’re ignoring is that if there’s a systemic disruption in the value of the aircraft assets that support nearly every single dollar of capita that flows into the industry, those sources of capita will choose to invest elsewhere.


And what was the tangible effect on airlines and passengers?


None, at least independent of the Great Financial Crisis that brought these lessors down. Which is why trying to make this an argument about specific complaints is factious. There is general industry concern about oversupply hurting future aircraft values.

smartplane wrote:
sxf24 wrote:
They can also make gains on the sale of airplanes to lessors.

Usually an illusion, with the lessor paying more (often because they are funding additional acquisition related costs which are capitalised), offset by the lessee assigning some or all of the retrospective credits for the aircraft involved. The lessee repays over the life of the lease including the balloon payment at the end. Smoke, mirrors and tax effective funding.


No, there are real cash gains to airlines. How do you think most ULCCs fund their operation? Indigo buys an A320 from Airbus at $40m, sells to a lessor at delivery for $45m and gets a $5m refund from Airbus.


Your calculation makes no sense. Why should Airbus refund 5 m to Indigo??? They pay Airbus 40, receive 45 from a lessor and gained 5 m.
 
paulsea
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Re: Airbus blasted by leasing companies over plans to lift jet production

Sun Oct 31, 2021 3:09 pm

Isn't the underlying issue a bit simpler? Assuming that leasing companies are rational actors, the challenge is not the profit or survival of any one company. The issue is that (periodic) lease Cost = Depreciation/Term + Interest. If the leasing companies (or any other rational actors) come to believe that the production rate will cause the residual value at the end of the lease terms to be lower, then the estimated Depreciation will be higher. The result will be the aircraft will more expensive to the airlines. If there is low price-sensitivity this will be fine, but there is a point at which the (effective) price increase will reduce demand.

The aircraft manufacturers don't need to listen only to the leasing companies, but they do need to make sure that production rate doesn't depress residual values to the point where (effective) pricing is not competitive. This is certainly the case in auto leasing. The lessors are not specifically important, but serve the role of speaking to the pricing impact of various production levels given basic supply and demand.
 
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lightsaber
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Re: Airbus blasted by leasing companies over plans to lift jet production

Sun Oct 31, 2021 3:24 pm

sxf24 wrote:
lightsaber wrote:
sxf24 wrote:
Lessors purchase many more airplanes from airlines at delivery and lease them back. Over 50% of A320 family airplanes are bought by lessors at delivery.

This is the risk. If leasors are hurting, they will have to increase the costs for sale/leaseback. e.g., make airlines put more money down.

While I agree it is to Airbus' advantage to increase rates, I do not believe leasing companies will be able to maintain the ratio of delivered aircraft they finance. That means the aircraft financing profits must increase to attract new intrants.

There is the challenge for Airbus.

Lightsaber


This is a key point: any pain inflected on financiers (including lessors) flows to the airlines. Higher costs to airlines reduces incentive to buy new. It’s a weird dynamic in this industry…

Agreed. I assume the production increase assumes continued easy financing. Everyone (not you, I think you get it, but others) should realize financing follows supply demand curves just like any other industry. You cannot always pass on costs when demand is low, but in times of higher demand, profits increase, as that is what is required to take on more risk or make it worthwhile for a financer to enter a new field. I am of the opinion the pain caused by rapid depreciation of prior assets will hinder the highly leveraged aircraft leasing business. Two years ago I would have noted Chinese banks would enter the market, I think their current debt issues will prevent that:
https://www.msn.com/en-xl/money/other/e ... NewsSearch

The money has to come from somewhere. Airlines are low profit users that have just suffered over a year of shutdown that forces restraints on their cash position. So I just don't know the easy out.

Just to be clear, I think Airbus should increase production, I just think the peak rate is too ambitious. For those saying they can just throttle back, that is layoffs at vendors and workforce reductions at Airbus. The issue, as McDonnell Douglas found out is you don't realize a market is over-supplied right away, the market will go into a multi-year surplus and then drop quickly. Think... well prior aerospace boom/bust cycles. Boeing has it easier as, like it or not, they have an easier time doing mass layoffs at a lower cost than an EU based company.

Now I write this as I am of the opinion 2019 was over-supplied in aircraft, both narrowbodies and widebodies and I am of the opinion the market was oversupplied in 2019.

2018 (summer): A320CEO top value $45 million, A321CEO $53 million viewtopic.php?t=1399391
2019: (spring): A320 CEO top value $44.8, A321CEO $52 million viewtopic.php?t=1422705
2021: (spring): A320 CEO top value #33.5, A321CEO $42.1 million viewtopic.php?f=3&t=1460947

With the A320/321CEOs still in production, that will make the last takers tougher to finance, unless Airbus discounted more than I think they did.

What increasing production rates cuts costs (e.g., much is fixed cost spread over more units), it will also in classical supply/demand push down prices. Both of new NEOs, but even more so on CEOs. The NEO is starting to be mature enough that we are only a few years away from 2nd hand transactions. We have airlines like Indigo, Flyadeal, GoAir, Latam, Qatar, completely retiring CEOs withing 5 years, that will hurt resale:

Sorry for simple flying link on Indigo & Flyadeal (please open in incognito browser as cookies are... persistent per my experience):
Indigo to retire CEOs withing 2 years link: https://simpleflying.com/indigo-all-a32 ... 0by%202022.
Flyadeal to retire CEOs within 5 years: https://simpleflying.com/flyadeal-airbu ... etirement/
GoAir retirement (down to 13 CEOs, no firm timeline given): https://travel.economictimes.indiatimes ... l/76254728
LATAM retiring CEOs: https://airinsight.com/latam-airlines-g ... inability/
Qatar retiring A32x CEOs: https://airwaysmag.com/airlines/qatar-a ... hased-out/
Frontier retiring A319s, replacing with NEOs, I just think these will reduce scrap values: https://retirement.piyasaa.com/frontier ... -a319s-in/


Gremlinzzzz wrote:
miegapele wrote:
So according to some here lessors to aviation has the same role as 757 to fish. That is aviation would collapse without them. They also presumably the smartest people in the world. that's there is starts to not make sense.
So apparently lessors ordered most of the planes, and now Airbus wants to deliver them as those super smart lessors wanted and they start crying? Something does not add up here, either they are not as smart as depicted, or they are not that important as they think.


Eiszeit wrote:
If lessors are hurting or going under due to increased production rates it is because they or rather their employees did a bad job. Providing capital for planes while mitigating some risks, for investors compared to direct investment in airlines is the only job they have.


Too much leverage, too much exposure and a view that the great times will not come to an end. When something does go wrong, their poor planning is explained as an aspect that will lead to the collapse of the industry.
Where have we seen this before if not in every crash envisioned?
.

I wonder how long lessors can finance at current commitments. Losses tend to discourage re-investing.

Lightsaber
 
sxf24
Posts: 1884
Joined: Wed Aug 15, 2007 12:22 pm

Re: Airbus blasted by leasing companies over plans to lift jet production

Sun Oct 31, 2021 4:14 pm

ABMUC wrote:
sxf24 wrote:
zkojq wrote:

And what was the tangible effect on airlines and passengers?


None, at least independent of the Great Financial Crisis that brought these lessors down. Which is why trying to make this an argument about specific complaints is factious. There is general industry concern about oversupply hurting future aircraft values.

smartplane wrote:
Usually an illusion, with the lessor paying more (often because they are funding additional acquisition related costs which are capitalised), offset by the lessee assigning some or all of the retrospective credits for the aircraft involved. The lessee repays over the life of the lease including the balloon payment at the end. Smoke, mirrors and tax effective funding.


No, there are real cash gains to airlines. How do you think most ULCCs fund their operation? Indigo buys an A320 from Airbus at $40m, sells to a lessor at delivery for $45m and gets a $5m refund from Airbus.


Your calculation makes no sense. Why should Airbus refund 5 m to Indigo??? They pay Airbus 40, receive 45 from a lessor and gained 5 m.


