May 11, 2015, c. Leeham Co: We are participating this week in the ISTAT Asia conference in Singapore where IATA and different panels gave an interesting update on the Asian airline market. This is the fifth year that an ISTAT (International Society of Transport Aircraft Trading) conference is held in Asia and participation has virtually doubled from last year to 500 delegates.
IATA’s Conrad Clifford opened the event with the following overview about the Asian market for airline passenger travel:
The driver for this massive increase is the growth of the established middle class of China and the emerging of sizeable middle classes in India and Indonesia. These countries all have large populations, with 1.4bn in China, 1.3bn in India and 255m in Indonesia. This can be compared with an US population of 320m people.
This phenomenal growth causes strain on the whole civil aviation eco-system. Consequently the region is fighting the lack of soft and hard infrastructure, such as shortages of trained pilots, traffic controllers, adequate airport infrastructure; and congested airspaces and have record order backlogs for aircraft.
There are several initiatives under way to attack these growth inhibitors:
The supply for aircraft capacity in the region has been adjusted somewhat during 2014 with several carriers adjusting their overly optimistic growth plans downwards. The low fuel price saved these carriers from inducing heavy losses in the right-sizing process. Longer term there is a healthy supply of aircraft going to the region, exemplified by 540 aircraft being planned for delivery during a “moderate” 2015.
An important prerequisite for these deliveries is the adequate supply of finance for all these aircraft. The region therefore has a high activity of establishing local leasing and finance institutions on top of the global players’ active in the region to cover to these needs.
Money is sourced on a worldwide basis but there is an increasing supply coming from, e.g. local pension funds in China that realize they need to find better placements for their clients saved money, as standard placements does not give the yields their customers expect. Aircraft as a placement asset is therefore growing in interest as it is a mobile placement which can adapt to market changes.
On the aircraft supply side all present OEMs are present but there is also a growing presence of the local suppliers. Mitsubishi Aircraft presented the progress of the MRJ regional jetliner and COMAC aircraft has several representatives at the venue.
Several airlines mentioned a change in fleet plans as growing congestion at key airports in the region (example: Hong Kong) had them change their purchasing plans from taking predominantly the mid- model of the OEM’s single aisle to now ordering 30% of, e.g., the Airbus A321 growing to a projected 50%.
ISTAT Asia’s own growth is a symbol for how the civil airline activity in the region is growing and with that the establishing of all the components necessary to support that such a growing industry. The conference is handling a number of the issues involved; focused on aircraft supply, financing and management.
The percentage of operators that prefer to lease their aircraft rather than owning them are growing, projected to reach 40% of deliveries in the coming years. The leasing industry of Asia is booming as a consequence with the first mainline China leasing company, ICBCFL, soon to be followed by others according to ICBCFL deputy CEO, Tao Mei.