Air finance meeting addresses China travel thaw jet shortages

This week, financiers at the center of a $200 billion sector that supports airline fleets are gathering in Dublin, speculating that China’s decision to allow free travel could hasten their recovery from a pandemic recession while warning of a jet scarcity.

Three years after the spread of COVID-19 stopped thousands of airliners, air travel demand is soaring again, encouraged by Beijing’s decision last month to abandon its zero-COVID rules.

In a survey released on Monday, the second-largest aircraft leasing business in the world, Chinese-owned Avolon, forecasted that worldwide traffic will recover to pre-pandemic levels as early as June of this year – months sooner than the majority of industry experts had projected.

In 2024, the International Air Transport Association, which represents worldwide airlines, anticipates a full recovery.

“After a 70% rebound in passenger traffic last year, spearheaded by Europe and North America, Asia will drive growth in 2023, aided by China’s recent reopening,” stated Avolon.

Passenger traffic has increased to 63% of 2019 levels since the start of the annual travel season, indicating that Chinese are resuming travel ahead of the Lunar New Year despite fears of illness after Beijing lifted restrictions last month.

Others are not as optimistic.

“There is no significant increase in flight frequency to China. It is progressing in the right direction, but… it will take time,” remarked aviation consultant Bertrand Grabowski.

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As a result of the debilitating effects of COVID-19, dozens of airlines went out of business and billions of dollars were erased from their financial sheets.

In a stark turnaround, the industry’s greatest concern is now acquiring enough narrow-body planes, which are the most extensively used, to fulfill demand as damaged supply networks delay the delivery of new aircraft.

In addition, significant delays in maintenance, repair, and overhaul (MRO) facilities impede efforts to retain current aircraft in regular operation or to retrieve others from storage.

Publicly, airlines and leasing companies have bemoaned delivery delays and are expected to seek reimbursement from aircraft manufacturers.

Privately, many airline executives concede that the shortages have enabled them to maintain higher air tickets in order to refill their balance sheets and protect them from recessionary anxieties.

According to Rob Morris, worldwide head of consultancy at Ascend by Cirium, aircraft rents paid by lessors have increased by double-digit percentages on average during the last 12 to 24 months for a number of reasons.

At the same time, a number of macroeconomic issues are keeping participants on edge ahead of this week’s annual Airline Economics and Airfinance Journal conferences in Dublin.

Inflation is causing an increase in the costs of airplane components and fuel, while also casting doubt on the durability of travel demand.

With interest rates soaring to battle inflation, leasing businesses must pay much more to service the enormous debts they acquired during a multi-year boom in plane orders.

All airlines must contend with unpredictable oil costs, and those in the majority of emerging nations face a sharp increase in the amount of dollars required to pay for aircraft leases and fuel.

All of this is occurring while the industry figures out how to execute and fund commitments to achieve net-zero emissions by 2050.

This week’s gathering of over 2,000 bankers, lessors, investors, airline executives, and manufacturers will generate hundreds of private meetings to provide financial support for freshly delivered aircraft or to find new homes for older aircraft.

It is an annual ceremony for the specialized, predominantly Irish sector founded by the late leasing magnate Tony Ryan, whose empire soared and crumbled between the 1970s and 1990s before being rebuilt by the current market leader, AerCap.

More than fifty percent of the world’s airline fleet is managed by global leasing firms as opposed to being directly owned by airlines.