By Laura Mueller
Airfinance Journal, April 14, 2022
Reprinted with permission
April 27, 2022, © Airfinance Journal: Air Lease Corp’s executive chairman, Steven Udvar-Hazy, told Airfinance Journal that “every one” of the lessor’s single-aisle Airbus aircraft is delayed.
“Our Boeing 737 Max deliveries also are delayed this year,” he said. “The supply chain, starting with the engine manufacturers, the people who make landing gear, the people who make avionics… are not equipped today to meet the production goals of the two manufacturers.”
Add in increased absenteeism and working from home, and it is clear further delays are ahead. “You can’t build airplanes on a Zoom call.”
The situation means Airbus and Boeing are “faced with very difficult strategies”.
ALC’s chief executive officer, John Plueger, echoed those thoughts. He told a JP Morgan conference on 16 March that 18% of the Airbus workforce was off due to Covid-related matters. Plueger confirmed to Airfinance Journal that Airbus told him that figure, but the information was “probably a month or two old” as of April.
“It would not surprise me to get further delays beyond that,” he added.
ALC is scheduled to take delivery of 27 Airbus A320neo-family and 33 Boeing 737 Max-family aircraft in 2022. All of the aircraft are already placed with customers.
There is much debate about whether an increase in production supports a post-pandemic recovery of the narrowbody sector, especially given the wide variance in airline recovery by region and with increases in output that are well above pre-Covid rates.
Udvar-Hazy dismisses an uptick in production rates no matter how much the manufacturers argue for them.
“Between them, they’re talking about 110 and 120 aircraft per month. We don’t see that. We just don’t see that the supply chain infrastructure and the aerospace industry, at this point, can support 110 to 120 single-aisle deliveries of just Boeing and Airbus. On top of that, there’s the Airbus 220, the Embraer E2, and a whole host of military programmes that are also taking a tremendous amount of resources. I think these over-optimistic forecasts of production rates are not achievable.”
“In February, Boeing delivered 22 airplanes, just 22 airplanes. Is that where they want to be? The writing is on the wall,” he said.
He admits Airbus was “unexpectedly successful” after the A320neo was launched. “I don’t think Boeing anticipated that a re-engined A320 family would be as successful as it was. At that time, people were worried about fuel prices and emissions, so I think there was this frenzy that, if you can have 15% fuel savings, that’s really meaningful, and it’s worth transitioning to the new technology.”
He recalls that Boeing had a number of designs for new-generation aircraft “that were totally new, clean sheets of paper”. However, Airbus’ top salesperson John Leahy, “with his successful penetration of the airline markets with the Neo, stopped that in its tracks”.
Still, Boeing did not “fully understand” that airlines were migrating to larger average-size aircraft.
“That’s where the market share has changed. If you take the A320neo and the 737-8, it is a pretty good equilibrium, very close.”
He argues that the A321neo has changed that dynamic, and that’s how Airbus is inching towards a 60% market share. “And I think Airbus could even reach 65% because Boeing does not have a credible response.”
The 737 Max 10 is not as effective in “its overall versatility, performance capacity and passenger appeal as the A321. That’s just the bottom line.”
On 24 March, the US Federal Aviation Administration warned Boeing that it might not gain certification of the 737 Max 10 ahead of a critical safety deadline set by US Congress.
Congressmen Peter DeFazio, who leads the US House of Representatives Transportation and Infrastructure Committee. said at a hearing that he would oppose an extension to the 31 December 2022 deadline for the aircraft’s certification.
The aircraft certification bill gave the FAA a two-year grace period to certify the aircraft without the advanced flight crew alerting system.
But if Boeing misses the deadline, it faces costly disruptions to the programme, warned a C-suite lessor source, speaking on condition of anonymity.
“I think the Max 10 certification risk is real, and I am not sure that Boeing can hit those targets,” said the lessor. “Boeing may have to redesign the aircraft, and then the delays will be significant. The Max 10 backlog is not insignificant. Size does matter. Delta and Boeing are close to a significant Max order that will have Max 10s. Also, Qatar is taking Max 10s.”
Delta Air Lines is reportedly in discussions for up to 100 units of the Max 10, even though it has not placed any Max orders thus far.
Boeing does not break out Max orders by type, but Airfinance Journal data shows 560 737 Max 10s on order. The OEM recorded 749 gross new orders across the 737 Max family in 2021.
The Max 10 is “unfortunately” another item on a long list of certification issues Boeing is trying to navigate, according to Avolon CEO Domnhal Slattery. “And it feels that they are making little progress.”
The Max is still not flying in China.
Boeing said in 2021 that it expected China to give the green light on 737 Max certification by the end of 2021, following the ban on the narrowbody in March 2019.
But 2021 has come and gone, and there is still uncertainty over when the Max will resume flying in China.
Udvar-Hazy would not be drawn on a date for certification.
“That decision is to be made at the highest levels of the Chinese government, not at the China Aviation Authority level,” he said. “The only thing I can tell you is that the Chinese airlines that already have 737 Max aircraft… are yearning to put those airplanes back in the air. There’s no shortage of demand from the Chinese operators that already had those aircraft in the inventory. But there’s a lot of dynamics going on between China and the US right now. And I think the 737 Max is a relatively insignificant part of that total relationship issue between the two governments.”
Deliveries of the 787 Dreamliner have been halted since 2021 as Boeing addresses a series of manufacturing fixes and inspections. The manufacturer only delivered 14 787s in 2021.
“Boeing’s focus needs to be on getting that backlog cleared because there are nearly 130 aircraft parked and that cannot deliver,” said Slattery.
Asked what Boeing has said about possible delivery dates, Slattery said: “They don’t have clarity. They literally don’t have any clarity on the delivery.”
Udvar-Hazy agreed the timing of delivery schedule remains elusive: “There is a department in Washington DC called the Department of Transportation, or the US Federal Aviation Administration. Right now, it is a headless ship, but why don’t you call them and ask for a date on 1-800-FAA-787?” he quipped.
FAA administrator Steve Dickson left the agency on 31 March. Dickson had been in the role since 2019 after being nominated for the position by then-President Donald Trump.
“Manana, Manana, manana” is Boeing’s response to questions about the restart of 787 deliveries, Udvar-Hazy said. “I have heard that for the past nine months. We have 11 787s in Charleston that are ready and painted, but we can’t take delivery.”
However, a source indicates there is talk of the FAA signing off on newly produced aircraft soon. “That may trigger one to two deliveries per month starting next month, but there is still no clarity on already produced aircraft,” the source said.
Udvar-Hazy called a summer resumption of deliveries “optimistic” and stressed the timing is “really a regulatory question” between Boeing and the FAA.
The slow pace is “all because of the Max, and what Boeing did with the Max.”
There is oversight of Congress on the FAA. “It’s an overreaction to a tragic set of events. But I have to say that Boeing did this to themself.”
The 777X programme also has a big question mark over the timing of its certification approval. The aircraft is late after originally being targeted for delivery in 2020.