Air Lease sounds caution note for Airbus, Boeing

Aug. 10, 2016, © Leeham Co.: Executives of one of the world’s most influential leasing companies said Friday they doubt Boeing will increase production of the 787 from 12 to 14/mo.

Air Lease Corp. made the predictions on its 2Q2016 earnings call Friday.

ALC also predicted Boeing will further lower the production rate of the 777 Classic from the announced 5.5/mo in 2018. ALC did not specify a rate, but some aerospace analysts believe a rate of 4/mo is coming.

They also believe neither Boeing nor Airbus will increase production rates of the 737 to 57/mo or A320s to 60/mo. Boeing announced previously that it is considering increasing the 737 rate from the announced 52/mo, effective 2018, to 57/mo. Airbus previously announced it will increase the production rate of the A320 to 60/mo and is considering a rate of 63/mo.

Airbus is bringing the rate up from 44/mo to 60 by 2018.

Maintaining 12/mo for 787

John Plueger, CEO Air Lease Corp. Photo via Google images.

John Plueger, the CEO of ALC, was brief in his prediction of the 787 production rate. Boeing last year indicated that it was planning rate 14/mo, but this year began qualifying its forecast with more ambiguous language.

LNC believes it may be difficult for Boeing to maintain a rate of even 12/mo by the end of the decade.

“It would probably a no surprise if, in fact, Boeing…decided not to boost the rate on the 787 to 14, that they left it at 12,” Plueger told analysts on the earnings call.

”I think it would be no surprise that we may see a further rate reduction, for example, on the 777, As you know, going out over the next year, year-and-a-half. So, that would really be of no surprise.”

Single-aisle rates

“I think the big question is about the single-aisle rates,” Plueger said. “And today…the backlog remains strong. Both manufacturers remain over-booked in a number of months. We’ve actually seen those charts from each manufacturer by customer. And many – those over-bookings are real. And so, it’s a bit of a dilemma because they do actually need some cancellations and deferrals just like when you show up at an airline counter and there’s too many seats sold, that needs to happen.

“But when we get out to 2018 and 2019, we’re watching carefully,” Plueger said. “I’m not 100% convinced…that we’re going to get to 62 a month with Airbus or that we’re going to get to 57 a month with Boeing on the single-aisle.

“We’re just a little skeptical of that. And what we’re saying here is we believe that if, in fact, the overall marketplace does not support those rates, then, in fact, both OEMs will simply not institute the last and final production rate increases as they’ve announced [as of] today.”

Seeking equilibrium

 Steven F. Udvar-Házy, executive chairman of the ALC board, concurred.

“I can tell you that last week, we met with Airbus top management. This week, we met with the Boeing top management, and I think they’re very conscious of making sure that their production rates are in complete harmony with demand, and that the contracts they have will actually perform at the time of delivery.

“I think there’s a greater level of looking at this than, say, a year ago. I think there’s a greater consciousness that there needs to be this equilibrium.”

More realism

“Let’s look at the second quarter announcements also, for both Airbus and Boeing,” Plueger said. “Both companies took large write-offs in various different reasons.

“I think at the end of the day, this shows as well that both of these companies are more focused than they’ve ever been on realism, realism in production rates, realism in their operating performance. These write-offs were something that was needed, it became obvious, and they did it.”

 

22 Comments on “Air Lease sounds caution note for Airbus, Boeing

  1. The Aircraft Export Agency financing holdup in the US is lowering Boeing sales, the US with the help of CIA/FBI making the UK Serious Fraud Office open an ivestigation stopped Airbus Export Cerdit Agencies financing as well. This translates to lower sales of aircrafts and better margins for the private banks on both sides of the Atlantic. Maybe Canada can jump in and give good financing to CS-100 series buyers or the US might enforce a 3-way “Mexican standoff”?

  2. “the US with the help of CIA/FBI making the UK Serious Fraud Office open an ivestigation”

    As far as I was aware, Airbus themselves initiated the investigation by handing over data to the SFO following an internal audit. But I’d be interested in reports you have to the contrary – any links?