This is a good question that gets into some relatively technical contract issues. The simple explanation (using Indigo as an example) is that Indigo and Airbus have a purchase agreement for A320neos at $40m. Indigo negotiates a separate agreement with a lessor to sell the airplane at delivery for $45m. At Indigo's direction, Airbus provides lessor with an invoice for $45m and the lessor sends this money at delivery. Once the delivery is complete, Airbus sends any excess funds back to Indigo. Selling airplanes at a gain is a key funding strategy for many ULCCs and depends on a gap between OEM prices and market values. Eroding market values, for whatever reason, would really hurt these airlines and slow their growth since much of the gains goes towards investing in expansion.

lightsaber wrote:
sxf24 wrote:
lightsaber wrote:
This is the risk. If leasors are hurting, they will have to increase the costs for sale/leaseback. e.g., make airlines put more money down.

While I agree it is to Airbus' advantage to increase rates, I do not believe leasing companies will be able to maintain the ratio of delivered aircraft they finance. That means the aircraft financing profits must increase to attract new intrants.

There is the challenge for Airbus.

Lightsaber


This is a key point: any pain inflected on financiers (including lessors) flows to the airlines. Higher costs to airlines reduces incentive to buy new. It’s a weird dynamic in this industry…

The money has to come from somewhere. Airlines are low profit users that have just suffered over a year of shutdown that forces restraints on their cash position. So I just don't know the easy out.

Just to be clear, I think Airbus should increase production, I just think the peak rate is too ambitious. For those saying they can just throttle back, that is layoffs at vendors and workforce reductions at Airbus. The issue, as McDonnell Douglas found out is you don't realize a market is over-supplied right away, the market will go into a multi-year surplus and then drop quickly. Think... well prior aerospace boom/bust cycles. Boeing has it easier as, like it or not, they have an easier time doing mass layoffs at a lower cost than an EU based company.


You're articulating the nuance of the situation. It is logical to say current production rates are too low while also saying that rate 70 (for a total of ~130 narrowbodies when combined with A220s, MAX, and E-Jets) is too high. Finding the sweet spot is tough, but is critical to the availability of capital and the long-term health of the industry. This is why rate increases are usually slow and deliberate.
 
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Revelation
Posts: 27445
Joined: Wed Feb 09, 2005 9:37 pm

Re: Airbus blasted by leasing companies over plans to lift jet production

Sun Oct 31, 2021 4:56 pm

zkojq wrote:
The double standards in this thread are amusing. When Boeing raised 787 production to 14 a month, we only heard praise for the move. Nobody here was worrying about the effect it would have on the values of lessor's portfolios of 777-200s, 767-300s and A330s. Nobody suggested it would cause lessors to stop doing business with Boeing. Nobody here was calling it "reckless" nor "arrogant".

Well, yeah, that was before this thing most people refer to as a pandemic came along, which kind of changed the supply vs demand equation a bit. The airline industry just stopped, and it's only now starting to see cash flowing again. The industry IMO is a lot more vulnerable than it was back then. Back then, I don't recall anyone saying airlines were being strong armed into taking deliveries they didn't want. Now, we do have such reports.

Both A and B were talking up a scheme to scrap older planes earlier in the pandemic, IMO a tacit admission that supply exceeded demand.

While there is no formal EU scrappage programme in play, Airbus believes that the principle of creating a “green stimulus” through the “right conditions and financing support” to enable airlines to retire older, less-environmentally friendly aircraft early is “in the short term, the best way to reduce emissions”.

Ref: https://www.flightglobal.com/farnboroug ... 00.article

I'm not surprised greenwashing was used to sell the scheme. The underlying issue was supply exceeds demands, and the manufacturers were looking to find someone else to take the hit. Back then it was the government, who didn't bite, they had other far more serious things to deal with and the aviation sector already was being given huge amounts of help. Now it's the leasing sector they're lining up to take the hit.

This article from a WSJ partner gives a lot of insight on arm twisting that went on during the pandemic:

Lufthansa fleet managers engaged in grueling talks with Airbus’ sales team, according to people familiar with the negotiations. Managers from both companies went down Lufthansa’s order book, aircraft by aircraft. Every change Lufthansa proposed, Airbus asked for something in return, either an earlier delivery of another model, a new order, deferral payments, or a little of all three, the people said.

In addition to taking the 16 unwanted planes last year, Lufthansa agreed in April to take 12 new planes this year, while deferring delivery of an additional 24 jets in later years. Lufthansa agreed to pay penalties for the contract changes. It also agreed to buy an additional five A350 wide-bodies for delivery in 2027.

Ref: https://techilive.in/airbus-soars-past- ... customers/

Seems the leasing firms aren't in a position to offer up "earlier delivery of another model, a new order, deferral payments, or a little of all three". That doesn't surprise me much. I get it, one role of leasing firms is to handle risk, but still, the article does point out using strong arm tactics has a risk for Airbus.

Airbus’s rigid approach carries big risks, and some Airbus executives privately worry it threatens long-term relationships with carriers just as demand starts to return.

Willie Walsh, who stepped down as chief executive of International Consolidated Airlines Group SA at the end of last year, asked for a moratorium on Airbus deliveries to the owner of British Airways during the early days of the pandemic, according to people familiar with the matter.

When he was turned down, he repeatedly cited the “old Airbus,” they said. In the downturn triggered by the Sept. 11, 2001, terrorist attacks, Mr. Walsh was head of Ireland’s Aer Lingus, and Airbus then offered the airline significantly more flexibility with orders.

“I was disappointed with the early response,” said Mr. Walsh in an interview. “Too often people fell back on ‘I have a contract, you’re bound by the contract.’ ” A spokeswoman for IAG declined to comment.

So it seems at least some recognize a change in how they are being dealt with.

frmrCapCadet wrote:
There is a dance between suppliers, makers, financiers, final customers (airlines) and sometimes even passengers. If someone trips or tromps a partner the dance stops until a new partner can be found. It is not free fight/no rules. Above posts suggesting it is of no concern to Airbus if surplus planes flood and destroy current markets are wrong. There are mutualistic dynamics working in all markets. Kind of basic Adam Smith.

:checkmark:
 
jeffrey0032j
Posts: 1159
Joined: Wed Jun 15, 2016 3:11 pm

Re: Airbus blasted by leasing companies over plans to lift jet production

Sun Oct 31, 2021 5:04 pm

zkojq wrote:
The double standards in this thread are amusing. When Boeing raised 787 production to 14 a month, we only heard praise for the move. Nobody here was worrying about the effect it would have on the values of lessor's portfolios of 777-200s, 767-300s and A330s. Nobody suggested it would cause lessors to stop doing business with Boeing. Nobody here was calling it "reckless" nor "arrogant".

Raising production of the A320neo will further lower Airbus' production costs. This will help them to win hotly contested future RFPs (eg Qantas narrowbody replacement) whilst still maintaining healthy margins. Just as it did for Boeing with the 787. Airbus has already proven in recent months that they can win RFPs which appear to have the odds against them (Jet2). At the end of the day, making money is far higher up on Airbus' priority list than protecting the value of old aircraft.

If lessors don't want to put their capital towards A320neos, that's up to them. Maybe they can finance some MRJs instead? Interest rates are low, money is cheap and new lessors will enter the market if others are exiting.

Times have changed, when Boeing raised 787 production to 14/month, the industry was booming, and was set to expand even further. The pandemic caused a lot of very profitable airlines to suddenly face existential issues, and these are the normally well performing ones. Then there are the airlines which have been normally getting by just fine or worst, airlines who were already struggling before the pandemic. A lot of the airlines in the latter 2 categories rely on leasing, and in such times where nobody has any appetite to take on new frames for a few years, a sudden influx will do harm for both airlines and lessors. Unless you have been missing the whole pandemic...

The lessors are the ones making noise now, but a few months back there was an article which stated that a number of airlines were not happy with Airbus forcing them to take their planes, LH was one of them. This is pure arrogance at best, and jabbing a knife into the industry at worst. Who knows whether the lessors were also speaking up for some of their customers who may be having the same concerns with their own owned fleet.
 
