Aug. 7, 2017, © Leeham Co.: The quote appeared on Twitter, citing the chairman of Air Lease Corp, Steven Udvar-Hazy:
“I would simply but strongly encourage the OEMs to carefully review their production rate aspirations closely and realistically.”
Hazy, often (but erroneously) called the “Godfather of leasing,” is a voice to be reckoned with. He is enormously influential with Airbus, Boeing, lessors and the industry. He’s been a launch customer of several aircraft new aircraft models and, if he’s not the Godfather of leasing (this title really belongs to the late George Batchelor), Hazy raised aircraft leasing to a fine art.
So, when the quote appeared on Twitter, I sat up in my chair.
Was Hazy suggesting Airbus and Boeing will be producing too many airplanes, creating a supply-demand imbalance?
During the Great Recession that began in 2008, Hazy and other leading lessors with speculative aircraft orders urged Airbus and Boeing to cut single-aisle production rates 30%-40%.
The Big Two OEMs sniffed at the suggestion and continued full bore. In some ways, they could hardly do otherwise. Both were immersed in new development programs, each with their own production difficulties, and both badly needed the money from sustained, new production of legacy products.
Despite repeated suggestions from the lessors to cut production—after all, they had airplanes delivering during the Great Recession and wanted to narrow the supply-demand equation—neither OEM did so. They juggled their skylines and worked through the Recession.
So did the lessors.
But was Hazy suggesting a poor economy was around the corner?
The answer is “no.”
When I went to ALC’s 2Q2017 Aug. 3 earnings call transcript, the context of Hazy’s remark put an entirely different light on the Tweet.
“I feel compelled to reiterate our concern over stress in the supply chain, which we fear will only grow worse if production rates increase. Having been in this industry for more than 50 years, I would simply but strongly encourage the OEMs to carefully review their production rate aspirations closely and realistically.”
This certainly puts things into a different context.
Hazy has reason for concern.
Every Airbus delivery to ALC is late. Issues with engines from Pratt & Whitney, CFM and Rolls-Royce are delaying deliveries of A320neos and A330neos.
The PW and RR delays to Airbus are well known. Delivery delays by CFM to Airbus also are occurring, as CFM runs a little behind on production ramp up.
Although ALC doesn’t have any A350s scheduled for delivery until 2019, other customers experience delays due to issues with interior supplier Zodiac.
Boeing had some minor issues with CFM LEAP-1B engines for its new 737 MAX.
Backlogs for single-aisle airplanes are strong. Boeing goes to rate 57 in 2019. Airbus goes to rate 60 in 2019. Higher rates are under consideration.
Widebody rates, on the other hand, look softer. Although Boeing continues to strive to take the 787 rate to 14/mo by the end of the decade, officials acknowledge they are not there yet.
Middle Eastern airlines—the biggest single block of widebody customers—are struggling and talking about deferrals.