    • I don’t suppose that all the goings-on with the Indian A330 matter deal have anything to do with it? Probably just their well tested,extremely tiresome and effective means of reducing the price.

      • That’s supposed to be MRTT, unwanted help with spelling from my phone again.

        • Yea India likes US products so with the KC46 close to being base capable, order some of those at a much better price and ops cost.

          Certainly more suited for interior lines of communications Indian ops

      • Dunno.

        But at this point, I wonder how much profit OEMs actually make off a deal with India.

        When will it become a case of “thanks for your RFP, but we’re not going to bother.”

  3. Oh – and to point out the obvious – who stands to benefit most from shortages in available aircraft? (ergo, who would be most likely to try and generate FUD regarding build rates)

    The leasing companies of course!

  4. Are there sales agents involved in selling aircraft ?! Unbelievable and unacceptable this is really happening! Everybody should obey to our western standards / culture ! 😐

    • Actually – when to meet the transport minister you have to pay an arrangement fee to his “secretary”/brother-in-law of several hundred thousand – I don’t give a sh!t what culture/standard you purport that belongs to – its wrong wrong wrong.

      [Note, this is just an example of what *may* go on.]

        • Terrible to think that people here will condone bribery in a market where with a very small number of vendors it should be easy to stamp out.

          • @BL

            Unfortunately this market has all the ingredients that go into encouraging corruption, very large sums and infrequent purchases, substantial govt intervention on both sides, opacity of prices paid etc etc.

            All OEMs have been guilty multiple times of, shall we say allegedly, being on the wrong side of corruption in their dealings or at least playing a dodgy geopolitical game to their advantage. Much as we would hope for better unfortunately the degree of competition and politics involved mean the OEMs have to actively work to avoid dirty tricks as Airbus appears to be doing here.

            In the UK we have the celebrated case of the Al Yamamah deal where we showed what a tinpot little corrupt country we are. The SFO brings a case of massive corruption against BAE systems only for it to be buried ‘in the public interest’. Apparently it may have compromised Tony Blair’s future earnings potential after leaving office

        • There is absolutely no reason for a middleman for a purchase such as this (or in fact most sales of brand new large aircraft). Any payments are obvious bribes. You’d think that they would learned the Western methods by now, where it’s a bit more subtle.

          • Would the Indian government even use this sort of financing? There’s no reason to believe that this is the case that the SFO are looking into other than the highly suspicious timing.

  5. “They also believe neither Boeing nor Airbus will increase production rates of the 737 to 57/mo or 60/mo”

    It’s pretty obvious that Airbus won’t produce 60 737’s/mo anytime soon. Or at all, really… 😉

    • That is true, that’s a shame, Airbus could use a good product in that category!

      • Should Boeing buy A321, fix them up with Boeing interiors and rebrand them as 737-921 ?

        Money is in resale not manufacture!
        ( in a way they tried that with the 787. But they botched it by going the CKD way and having to assemble. 🙂

  6. @Sowerbob

    “In the UK we have the celebrated case of the Al Yamamah deal where we showed what a tinpot little corrupt country we are.”

    I think no country is exempt from corruption. The difference is at the level of society where it starts. For example, in some countries if you want to retrieve your passport at a government office you will have to hand some cash to the clerk, otherwise “your passport is not ready yet” for ever. Or worst, if you have to go to the morgue to identify a relative you will have “to pay” to see the corps. As far as I know we don’t see this kind of thing in the UK. But at higher levels of society, where big business deals are done, corruption has become “standard practice” all over the world.

    • Yes in many countries its inescapable, the main worry is between are you paying the right people or are you paying them enough. Its never a choice of not paying at all.

    • I think a countries good side shows up more often in how they deal with corruption, not in whether they have any, all countries have some.

  7. I believe a reasonable prediction for 737/A320 production growth would be 4% to 5% per year. As they both delivered about 500 in 2015, that would take them to 600 to 625 in 2020.

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