LDRA
Posts: 493
Joined: Fri Jan 15, 2016 3:01 am

Re: Airbus blasted by leasing companies over plans to lift jet production

Sun Oct 31, 2021 5:30 pm

Airbus is predicting higher demand for NEO due to CO2 regulations that are coming. Why don't the lessors cry to the governments?

It's a great time for new entrant to deploy capital into aviation lease market, as the current players made bad bets and less likely to renew capital commitment.
At the same time, the market is solid due to CO2 reduction trend
 
Gremlinzzzz
Posts: 471
Joined: Fri Jan 24, 2020 4:28 am

Re: Airbus blasted by leasing companies over plans to lift jet production

Sun Oct 31, 2021 5:43 pm

lightsaber wrote:
sxf24 wrote:
lightsaber wrote:
This is the risk. If leasors are hurting, they will have to increase the costs for sale/leaseback. e.g., make airlines put more money down.

While I agree it is to Airbus' advantage to increase rates, I do not believe leasing companies will be able to maintain the ratio of delivered aircraft they finance. That means the aircraft financing profits must increase to attract new intrants.

There is the challenge for Airbus.

Lightsaber


This is a key point: any pain inflected on financiers (including lessors) flows to the airlines. Higher costs to airlines reduces incentive to buy new. It’s a weird dynamic in this industry…

Agreed. I assume the production increase assumes continued easy financing. Everyone (not you, I think you get it, but others) should realize financing follows supply demand curves just like any other industry. You cannot always pass on costs when demand is low, but in times of higher demand, profits increase, as that is what is required to take on more risk or make it worthwhile for a financer to enter a new field. I am of the opinion the pain caused by rapid depreciation of prior assets will hinder the highly leveraged aircraft leasing business. Two years ago I would have noted Chinese banks would enter the market, I think their current debt issues will prevent that:
https://www.msn.com/en-xl/money/other/e ... NewsSearch

The money has to come from somewhere. Airlines are low profit users that have just suffered over a year of shutdown that forces restraints on their cash position. So I just don't know the easy out.

Just to be clear, I think Airbus should increase production, I just think the peak rate is too ambitious. For those saying they can just throttle back, that is layoffs at vendors and workforce reductions at Airbus. The issue, as McDonnell Douglas found out is you don't realize a market is over-supplied right away, the market will go into a multi-year surplus and then drop quickly. Think... well prior aerospace boom/bust cycles. Boeing has it easier as, like it or not, they have an easier time doing mass layoffs at a lower cost than an EU based company.

Now I write this as I am of the opinion 2019 was over-supplied in aircraft, both narrowbodies and widebodies and I am of the opinion the market was oversupplied in 2019.

2018 (summer): A320CEO top value $45 million, A321CEO $53 million viewtopic.php?t=1399391
2019: (spring): A320 CEO top value $44.8, A321CEO $52 million viewtopic.php?t=1422705
2021: (spring): A320 CEO top value #33.5, A321CEO $42.1 million viewtopic.php?f=3&t=1460947

With the A320/321CEOs still in production, that will make the last takers tougher to finance, unless Airbus discounted more than I think they did.

What increasing production rates cuts costs (e.g., much is fixed cost spread over more units), it will also in classical supply/demand push down prices. Both of new NEOs, but even more so on CEOs. The NEO is starting to be mature enough that we are only a few years away from 2nd hand transactions. We have airlines like Indigo, Flyadeal, GoAir, Latam, Qatar, completely retiring CEOs withing 5 years, that will hurt resale:

Sorry for simple flying link on Indigo & Flyadeal (please open in incognito browser as cookies are... persistent per my experience):
Indigo to retire CEOs withing 2 years link: https://simpleflying.com/indigo-all-a32 ... 0by%202022.
Flyadeal to retire CEOs within 5 years: https://simpleflying.com/flyadeal-airbu ... etirement/
GoAir retirement (down to 13 CEOs, no firm timeline given): https://travel.economictimes.indiatimes ... l/76254728
LATAM retiring CEOs: https://airinsight.com/latam-airlines-g ... inability/
Qatar retiring A32x CEOs: https://airwaysmag.com/airlines/qatar-a ... hased-out/
Frontier retiring A319s, replacing with NEOs, I just think these will reduce scrap values: https://retirement.piyasaa.com/frontier ... -a319s-in/


Gremlinzzzz wrote:
miegapele wrote:
So according to some here lessors to aviation has the same role as 757 to fish. That is aviation would collapse without them. They also presumably the smartest people in the world. that's there is starts to not make sense.
So apparently lessors ordered most of the planes, and now Airbus wants to deliver them as those super smart lessors wanted and they start crying? Something does not add up here, either they are not as smart as depicted, or they are not that important as they think.


Eiszeit wrote:
If lessors are hurting or going under due to increased production rates it is because they or rather their employees did a bad job. Providing capital for planes while mitigating some risks, for investors compared to direct investment in airlines is the only job they have.


Too much leverage, too much exposure and a view that the great times will not come to an end. When something does go wrong, their poor planning is explained as an aspect that will lead to the collapse of the industry.
Where have we seen this before if not in every crash envisioned?
.

I wonder how long lessors can finance at current commitments. Losses tend to discourage re-investing.

Lightsaber
This is where their analysts earn their keep.

They should divest some of their commitments, but I suspect they wont until they are forced to.

If the business model is to lease, havin an asset sit idle does nothing but generate losses. Airlines get smaller when push comes to shove. The same thing will happen to lessors if things get really bad.......a correction.
 
smartplane
Posts: 1915
Joined: Fri Aug 03, 2018 9:23 pm

Re: Airbus blasted by leasing companies over plans to lift jet production

Sun Oct 31, 2021 6:03 pm

sxf24 wrote:
zkojq wrote:
sxf24 wrote:

A lessor can fail with little consequence; AIG & ILFC is one example and there’s an argument to be made that GECAS also failed. What you’re ignoring is that if there’s a systemic disruption in the value of the aircraft assets that support nearly every single dollar of capita that flows into the industry, those sources of capita will choose to invest elsewhere.


And what was the tangible effect on airlines and passengers?


None, at least independent of the Great Financial Crisis that brought these lessors down. Which is why trying to make this an argument about specific complaints is factious. There is general industry concern about oversupply hurting future aircraft values.

smartplane wrote:
sxf24 wrote:
They can also make gains on the sale of airplanes to lessors.

Usually an illusion, with the lessor paying more (often because they are funding additional acquisition related costs which are capitalised), offset by the lessee assigning some or all of the retrospective credits for the aircraft involved. The lessee repays over the life of the lease including the balloon payment at the end. Smoke, mirrors and tax effective funding.


No, there are real cash gains to airlines. How do you think most ULCCs fund their operation? Indigo buys an A320 from Airbus at $40m, sells to a lessor at delivery for $45m and gets a $5m refund from Airbus.

Yes. Real cash up front. Repaid over the life of the asset and at end of lease. And lessor takes most / all retrospective credits, sometimes on more than THE aircraft being financed. Over the life of the lease, sometimes cash neutral depending on tax, but usually cash negative. Simply borrowing against future benefits, with extreme care to not push tax effective rules too far by inflating values / over capitalising.
 
oldJoe
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Re: Airbus blasted by leasing companies over plans to lift jet production

Sun Oct 31, 2021 8:26 pm

jeffrey0032j wrote :
The lessors are the ones making noise now, but a few months back there was an article which stated that a number of airlines were not happy with Airbus forcing them to take their planes, LH was one of them .....

What these managers (LH) forget by the way that they also made commitments to their bailout.
source in German :
https://www.bmwi.de/Redaktion/DE/Pressemitteilungen/2020/20200525-bundesregierung-verstaendigt-sich-auf-finanzielle-unterstuetzung-fuer-die-lufthansa.html
translated from the article :
Lufthansa is committed to pursuing sustainability goals, including renewing its fleet. Far-reaching remuneration restrictions are planned for the group management board, the management board members of the group companies and the management.


