This week, aircraft lessors Avolon published their Q2 2023 update, including one key accomplishment in the second quarter: the publication of their 20 Year World Fleet Forecast (2023-2042).
Let’s take a closer look at both.
Avolon’s Q2 2023 Report: Key Highlights and Insights
Avolon’s Q2 Fleet Metrics
- Executed 31 lease transactions comprising new aircraft leases, follow-on leases and lease extensions;
- Entered into letters of intent for the sale and leaseback of 9 aircraft;
- Confirmed order for 40 Boeing 737 MAX aircraft and agreed to order 20 Airbus A330neo aircraft;
- Delivered 5 new aircraft and transitioned 13 aircraft to a total of 10 customers;
- Sold 3 aircraft and executed sale agreements for a further 17 aircraft;
- Entered into letters of intent to place 23 aircraft from their order book during the quarter;
- Added 2 new customers, giving a total of 149 airline customers operating in 65 countries; and,
- Ended the quarter with an owned and managed fleet of 578 aircraft, with total orders and commitments for 297 fuel-efficient, new technology aircraft.
Avolon’s Q2 Business Highlights
- Fitch improved Avolon’s BBB- rating outlook from Stable to Positive;
- Raised US$3.4 billion of debt capital in the quarter, including:
- Private offering of US$750 million of senior unsecured notes maturing in 2028;
- US$1.7 billion Term Loan B refinancing with new loan maturing in 2028; and,
- Letter of intent for a US$950 million term financing facility maturing in 2030;
A Closer Look at Avolon’s World Fleet Forecast for 2023-2042
During the second quarter of this year, Avolon published their 2023 World Fleet Forecast, Return to Growth. It predicts that the global commercial aircraft fleet will almost double to 46,880 aircraft in 2042 as the sector addresses a structural long-term aircraft shortage and sustained travel demand.
Peek into the future of aviation as we unravel Avolon’s World Fleet Forecast. This comprehensive guide paints a detailed picture of the long-term trends set to shape our industry.
Here’s what they say we can expect from the next 20 years of flight:
- By 2042, the number of large commercial passenger aircraft is expected to nearly double, reaching 46,880.
- The narrowbody segment is projected to exceed double its current size, reaching 34,320, and the widebody fleet is also expected to double to 7,480.
- Regional aircraft segments are also growing, likely due to rising fuel economy values and aging fleets needing replacement.
- Revenue passenger kilometers (RPKs) are set to increase by 124% in 2042 from a 2019 base, indicating a 3.5% annual growth rate.
- Airbus and Boeing are expected to maintain their leadership in the narrowbody and widebody markets, respectively.
- About 44,300 new large commercial passenger aircraft are anticipated to be delivered in the next 20 years, with half replacing older models and the other half driving growth.
- $4 trillion will be required by 2042 to fund new aircraft deliveries, driving the transformation toward fuel-efficient fleets.
Soaring High: The Global Thirst for Air Travel Intensifies
Air travel demand has doubled every 15 years since the late 1970s due to airline deregulation. The revenue passenger kilometers (RPKs) growth has outpaced GDP growth by 1.7x from 2000 to 2019.
Despite numerous challenges, including the Gulf War, 9/11, SARS, the Global Financial Crisis, and the COVID-19 pandemic, the aviation industry has managed to recover and thrive due to its vital role in the global economy.
The aviation industry’s growth is driven by several factors, such as population growth, rising incomes, increased travel desire, and continual operational and technological advancements that have lowered air travel costs.
The GDP outlook still supports air traffic growth, despite potential economic hurdles such as rising interest rates and possible recession.
According to Avalon, annual growth will reach 3.5%, equivalent to 18.7 trillion RPKs in 2042. Despite being slower than the historical rate, this growth is from a larger base and is influenced by factors such as sustainability, skilled labor, infrastructure development, and technology advancements.
Peering into Regional Air Travel Demand
By 2023, air travel demand will surpass 2019 levels, with all regions recovering. The Americas and Europe are leading the recovery, while Asia Pacific lags due to delayed border reopenings.
Economic and political circumstances will influence air travel demand worldwide as the industry enters a growth phase. With high growth rates, emerging markets like China (3.7% p.a.), India (4.4%), the rest of Asia (5.0%), and Latin America (4.9%) present the greatest opportunities, spurred by economic growth, demographic shifts, and rising disposable income.
North America (2.0%) and Europe (3.1%) will also experience growth, albeit slower than their previous expansion, due to infrastructure development, airline deregulation, and the rise of low-cost carriers.
Historically, air travel frequency rises with higher disposable income. By 2042, Asia (excluding China and India), with populous countries like Indonesia, the Philippines, and Vietnam, is expected to surpass Europe as the top passenger origin market. China will continue to grow faster than mature markets and is expected to overtake North America as the third-largest market in the next decade’s latter half.
