ISTAT Jetrader - Autumn 2021 - 31

while protecting the ability to scale up
quickly. Other questions come to mind:
* With falling asset values, will the
average number of component
removals per aircraft increase
or decrease as purchasers try to
maximize their returns?
* Will disassembly companies
reduce removal numbers as
market inventories substantially
increase?
* Should disassembly companies
focus on reducing turnaround
times to drive higher throughput
and quicker return on
investment for the asset owner?
* Will the parts distribution sector
want to move at the same pace
if there isn't an immediate
demand for the inventory?
On the positive side, recent
forecasts indicate that industry growth
should finally get back on track by
2023, with available seat kilometres in
that year exceeding 2019. New aircraft
deliveries are anticipated to exceed the
peak of 2018 by around 2025. The vast
majority of those new aircraft delivering
the growth will be new types; history
shows that the ramp up of new aircraft
production lines generally precipitates
an acceleration of retirements of the
previous versions as operators try to
harmonize their fleets to maximize
the economic benefits of operating
fewer types.
The problem is that no recession in
the history of aviation has been similar
enough to guide us with any certainty
as to how or when the industry may
recover from this crisis. We need to be
cognizant that major disruption in any
market always brings the opportunity
for change and innovation, and we
should be prepared to take into account
the insights of non-aviation consultants
who may take a less optimistic view
of the post-pandemic future for
our industry.
According to McKinsey, " A multiyear
shift has occurred in less than
12 months; a big part of which is that
the fact that technology has become
a good enough substitute for much
travel, with companies worldwide going
virtual together (in the past, individual
tech-savvy companies may have been
first movers, but it had little impact if
others weren't communicating by the
same means). " To compound that view,
there is a generation coming through
who are more switched on to social
and environmental issues, while the
commitments of many businesses and
governments to reach net-zero targets
by 2030 will have a definite impact on
attitudes to travel.
A study by Moody's found that
trips related to conferences - which
accounted for 12% of outbound
business travel in 2018 - were
particularly vulnerable. Perhaps future
ISTAT regional meetings will once more
revert to being for the people in that
region rather than many of us traveling
to multiple global events. My opinion is
that our industry incentives to support
air travel will probably outweigh the
environmental, social and governance
issues for the coming years, but other
sectors are less likely to have a similar
view. If nothing else, there is a strong
prospect that business travellers are
likely to do fewer trips for longer.
Notwithstanding the macro views
and longer-term forecasts, in the
short term, there is a sense that the
entire aviation supply chain is stuck in
suspended animation. Aircraft lease
transitions, which were forecast to be
at record-setting levels during 2021,
are actually at the other end of the
scale with relatively few movements
taking place, as lessors do whatever
they can to extend lease periods,
keeping assets in place with lessees
who are frequently in arrears on their
rentals. It may not be immediately
apparent, but there is a correlation
between lease transitions and the
tertiary market players, since every
transition is a decision moment at
which an asset owner decides whether
to re-invest for further operation or
to sell to another party, often for the
value of the engines and airframe
components. Put simply, reduced
transition activity means many things to
many people, but in the tertiary sector,
it is a leading indicator of lower aircraft
retirements. In the first half of 2021,
the business dynamics of the aviation
sector had very nearly ground to a halt,
and the only thing that could change
it - passenger demand - is not in
our control.
Of course, this cannot go on
indefinitely, but the challenge
confronting all of us is to be ready
for a point of time in the future when
balance is restored. Those of us
who have memories of the previous
" deepest recessions in aviation history "
(approximately one every decade)
will recall that it always feels endless
when you're in the midst of the storm;
however, the industry has always found
a way to bounce back. With time, a new
normality returns, with many players
adapting their business models to find
new efficiencies, enabling them to lead
the way out of the recession.
As for the famous bow wave of
retirements? Let's see what surprises
the market has in store for us over the
next 12 months. While it appears to be
a high likelihood in the near future, and
anticipated by most industry analysts
in 2022/23, I have been discussing the
prospect of a bow wave with colleagues
for at least five years and fear that
constantly having to explain why it
didn't happen may have damaged my
credibility on the subject! My only advice
is we should remind ourselves on a
regular basis that if the North American
fleet, which constitutes 30% of the
world's aircraft, has an average age
of nearly 18 years, then a substantial
renewal program is inevitable in the
relative near term. Such a program
will undoubtedly reinvigorate the entire
industry. Until that emerges (and the
recent record order by United Airlines
indicates that it is on the way), we need
to stay nimble and do all we can to
protect our capabilities to respond to
the upturn.
Jetrader * AUTUMN 2021 * 31
ISTAT Jetrader - Autumn 2021

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