The article you mention was from July this year. Three months later :
Spohr explained that despite the current worst crisis in the aviation industry, the carrier will continue to invest around €2.5 billion ($2.9 billion) in new aircraft every year

sorce :
https://samchui.com/2021/10/21/interview-with-lufthansa-ceo-on-business-travel-and-new-aircraft-delivery/#.YXHUSBpBzIV
 
PhilipBass
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Re: Airbus blasted by leasing companies over plans to lift jet production

Sun Oct 31, 2021 8:56 pm

LDRA wrote:
Airbus is predicting higher demand for NEO due to CO2 regulations that are coming. Why don't the lessors cry to the governments?

AerCap would get an interesting reception from Eammon Ryan, Green Minister for Transport in Ireland. If he could shut down the Island to air transport he would.
 
Turnhouse1
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Re: Airbus blasted by leasing companies over plans to lift jet production

Sun Oct 31, 2021 10:27 pm

Increasing the supply of A320Neo reduces the value of less desirable aircraft. Lessors who offer A320Neo will be able to charge premium rates, however the rates for their 737Max, A320CEO and 737NG will be severely constrained. If your business owns a lot of 737NG and A320CEO, then the last thing you want is good supply of the premium A320Neo product, hence the lessors aren't happy their current inventory is being depreciated and may be hard to place over the next few years. Boeing would rather supply of A320Neo was limited as it would help them sell 737Max, but can't kick off publicly as it highlights that their product isn't quite as good. What's not totally clear is as aviation gets back going, will Airbus have the capacity to supply everyone with A320Neo. 737 Max and <10 year old A320CEO and 737NG will find homes, older models without winglets etc will be scrap.

Airbus have no incentive to stop production, if current lessors won't buy, another finance company will step in to facilitate a better, product, without the legacy costs. It's like when Easyjet and Ryanair were growing in the early 2000s as they didn't have the sunk cost of BA, AF or LH.
 
StTim
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Re: Airbus blasted by leasing companies over plans to lift jet production

Sun Oct 31, 2021 11:22 pm

It was interesting to read in another thread (I think it is the Dubai airshow one) where Boeing were a favourite to win an order as they had earlier available slots.

Why should Airbus not be able to produce enough to supply their customers?
 
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Re: Airbus blasted by leasing companies over plans to lift jet production

Mon Nov 01, 2021 1:50 am

sxf24 wrote:
lightsaber wrote:
sxf24 wrote:

This is a key point: any pain inflected on financiers (including lessors) flows to the airlines. Higher costs to airlines reduces incentive to buy new. It’s a weird dynamic in this industry…

The money has to come from somewhere. Airlines are low profit users that have just suffered over a year of shutdown that forces restraints on their cash position. So I just don't know the easy out.

Just to be clear, I think Airbus should increase production, I just think the peak rate is too ambitious. For those saying they can just throttle back, that is layoffs at vendors and workforce reductions at Airbus. The issue, as McDonnell Douglas found out is you don't realize a market is over-supplied right away, the market will go into a multi-year surplus and then drop quickly. Think... well prior aerospace boom/bust cycles. Boeing has it easier as, like it or not, they have an easier time doing mass layoffs at a lower cost than an EU based company.


You're articulating the nuance of the situation. It is logical to say current production rates are too low while also saying that rate 70 (for a total of ~130 narrowbodies when combined with A220s, MAX, and E-Jets) is too high. Finding the sweet spot is tough, but is critical to the availability of capital and the long-term health of the industry. This is why rate increases are usually slow and deliberate.

This is the nuance. What rate is right? I do not claim to know exactly. If Airbus is missing out on near term sales, the rate is too low. But the market only has so much growth. .The reality is we are debating a "sweet spot" of 500 to 700 per year.

It needs to be a metered rise as if Airbus puts out say 400 too many, so will Boeing and suddenly the market has 800 too many aircraft and booth do a massive cut. But Airbus doesn't want to leave 400 sales on the table either.

I think they are fine with the 2022 planned production.

https://money.usnews.com/investing/news ... ow-lingers

"The question is are we really going to see a market that will support, call it 50 737s and 75 A320s on a monthly basis or 125 airplanes a month," Hayes told analysts.


I dislike per month as that is 600/yr for Boeing and 785 to 820 for Airbus as they do not use a 12 month production year plus more A220 and E2.

I see a market for 1100 to 1300 per year (of all 4 planes). A few hundred more per year creates a potential need to reduce production.

I'm all for Airbus going to 600 per year, my concerns are that with other production increases, it will quickly be too much.

Note: my 1100 to 1300 per year will still be brutal on used A320CEO and 737NG pricing. Above that starts to reduce the second hand market to the point that only Allegiant, Sun Country, Delta, and other airlines who buy used for their low utilization duty will be happy.

A nice article on Sun Country and Allegiant and their model of only flying when customers pay a premium:
https://centreforaviation.com/analysis/ ... and-579163

2nd note: Before the pandemic, I was of the opinion Delta only flew a third of their fleet low utilization to maximize yield (peak banks normally, surge on higher yield days). In my opinion, low utilization airlines will benefit the most (e.g., add Volotea for an EU example). Over-production might persuade some airlines to do a partial fleet renewal with used (e.g., Qantas).

Lightsaber
 
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Re: Airbus blasted by leasing companies over plans to lift jet production

Mon Nov 01, 2021 2:03 am

Late add to my last post:, looking at the CMO from Boeing:
https://www.boeing.com/commercial/marke ... t-outlook/

14,370 narrowbodies over 10 years. That is 1437 per year that should be backloaded (more in the future, due to nature of exponential growth).

For the 737NG and A320CEO Boeing and Airbus each were producing 430 narrowbodies per year or ~860 aircraft per year. Now we are talking about going to 1400+ per year just 737+A320 plus A220 plus E2, so over 1600 per year. We won't recognize the over-supply for 5 years or so. But over-production of 150 to 250 per year will get interesting...

We already effectively have ended so many elder aircraft (they might fly until the next heavy maintenance, but that is all).

Airbus should do what is in their best interest. Oversupply has a history of whiplash in this industry in unpredictable ways.

This is all about achieving the right production rate.

Lightsaber
 
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Re: Airbus blasted by leasing companies over plans to lift jet production

Mon Nov 01, 2021 2:39 am

lightsaber wrote:
Late add to my last post:, looking at the CMO from Boeing:
https://www.boeing.com/commercial/marke ... t-outlook/

14,370 narrowbodies over 10 years. That is 1437 per year that should be backloaded (more in the future, due to nature of exponential growth).

For the 737NG and A320CEO Boeing and Airbus each were producing 430 narrowbodies per year or ~860 aircraft per year. Now we are talking about going to 1400+ per year just 737+A320 plus A220 plus E2, so over 1600 per year. We won't recognize the over-supply for 5 years or so. But over-production of 150 to 250 per year will get interesting...

We already effectively have ended so many elder aircraft (they might fly until the next heavy maintenance, but that is all).

Airbus should do what is in their best interest. Oversupply has a history of whiplash in this industry in unpredictable ways.

This is all about achieving the right production rate.

Lightsaber

The oxymoronic thing about a potential whiplash is, because Airbus has a higher production rate, it will hit them harder than Boeing, who at a lower production rate, have more flexibility and agility to adjust to a sudden negative change in market demand.
 
JonesNL
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Re: Airbus blasted by leasing companies over plans to lift jet production

Mon Nov 01, 2021 7:45 am

lightsaber wrote:
Late add to my last post:, looking at the CMO from Boeing:
https://www.boeing.com/commercial/marke ... t-outlook/

14,370 narrowbodies over 10 years. That is 1437 per year that should be backloaded (more in the future, due to nature of exponential growth).

For the 737NG and A320CEO Boeing and Airbus each were producing 430 narrowbodies per year or ~860 aircraft per year. Now we are talking about going to 1400+ per year just 737+A320 plus A220 plus E2, so over 1600 per year. We won't recognize the over-supply for 5 years or so. But over-production of 150 to 250 per year will get interesting...

We already effectively have ended so many elder aircraft (they might fly until the next heavy maintenance, but that is all).