Avolon’s 20-Year World Fleet Forecast: Driving Forces and Emerging Trends Reshaping the Aviation Industry
Global Economic Shift:
The world is experiencing significant economic changes characterized by shorter economic cycles, a faster move towards a low-carbon economy, an aging population, and rising geopolitical tensions. This, combined with deglobalization and less availability of skilled labor, results in tightness in aviation supply chains. High-interest rates to control inflation are causing economic instability and slowing growth worldwide.
Air Travel Demand:
By the second half of 2023, global air travel should return to 2019 levels. By 2024, the recovery will reach all regions. Despite a varied recovery pace across regions, the demand reflects the strong desire of people to travel. The need for personal interaction, economic growth, and the willingness to spend on travel supports Avalon’s long-term growth prediction.
Middle-Class Growth:
A growing middle class, particularly in emerging markets, will boost aviation’s growth. By 2030, Asia’s middle class will grow by 1 billion people. China and India will contribute 22% of the expected RPK growth over the next 20 years.
Supply Issues:
Supply limitations, not demand, are hindering aviation growth. Airlines, manufacturers, maintenance providers, airports, and other stakeholders struggle with these constraints. The availability of aircraft, pilots, engineers, infrastructure, and environmental restrictions pose challenges.
Aircraft Shortage:
Narrowbody aircraft are sold out until the late 2020s. The loss of about 3,300 aircraft during the pandemic and growing air travel demand means supply constraints may persist even as production recovers. Airlines lacking sufficient aircraft will rely on lessors for new and used aircraft, increasing the value of delivered aircraft and future lease rates.
Role of Lessors: Despite the pandemic, no investment grade lessor was downgraded, showing their business resilience. Over the next decade, airlines will focus on reducing their debt, which rose by $300 billion during the pandemic. Lessors will play a crucial role in helping airlines renew their fleets, maintaining over 50% of the leased fleet.
Sustainability Challenge: Meeting the industry’s 2050 net-zero target is a significant challenge that requires new technologies, sustainable aviation fuel, operational improvements, and large-scale investment. Collaboration among manufacturers, airlines, lessors, capital providers, and governments is vital. The continued growth in air travel will attract the necessary capital for reducing the industry’s carbon footprint and absolute emissions.
Avolon’s 20-Year World Fleet Forecast: Building a Sustainable Future for Air Travel
The aviation sector is striving to lower its environmental footprint amidst expansion. Despite new aircraft being more fuel-efficient, air traffic surge contributes to more emissions.
Efforts like sustainable fuels, new aircraft designs, and better operations are underway to address this. Firms like Avolon play a key role in speeding up fleet renewal, which demands significant funds.
By 2042, 95% of the worldwide fleet will be fuel-efficient, new-technology aircraft.
The aviation industry is actively working towards sustainability through various measures, including sustainable fuels, innovative designs, and operational enhancements. Companies like Avolon are key in speeding up fleet renewal. The industry is ready to attract the necessary funding for these changes.
Aviation has decreased carbon intensity by over a third in the past twenty years. However, the goal is Net Zero by 2050, which will require growth without increased carbon emissions. Despite the need for innovation, there’s no immediate solution. Both Boeing and Airbus have no plans for new designs this decade. The two companies have found a balance in the market, with neither losing enough to warrant a disruptive action.
Fleet renewal with fuel-efficient technology will continue to decrease carbon intensity by 1.5% to 2% annually. Lessors are critical in this process by providing necessary capital and access to production slots. They also promote sustainable fuels and support investments for new production capacity. The growth of aviation will attract the necessary funding for the transition to low carbon.
Innovation will return. Sustainable aviation fuel is gaining government attention, with incentives in the United States and mandates in Europe. The industry must secure renewable energy and green hydrogen production to achieve its goals. Electric flight is now possible, as demonstrated by multiple start-up manufacturers. Improved air traffic management will reduce flight times and waiting periods, thereby reducing carbon emissions. Market-based measures will increase the cost of emissions in the medium term.
The full report on Avolon’s World Fleet Forecast for 2023-2042 is here: www.avolon.aero/insights.
Getting to Know Avolon
Avolon is a pioneer in the realm of aircraft leasing and lease management services. This aircraft lessor’s reach spans the globe. With Headquarters in Ireland, the company has branched out to the United States, Dubai, Singapore, Hong Kong, and Shanghai. The company is 70% owned by an indirect subsidiary of Bohai Leasing Co., Ltd., a public company on the Shenzhen Stock Exchange (SLE: 000415), while the remaining 30% is held by ORIX Aviation Systems, a subsidiary of ORIX Corporation, a name you’ll find on both Tokyo and New York Stock Exchanges (TSE: 8591; NYSE: IX).
Avolon has asserted its global leadership in aircraft leasing with a fleet of 875 aircraft—owned, managed, and committed—as of 30 June 2023.
You can dive into the world of Avolon at www.avolon.aero.