Jetrader - Autumn 2018 - 45

Too Much Money Chasing
Too Few Deals
For those companies interested in growing their portfolios or simply acquiring
engines for part-out, the market has become
singularly difficult in the past few years.
There are a number of reasons for this.
The first is that the continuing rapid
growth in airline traffic means that airlines are holding on to their aircraft and
spare engines longer. This situation is then
being exacerbated by the well-documented
EIS delays for the new narrowbody engine
types as a result of technical problems and
production delays (it applies to certain
newer widebody engines, as well). It also
means that those lessors who had forecast
spending large amounts on the new types
in the last couple of years have not been
able to do so - as the majority of spare
engines are being retained by the OEMS
who have been using them to support the
EIS difficulties. The new engines have been
ordered in unprecedented quantities, and
manufacturers have been struggling to
ramp up production to the required levels. This situation will of course change
as the manufacturers sort out the issues
with these types.
This imbalance of demand exceeding supply applies right across the life cycle of the
current generation engine types for the
reasons stated in the previous paragraph
and is exacerbated by there being too many
parts traders chasing too few engines at
a time when demand for used, refurbished
parts is at an all-time high.
This sector of the engine aftermarket industry in particular appears to be
wallowing in money - debt and private
equity all jumping in to aviation (either
because they have no experience of its
cyclic nature or because they have conveniently short memories). This is always
a dangerous sign in my book because it
induces a mentality of "spend it or lose
it." This has resulted in overpricing, which
is obviously a perilous strategy, especially
when there are gathering signs of a slowdown as both interest rates and oil prices
edge upward.
We are witnessing a small but definite
slowing of the rate of traffic growth, which,
when coupled with deliveries of the new
equipment types starting to flow at fullplanned production levels, will result in
older aircraft being returned to lessors and

consigned to the part-out process. The danger is that we will very quickly go from a
position of undersupply to one of oversupply. If (when) this occurs, we should expect
to see the weaker parts factors fail, and
this overpopulated sector of the industry
will consolidate.

Comment
This commentary identifies some areas
where things have changed, but it also
brings into focus some areas where they
have not. Engine leasing and the engine

aftermarket are less predictable on a macro
scale than are the equivalent aircraft markets; there are cycles within cycles that no
amount of economic modeling will predict.
The ability to be fleet footed in response
to changing situations is essential; engine
people have to be more reactive than
their aircraft counterparts. The industry
is ever-changing, the challenges keep coming, and so far, so have the responses. ELFC
has been at the forefront of this for nearly
30 years, and we look forward to continuing
to lead the charge.

EXPRESS FREIGHT.
GENERAL CARGO.
LET'S GO.
AS VERSATILE AS IT IS ECONOMICAL, THE A321-200PCF IS THE FIRST CHOICE WHEN
VOLUME MATTERS. WELCOME TO THE FUTURE OF HIGH-VOLUME, LOW-COST AIR FREIGHT.
LEARN MORE AT PRECISIONAIRCRAFT.COM

915930_Precision.indd 1

Jetrader * Autumn 05/06/18
2018 45
1:41 PM
http://PRECISIONAIRCRAFT.COM http://www.PRECISIONAIRCRAFT.COM
Jetrader - Autumn 2018

Table of Contents for the Digital Edition of Jetrader - Autumn 2018