Airbus should do what is in their best interest. Oversupply has a history of whiplash in this industry in unpredictable ways.

This is all about achieving the right production rate.

Lightsaber


If the Boeing CMO predicts 15k in 10 years, you can almost be sure there will be more demand in reality. Boeing CMO has consistently under predicted the demand…

Ps.: at a rate of 60 ish pre Covid, everybody was complaining that Airbus couldn’t deliver fast enough. Now they are saying they are researching possibilities of 75 in 2025. By then demand should have fully recovered and have gone past 2019. I think they will be able to choose if they want to produce 65-70-75 based on the demand development in 2023 and 2024. I have a feeling that The parties involved are jumping the gun when they say the market can’t support so many metal while we keep seeing record braking orders from all around the world.
 
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Re: Airbus blasted by leasing companies over plans to lift jet production

Mon Nov 01, 2021 12:01 pm

sxf24 wrote:
smartplane wrote:
sxf24 wrote:
They can also make gains on the sale of airplanes to lessors.

Usually an illusion, with the lessor paying more (often because they are funding additional acquisition related costs which are capitalised), offset by the lessee assigning some or all of the retrospective credits for the aircraft involved. The lessee repays over the life of the lease including the balloon payment at the end. Smoke, mirrors and tax effective funding.


No, there are real cash gains to airlines. How do you think most ULCCs fund their operation? Indigo buys an A320 from Airbus at $40m, sells to a lessor at delivery for $45m and gets a $5m refund from Airbus.

They take cash up front, and forego more cash later.
 
PhilipBass
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Re: Airbus blasted by leasing companies over plans to lift jet production

Mon Nov 01, 2021 12:41 pm

Can I remind people that Airbus stock isn't a capital appreciation stock where investors don't expect dividends. It is a stock which is supposed to pay dividends and hasn't paid dividends recently. Airbus absolutely have to generate earnings every quarter, every year. If some Leasors' noses are bent out of shape then so be it.
 
Exeiowa
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Re: Airbus blasted by leasing companies over plans to lift jet production

Mon Nov 01, 2021 2:57 pm

So what we have is a market with different people placing bets in an attempt to maximize the share of the spoils, What we have here is an attempt to alter the rules of the game rather than the plays being made to advantage one group over another. If Airbus make less planes Boeing can benefit, the value of held asset improves, But the cost to Airlines goes up. So what we really have is an argument over revenue apportionment between airlines and lessors using Airbus as the means of the lever to be pushed.

I do not know what the correct number of aiplanes to be built, the whole point is the market is meant to figure it out, however we should resist the idea that one group can put its scale on the thumb to tilt stuff their way.
 
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Re: Airbus blasted by leasing companies over plans to lift jet production

Mon Nov 01, 2021 3:24 pm

Exeiowa wrote:
So what we have is a market with different people placing bets in an attempt to maximize the share of the spoils, What we have here is an attempt to alter the rules of the game rather than the plays being made to advantage one group over another. If Airbus make less planes Boeing can benefit, the value of held asset improves, But the cost to Airlines goes up. So what we really have is an argument over revenue apportionment between airlines and lessors using Airbus as the means of the lever to be pushed.

I do not know what the correct number of aiplanes to be built, the whole point is the market is meant to figure it out, however we should resist the idea that one group can put its scale on the thumb to tilt stuff their way.

I don't know if this is much of an alteration to any of the rules of the game.

As above, Airbus had the goal of rate 60 before COVID, and were already hinting about rate 75. They have cut production during COVID, it's only natural that they'd want to get back to the earlier planned rates.

IMO the rules of the game say leasing firms exist at least in part to accept risk. They do extremely well when the market is growing fast and extremely poorly when the market is shrinking fast. We are now of course in a period of unprecedented shrinkage, pretty much was a full stop for many months and is now only slowly restarting. It's quite expected that leasing firms take a huge hit in this scenario. It's also quite expected that they complain about it. Yet they don't do give-backs when the market is working to their advantage. They say they are entitled to profit since they accept risk. Well, if that is so, they are also should accept to deal with the times where that risk was justified.
 
PhilipBass
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Re: Airbus blasted by leasing companies over plans to lift jet production

Mon Nov 01, 2021 8:35 pm

https://www.independent.ie/business/iri ... 04380.html

They're not Merging/In Takeover to derive efficiency gains. The larger company can now exert even more power on the market.

Airbus need to dilute their share of the lease business by releasing supply to the market. If Boeing can do the same too then so much the better.
 
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Re: Airbus blasted by leasing companies over plans to lift jet production

Mon Nov 01, 2021 9:02 pm

JonesNL wrote:
lightsaber wrote:
Late add to my last post:, looking at the CMO from Boeing:
https://www.boeing.com/commercial/marke ... t-outlook/

14,370 narrowbodies over 10 years. That is 1437 per year that should be backloaded (more in the future, due to nature of exponential growth).

For the 737NG and A320CEO Boeing and Airbus each were producing 430 narrowbodies per year or ~860 aircraft per year. Now we are talking about going to 1400+ per year just 737+A320 plus A220 plus E2, so over 1600 per year. We won't recognize the over-supply for 5 years or so. But over-production of 150 to 250 per year will get interesting...

We already effectively have ended so many elder aircraft (they might fly until the next heavy maintenance, but that is all).

Airbus should do what is in their best interest. Oversupply has a history of whiplash in this industry in unpredictable ways.

This is all about achieving the right production rate.

Lightsaber


If the Boeing CMO predicts 15k in 10 years, you can almost be sure there will be more demand in reality. Boeing CMO has consistently under predicted the demand…

Ps.: at a rate of 60 ish pre Covid, everybody was complaining that Airbus couldn’t deliver fast enough. Now they are saying they are researching possibilities of 75 in 2025. By then demand should have fully recovered and have gone past 2019. I think they will be able to choose if they want to produce 65-70-75 based on the demand development in 2023 and 2024. I have a feeling that The parties involved are jumping the gun when they say the market can’t support so many metal while we keep seeing record braking orders from all around the world.

I posted links on A320 values decreasing as they were being delivered. I believe in 2019 we were already in oversupply.

While CMOs have underpredicted over 20 years, I intentionally only looked at the 10 year snapshot. As I posted before, I am fine with Airbus going to rate 60 (630 per year). It is the 65 to 75 I question or the 680 to 800 per year I question.

ugh, I dislike not using the standard 12 month year. (Rate 50 at Boeing is the same as rate 57 at Airbus for 600 aircraft per year).

I can recall when customers were demanding more and more MD-80s and then the frantic management to save production when demand slid. It is a big deal to lay off tens of thousands.

Look at A320NEO production from Airbus
2016 68
2017 181
2018 386
2019 564
2020 431 (recall threads customers complaining they had to keep to contract).

https://en.m.wikipedia.org/wiki/Airbus_A320neo_family

I see 630 per year working well. 700 or more per year, I've seen three bad aerospace downturns in my life. The worst happens when un-ending growth was predicted.

Since some parts are started 18 months before delivery and thus must be ordered 2 years out, this isn't an academic question: landing gear, engine casings, engine rotors

Note: add computer chips for aircraft, they are normally ordered 2 years out too. (because the volumes are so low, they must be ordered early to get through the foundry system in normal times).

Efficient production cannot be yanked around, it must be planned and committed to early for many years.

If the market cannot support so many, you only find out with harsh layoffs. There is a warning, and that is aircraft resale values, in particular prior generation aircraft resale values which were trashed during the lockdowns.

There is a reason production ramps are "stately," overshooting the market has major consequences.

Airbus should increase production. But as production rates must be decided two years out... I do not question Airbus must accelerate production to at least 630 per year. But when and how much is too much?

Lightsaber
 
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Re: Airbus blasted by leasing companies over plans to lift jet production

Mon Nov 01, 2021 10:42 pm

sxf24 wrote:
c933103 wrote:
Well such risk is part of the reason why leasing aircrafts are more expensive than buying outright in the first place.


Not always. For many airlines, leasing is cheaper because the cost of debt more most airlines is very high. They can also make gains on the sale of airplanes to lessors.

