The CEO’s advice seems particularly timely: “Usually, airlines don’t go bust by having too few airplanes; they usually go bust for having too many that they can’t service properly financially and operationally.”
Air Lease Corporation has a unique position in the industry. As a company that purchases commercial aircraft and leases them to airlines, the company has a close understanding of the economic health of the industry worldwide.
Steven Udvar-Házy, a billionaire and executive chairman of Air Lease Corporation, shared some thoughts about the industry onstage at the Skift Aviation Forum on Wednesday in Texas.
Below are a few highlights from the discussion.
Air Lease Corporation CEO: Beware Ordering Too Many Planes
Airlines have been ordering more planes in response to a surge in business post-pandemic, but he said they shouldn’t get too carried away in case there’s another economic downturn.
- “Generally, their eyes are bigger than their stomachs, so they order more than they can really absorb financially, strategically, and also in terms of infrastructure.”
- “We’re not placing big orders because I believe a certain percentage of these big mega orders will kind of flake out or evaporate.”
- “Usually, airlines don’t go bust by having too few airplanes; they usually go bust for having too many that they can’t service properly financially and operationally.”
Adopting Next-Generation Aircraft
There are many companies working on next-generation aircraft that are meant to improve efficiencies and contribute to sustainability goals. He thinks it will take longer than expected before those efforts make a real difference.
- “I think we’re making a lot of progress. But I don’t think between now and the mid-2030s, we’re going to have a new airplane that will obsolete the current fleets.”
- “We’re probably looking at somewhere around 35,000 jet aircraft in operation by say 2032, 2033, aircrafts that are more than 100 seats. How can you replace that many aircraft when you really only have two manufacturers that can barely build 600, 700, 800 aircraft a year?”
- “Even if we have the technology, how do you replace everything, which has consumed tremendous investment, hundreds of billions of dollars of investment, in current-technology airplanes that are already delivered or will be delivered. It’s going to be a longer timeframe. My guess is 10, 15 years longer.”
Geopolitical Issues Are the Biggest Threat to Growth
While demand for air travel is steady, he said the weaknesses are related to geopolitical issues around the world.
- “El Al was the last airline flying to Tel Aviv, and now they really cut back. The London insurance market pulled the insurance, so the government had to step in to cover insurance.”
- “The whole surrounding area — Jordan, Lebanon — has had severe effects on air travel.”
- “If something happens in the South China Sea — it doesn’t have to be a full military confrontation. It could be a partial naval blockade or anything like that. Those are the kinds of things that will have an immediate impact, and then it’s hard to gauge what the recovery period is.”
- “I think our biggest concerns today are the geopolitical risks and their impact on air travel and people’s ability and propensity to travel. Otherwise, we’re seeing really strong growth for the next 10 years, at least 5%, 7% average growth.”
Leasing a Jet Can Cost $325,000 per Month
There are some airlines that only have one jet, which they lease from Air Lease Corporation, he said. One of them is Air Vanuatu, the national flag carrier for Vanuatu, a country of roughly 80 islands in the South Pacific Ocean with a population of about 300,000.
- “Every time I go down there, which is like every two years, I kind of feel guilty that I’m charging these poor people like $325,000 a month. And I see kids on the street that don’t have shoes. And every once in a while they have a cyclone and we have to send medical supplies. I have empathy for them, but they need our plane. It’s the only link they have to Australia and New Zealand, so it’s the only lifeline to the outside world.”
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