You are talking from airlines perspective, considering things like cost of capitals, while what I'm talking about is from leaser perspective.
 
Rekoff
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Re: Airbus blasted by leasing companies over plans to lift jet production

Mon Nov 01, 2021 11:15 pm

StTim wrote:
It was interesting to read in another thread (I think it is the Dubai airshow one) where Boeing were a favourite to win an order as they had earlier available slots.

Why should Airbus not be able to produce enough to supply their customers?


Yes the double standards are very strange. Boeing having early slots available and Airbus not would mean Boeings production rate is too high, not those of Airbus.

Also, Boeing plans to raise production to 31 per month in two months. Add the deliveries from storage and you have about 50 airplanes 'finding' their way to the market each month. Comparing orders to deliveries, Boeing is the one with the more aggressive delivery rate here.
 
JonesNL
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Re: Airbus blasted by leasing companies over plans to lift jet production

Tue Nov 02, 2021 7:14 am

lightsaber wrote:
JonesNL wrote:
lightsaber wrote:
Late add to my last post:, looking at the CMO from Boeing:
https://www.boeing.com/commercial/marke ... t-outlook/

14,370 narrowbodies over 10 years. That is 1437 per year that should be backloaded (more in the future, due to nature of exponential growth).

For the 737NG and A320CEO Boeing and Airbus each were producing 430 narrowbodies per year or ~860 aircraft per year. Now we are talking about going to 1400+ per year just 737+A320 plus A220 plus E2, so over 1600 per year. We won't recognize the over-supply for 5 years or so. But over-production of 150 to 250 per year will get interesting...

We already effectively have ended so many elder aircraft (they might fly until the next heavy maintenance, but that is all).

Airbus should do what is in their best interest. Oversupply has a history of whiplash in this industry in unpredictable ways.

This is all about achieving the right production rate.

Lightsaber


If the Boeing CMO predicts 15k in 10 years, you can almost be sure there will be more demand in reality. Boeing CMO has consistently under predicted the demand…

Ps.: at a rate of 60 ish pre Covid, everybody was complaining that Airbus couldn’t deliver fast enough. Now they are saying they are researching possibilities of 75 in 2025. By then demand should have fully recovered and have gone past 2019. I think they will be able to choose if they want to produce 65-70-75 based on the demand development in 2023 and 2024. I have a feeling that The parties involved are jumping the gun when they say the market can’t support so many metal while we keep seeing record braking orders from all around the world.

I posted links on A320 values decreasing as they were being delivered. I believe in 2019 we were already in oversupply.

While CMOs have underpredicted over 20 years, I intentionally only looked at the 10 year snapshot. As I posted before, I am fine with Airbus going to rate 60 (630 per year). It is the 65 to 75 I question or the 680 to 800 per year I question.

ugh, I dislike not using the standard 12 month year. (Rate 50 at Boeing is the same as rate 57 at Airbus for 600 aircraft per year).

I can recall when customers were demanding more and more MD-80s and then the frantic management to save production when demand slid. It is a big deal to lay off tens of thousands.

Look at A320NEO production from Airbus
2016 68
2017 181
2018 386
2019 564
2020 431 (recall threads customers complaining they had to keep to contract).

https://en.m.wikipedia.org/wiki/Airbus_A320neo_family

I see 630 per year working well. 700 or more per year, I've seen three bad aerospace downturns in my life. The worst happens when un-ending growth was predicted.

Since some parts are started 18 months before delivery and thus must be ordered 2 years out, this isn't an academic question: landing gear, engine casings, engine rotors

Note: add computer chips for aircraft, they are normally ordered 2 years out too. (because the volumes are so low, they must be ordered early to get through the foundry system in normal times).

Efficient production cannot be yanked around, it must be planned and committed to early for many years.

If the market cannot support so many, you only find out with harsh layoffs. There is a warning, and that is aircraft resale values, in particular prior generation aircraft resale values which were trashed during the lockdowns.

There is a reason production ramps are "stately," overshooting the market has major consequences.

Airbus should increase production. But as production rates must be decided two years out... I do not question Airbus must accelerate production to at least 630 per year. But when and how much is too much?

Lightsaber

I was not aware of the oversupply in 2019 causing depressed values at previous gen NB’s. I would have that the lack of 737max would have caused higher demands.
I agree with your premises, but the conclusion is still that Airbus has two years to decide if 75 is right or 65 is better while they investigate impact on supply chain. And seeing previous ramp ups, realistically they probably can’t deliver before 2026-27 anyway. As ramp down is hard, but ramp up seems harder…
 
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seahawk
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Re: Airbus blasted by leasing companies over plans to lift jet production

Tue Nov 02, 2021 8:01 am

The end the question will be what products does the production cover.

Will it be A319/A320/A321 or will they add an A322? Personally I think 75 is too much and Airbus should not go over 60 frames a months, as it seems like COVID will be with us for a long time and the economic consequences are just starting to really show.
 
nmcalba
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Re: Airbus blasted by leasing companies over plans to lift jet production

Tue Nov 02, 2021 8:26 am

So the heads of a number of leasing companies have got together and are asking Airbus and engine manufacturers to collude with them in a scheme to reduce production from the level the manufacturer thinks the market can support in order to artificially increase (or at least support) prices for their own financial benefit.
Um - and if they went ahead with this - lets call it a "cartel" - this would be legal?
Have the leasing companies never heard of little things like "anti-competitive behaviour" and "price fixing"?
 
FluidFlow
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Re: Airbus blasted by leasing companies over plans to lift jet production

Tue Nov 02, 2021 10:05 am

One major contributor might also be the COP26 and other major policy changes that are coming to tackle the human made CO2. The end of previous engine generations from 2027 onwards is only one step. We already saw it with cars (at least in Europe) that polluters might be taxed more compared to greener options. This could depress values of "old" aircraft and accelerate fleet renewals. LH group already hinted that they will renew the fleet faster. If this thinking spreads among many airlines, high production rates for current gen aircraft are needed.
We might not see any NGs and CEOs in Europe at the end of the decade.
 
Gremlinzzzz
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Re: Airbus blasted by leasing companies over plans to lift jet production

Tue Nov 02, 2021 10:39 am

nmcalba wrote:
So the heads of a number of leasing companies have got together and are asking Airbus and engine manufacturers to collude with them in a scheme to reduce production from the level the manufacturer thinks the market can support in order to artificially increase (or at least support) prices for their own financial benefit.
Um - and if they went ahead with this - lets call it a "cartel" - this would be legal?
Have the leasing companies never heard of little things like "anti-competitive behaviour" and "price fixing"?
We have been told that if they collapse, aviation as a whole will be in a dark place.

Who on earth thinks that frames wont find a home?

Plus there is a lessor that is going to be managing 2,000 aircraft. You are stupid if you get that large and the only way to manage the portfolio is to cry that the sky is falling.

FluidFlow wrote:
One major contributor might also be the COP26 and other major policy changes that are coming to tackle the human made CO2. The end of previous engine generations from 2027 onwards is only one step. We already saw it with cars (at least in Europe) that polluters might be taxed more compared to greener options. This could depress values of "old" aircraft and accelerate fleet renewals. LH group already hinted that they will renew the fleet faster. If this thinking spreads among many airlines, high production rates for current gen aircraft are needed.
We might not see any NGs and CEOs in Europe at the end of the decade.
Nothing has happened to autos in Europe. Countries talk tough in Brussels, but at the end of the day, there are jobs, and this is something that has stopped reforms.
 
FluidFlow
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Re: Airbus blasted by leasing companies over plans to lift jet production

Tue Nov 02, 2021 10:45 am

Gremlinzzzz wrote:
FluidFlow wrote:
One major contributor might also be the COP26 and other major policy changes that are coming to tackle the human made CO2. The end of previous engine generations from 2027 onwards is only one step. We already saw it with cars (at least in Europe) that polluters might be taxed more compared to greener options. This could depress values of "old" aircraft and accelerate fleet renewals. LH group already hinted that they will renew the fleet faster. If this thinking spreads among many airlines, high production rates for current gen aircraft are needed.
We might not see any NGs and CEOs in Europe at the end of the decade.
Nothing has happened to autos in Europe. Countries talk tough in Brussels, but at the end of the day, there are jobs, and this is something that has stopped reforms.


Thats not true, many countries know road tax breaks for hyprids and no roadtax for full electrics. You can still get the petrol/diesel cars but they are taxed heavily compared to the hyprids/electrics. Same goes for environmental zones.

In London you pay over 12£ to drive into an ULEZ with a polluting car. May other cities in mainland Germany have outright banned the use of previous gen diesel cars in city centres.

The list goes on.

Same can and probably will happen for aircraft. An ULEZ style landing fee for non NEOS/MAX/newest gen WBs could easily be implemented
 
JonesNL
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Re: Airbus blasted by leasing companies over plans to lift jet production

Tue Nov 02, 2021 12:48 pm

FluidFlow wrote:
Gremlinzzzz wrote:
FluidFlow wrote:
One major contributor might also be the COP26 and other major policy changes that are coming to tackle the human made CO2. The end of previous engine generations from 2027 onwards is only one step. We already saw it with cars (at least in Europe) that polluters might be taxed more compared to greener options. This could depress values of "old" aircraft and accelerate fleet renewals. LH group already hinted that they will renew the fleet faster. If this thinking spreads among many airlines, high production rates for current gen aircraft are needed.
We might not see any NGs and CEOs in Europe at the end of the decade.
Nothing has happened to autos in Europe. Countries talk tough in Brussels, but at the end of the day, there are jobs, and this is something that has stopped reforms.


Thats not true, many countries know road tax breaks for hyprids and no roadtax for full electrics. You can still get the petrol/diesel cars but they are taxed heavily compared to the hyprids/electrics. Same goes for environmental zones.

In London you pay over 12£ to drive into an ULEZ with a polluting car. May other cities in mainland Germany have outright banned the use of previous gen diesel cars in city centres.

The list goes on.

Same can and probably will happen for aircraft. An ULEZ style landing fee for non NEOS/MAX/newest gen WBs could easily be implemented

Indeed and to add to that; Schiphol announced that it will increase the landing fees by 37% on average and that most polluting and noisiest airliners will pay the biggest share of that raise. So, KLM has to renew fleet much faster to stay competitive.

I believe other airports will follow suit to raise prices under the guise of emissions…
 
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lightsaber
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Re: Airbus blasted by leasing companies over plans to lift jet production

Tue Nov 02, 2021 12:53 pm

nmcalba wrote:
So the heads of a number of leasing companies have got together and are asking Airbus and engine manufacturers to collude with them in a scheme to reduce production from the level the manufacturer thinks the market can support in order to artificially increase (or at least support) prices for their own financial benefit.
Um - and if they went ahead with this - lets call it a "cartel" - this would be legal?
Have the leasing companies never heard of little things like "anti-competitive behaviour" and "price fixing"?

Where is the source on them getting together? As far as I can tell from links in this thread, three leasing companies independently expressed their concerns to airbus on the proposed rate 75 (about 800 or so A320NEO per year).

From links in this thread, the leasing companies buy directly about 20% of A320NEO production.
They also buy about 20% of A320NEO production as sales/leasebacks.

If the market is over-supplied and the leasing companies loose too much on A320CEO and 737NG secondary market sales/placements, that simply means they will have less money for both Boeing and Airbus sales/leasebacks. That isn't collusion, that will be them being over-leveraged and their investors expecting a certain rate of return. In particular as Boeing must increase production to match the economics of scale, while Boeing has an easier time with layoffs to correct for any over-production.

I'm very curious at how Airbus intends to finance the production above 630 A320NEO per year, the level I believe is sustainable now. Has there been any statement?
Airbus must increase production, that is obvious. It is the level of production.

Let's do a little math. If the leasing companies are setup to lease 40% of 630 A320NEO, that means they finance about 250 new A320NEO per year. If Airbus goes to 800 per year, that means the leasing companies finance about 31% of the aircraft. The other parts of the market are setup to finance 380+ aircraft (there will be some growth). With the Chinese banking issues, that still leaves the question of how 170 A320NEO will be financed. Airlines do not buy cash, they must borrow. I'm not saying Airbus couldn't sell more, the question is how many more can be financed? If, due to poor resale values, leasing companies say must pull back to financing only 200 per year, that means a deficit of financing that will only be made up by costlier terms to airlines to attract new investors/entrant finance companies.

That isn't collusion, that is finance 101.

Lightsaber
 
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lightsaber
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Re: Airbus blasted by leasing companies over plans to lift jet production

Tue Nov 02, 2021 2:04 pm

I decided to look a little more at the production rates. Airbus was an excellent source:
https://www.airbus.com/newsroom/press-r ... nment.html
The new average production rates for the A320 Family will now lead to a gradual increase in production from the current rate of 40 per month to 43 in Q3 and 45 in Q4 2021. This latest production plan represents a slower ramp up than the previously anticipated 47 aircraft per month from July.

The A220 monthly production rate will increase from four to five aircraft per month from the end of Q1 2021 as previously foreseen.


I find it interesting that production rate increases are slower than the July announcement (I had just assumed they would continue on promised pace).
https://www.ainonline.com/aviation-news ... 0of%202023.
Airbus has notified suppliers that it plans to boost production of A320-family jets from an average of 45 per month in the fourth quarter in 2021 to 64 per month by the second quarter of 2023. In a statement issued Thursday, the company said it has also started preparing for a rate of 70 per month by the first quarter of 2024, reflecting a bullish outlook for post-Covid recovery of the narrowbody sector.
...
Separately, the company confirmed an increase in A220 production from five per month to six in early 2022. It said it envisions a monthly production rate of 14 per month by the middle of the decade.


I actually do not have much heartburn with rate 64 (about 700 per year) or the planned A220 production rate increase. Where I have express concerns is the rate 70 and 75 being discussed. There is a history in aerospace of production exceeding demand when the manufacturer in advantage pushes the whole market down.

E.g., the 1991 to 1992 slowdown
MD-80 1991: 140, 1992: 84, 1993: 43 http://businessaviation.com/aircraft-gu ... glas-md-80
737: 1991: 215, 1992: 218, 1993: 152 (with further drops ahead) https://en.wikipedia.org/wiki/Boeing_737
A320: also declined: https://en.wikipedia.org/wiki/Template: ... Boeing_737

Over-production tends to create lasting hangovers in his industry. I think most here are too young to remember the last real industry downturn. Alas, few would look back to the 1970s downturns.

Don't get me wrong, I see room for some increase in production. But the MAX deficit will end and the "snap back" from the lockdowns will be limited. Financing of new builds could be interesting in a few years.

Lightsaber
 
MIflyer12
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Re: Airbus blasted by leasing companies over plans to lift jet production

Tue Nov 02, 2021 2:22 pm

nmcalba wrote:
So the heads of a number of leasing companies have got together and are asking Airbus and engine manufacturers to collude with them in a scheme to reduce production from the level the manufacturer thinks the market can support in order to artificially increase (or at least support) prices for their own financial benefit.
Um - and if they went ahead with this - lets call it a "cartel" - this would be legal?
Have the leasing companies never heard of little things like "anti-competitive behaviour" and "price fixing"?


The U.S. FTC defines collusion as collaborative behavior among competitors. Germany and France, in particular, have been even more generous toward both horizintal and vertical collaborations. Cartels...

There's an argument to be made that a 'proper' level of production is stabilizing and beneficial to manufacturers (who won't rush to terminate employees if forced cut production in the next down-turn), carriers (preserving values of used owned aircraft, having 'enough' new supply), and lease companies alike (not crashing lease rates for existing aircraft). Yes, it's a little self-serving for leasing companies - but not inherently wrong.

The forum for parties that can't meet their financial obligations is bankruptcy court. Aircraft lease companies aren't (majorly, anyway) owned by little old ladies surviving on dividends -- they are backed by serious institutional money. Any lease availability disturbed by a bankruptcy or liquidation will, in the long run, be replaced. Airbus could see some pretty severe pain in the short term, however, were a firm to liquidate: lots of cheap used aircraft competing with new, and nobody (immediately) to receive the shiny new planes. Airbus seems to want to ignore the financial damage done to carrier balance sheets (and to passenger demand) during Covid.
 
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Revelation
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Re: Airbus blasted by leasing companies over plans to lift jet production

Tue Nov 02, 2021 3:00 pm

nmcalba wrote:
So the heads of a number of leasing companies have got together and are asking Airbus and engine manufacturers to collude with them in a scheme to reduce production from the level the manufacturer thinks the market can support in order to artificially increase (or at least support) prices for their own financial benefit.
Um - and if they went ahead with this - lets call it a "cartel" - this would be legal?
Have the leasing companies never heard of little things like "anti-competitive behaviour" and "price fixing"?

dictionary.com gives:

Collude:
1. to act together through a secret understanding, especially with evil or harmful intent.
2. to conspire in a fraud.

Not secret, so (1) fails.

Buyers are publicly asking sellers to voluntarily cut back supply, so who is being defrauded?
 
Exeiowa
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Re: Airbus blasted by leasing companies over plans to lift jet production

Tue Nov 02, 2021 6:17 pm

OPEC is clearly a cartel, there is nothing secret about them, their goal is to set a price of oil most favorable to their interests. It is not illegal because it is controlled by a group of countries whose governments decide what is and what is not legal for them to do. Financial institutions based in other countries do not have that benefit.

The thing with the leasing companies is they are just as leveraged as everyone else in the system. They are not buying with their own money but borrowing it from the same banks who finance purchases for airlines. If they do not make enough money leasing old planes to buy new ones (which as pointed out is unlikely to be how these actually work because of borrowing) then this will be a self correcting mechanism. Lessors will order fewer planes. If the same number of aircraft are needed but there are no middlemen then Airlines will have to go direct to the bank. Which will be easier as the price of new will be lower because of economy of scale benefits, plus the shiny new plane should not depreciate as fast if compared to the old alternative product (until cycle repeats of course)
 
Duke91
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Re: Airbus blasted by leasing companies over plans to lift jet production

Tue Nov 02, 2021 6:55 pm

nmcalba wrote:
So the heads of a number of leasing companies have got together and are asking Airbus and engine manufacturers to collude with them in a scheme to reduce production from the level the manufacturer thinks the market can support in order to artificially increase (or at least support) prices for their own financial benefit.
Um - and if they went ahead with this - lets call it a "cartel" - this would be legal?
Have the leasing companies never heard of little things like "anti-competitive behaviour" and "price fixing"?


This isn't even a cartel. Cartels benefit both sides colluding to the detriment of everyone else (think OPEC and the rest of the world, or drug lords keeping prices high)

This is straight up asking Airbus to drop production to the benefit of lessors to the detriment of Airbus and airlines to some part.
 
oldJoe
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Re: Airbus blasted by leasing companies over plans to lift jet production

Tue Nov 02, 2021 7:13 pm

Not only the pandemic but also climate change and more conscious environmental thinking has led airlines and aircraft manufacturers to rethink. The leasing companies have to get used to the new, whether they like it or not. Whining will not cause an OEM to incur losses!
 
PhilipBass
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Re: Airbus blasted by leasing companies over plans to lift jet production

Tue Nov 02, 2021 7:23 pm

God forbid that prices drop enough and airliners decided to pick up a few well worn A319/320/321 or 737-700/800 and DIY their own fleet. That would be the nightmare scenario for the Leasors. The Host purging themselves of the Parasite. They might have to compromise and buy 319s or 737-700s but they'd take back control of their own destinies.
 
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lightsaber
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Re: Airbus blasted by leasing companies over plans to lift jet production

Wed Nov 03, 2021 1:05 pm

oldJoe wrote:
Not only the pandemic but also climate change and more conscious environmental thinking has led airlines and aircraft manufacturers to rethink. The leasing companies have to get used to the new, whether they like it or not. Whining will not cause an OEM to incur losses!

The lease companies have certainly not asked for that low of a production rate to incur losses.

PhilipBass wrote:
God forbid that prices drop enough and airliners decided to pick up a few well worn A319/320/321 or 737-700/800 and DIY their own fleet. That would be the nightmare scenario for the Leasors. The Host purging themselves of the Parasite. They might have to compromise and buy 319s or 737-700s but they'd take back control of their own destinies.

The issue is the prices have dropped so much lessors are unlikely to be able to finance as many aircraft as they did before.

There is a case for used CEOS/NG, but I really doubt the A319 or 73G as they have already been at scrap pricing for years, they'll be used as engine green time donors:
viewtopic.php?f=3&t=1460947&p=23005831

The issue is leasing companies won't be able to finance as many aircraft. The A321s are cheap enough they are starting to become freighters and companies will develop an A320 based freighter. The low utilization, only fly when fares are higher airlines such as Allegiant, Breeze (E19xs), Volotea, and a subfleet of every US3 airline will buy used (e.g., we have a thread on DL buying used 739ERs current going on). The only impact Airbus should care about is if they produce too many to be easily financed.

This will result in many aircraft being scrapped. It will certainly push the old types into low utilization duty. It will certainly impact at what price leasing companies refinance these aircraft (airlines need cash, the assumed values have plummeted) which will effect airlines' ability to purchase new.

Airbus going up to 630 aircraft a year is not a problem. It is there stated intent to produce at a much higher rate. Boeing has no choice but to match Airbus' rate as otherwise their cost per aircraft would be too high; Boeing has less to lose as it is really easy to layoff in the USA. This is a game of chicken on a grand scale that involves more than Airbus and the leasing companies. The biggest winners will be airlines that only leased (e.g., Indigo) and airlines that buy used for low utilization.

Lightsaber
 
LDRA
Posts: 493
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Re: Airbus blasted by leasing companies over plans to lift jet production

Wed Nov 03, 2021 1:26 pm

lightsaber wrote:
oldJoe wrote:
Not only the pandemic but also climate change and more conscious environmental thinking has led airlines and aircraft manufacturers to rethink. The leasing companies have to get used to the new, whether they like it or not. Whining will not cause an OEM to incur losses!

The lease companies have certainly not asked for that low of a production rate to incur losses.

PhilipBass wrote:
God forbid that prices drop enough and airliners decided to pick up a few well worn A319/320/321 or 737-700/800 and DIY their own fleet. That would be the nightmare scenario for the Leasors. The Host purging themselves of the Parasite. They might have to compromise and buy 319s or 737-700s but they'd take back control of their own destinies.

The issue is the prices have dropped so much lessors are unlikely to be able to finance as many aircraft as they did before.

There is a case for used CEOS/NG, but I really doubt the A319 or 73G as they have already been at scrap pricing for years, they'll be used as engine green time donors:
viewtopic.php?f=3&t=1460947&p=23005831

The issue is leasing companies won't be able to finance as many aircraft. The A321s are cheap enough they are starting to become freighters and companies will develop an A320 based freighter. The low utilization, only fly when fares are higher airlines such as Allegiant, Breeze (E19xs), Volotea, and a subfleet of every US3 airline will buy used (e.g., we have a thread on DL buying used 739ERs current going on). The only impact Airbus should care about is if they produce too many to be easily financed.

This will result in many aircraft being scrapped. It will certainly push the old types into low utilization duty. It will certainly impact at what price leasing companies refinance these aircraft (airlines need cash, the assumed values have plummeted) which will effect airlines' ability to purchase new.

Airbus going up to 630 aircraft a year is not a problem. It is there stated intent to produce at a much higher rate. Boeing has no choice but to match Airbus' rate as otherwise their cost per aircraft would be too high; Boeing has less to lose as it is really easy to layoff in the USA. This is a game of chicken on a grand scale that involves more than Airbus and the leasing companies. The biggest winners will be airlines that only leased (e.g., Indigo) and airlines that buy used for low utilization.

Lightsaber


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