Putting it into perspective

Victoria
By Victoria March 19, 2013 13:58

Putting it into perspective

The past seven days has seen a rush of very large aircraft orders. Each order, even with a drastic discounting (which there has been), would constitute more than enough money to bail out Cyprus. Anyway in the market at this time, there have been some interesting deals going through. Look out in the next few weeks for a deal between Willis Lease Finance and a US regional airline that will further compound the past 12 months as possibly the best period in the history of the company bearing in mind the recent SAS deal and the WEST II securitisation.

But the good news does not stop there. Ryanair, in taking the 737-800NG, has made the wise choice both in terms of economics and in the process it has more or less filled the Boeing delivery gap for the NG – Max transition. 2013 is being good to our industry thus far aside from the 787 mess of course. The markets are stable even in this time of crisis and the US airlines all seem very buoyant on the back of increasingly decent jobs and industrial data in the US, but of course this is as $1trillion is added to the US national debt each year. One cannot help but feel that we are in the eye of the storm, created by zero interest rates and massive cash print runs. The music stopped before and it will stop again – the question is this: Will the market be going down the pan just as all these aircraft on order are delivering?

The chances are even at best. Throwing the crystal ball out of the window and sticking to facts at hand we can certainly say this: Between Ryanair, Norwegian Air Shuttle, easyJet and Air Berlin there are over a thousand aircraft on order – all destined for the basketcase that is the European economy. The fact is the flag carrier airlines of Europe will not be able to compete on intra-Europe routes, the future of LOT and too many others to mention here is also a worry.

The saving grace on international routes for these airlines is membership of an alliance which affords a great deal of protection, especially for LOT. Even so the spread of THY, Etihad and Emirates ensures that no European airline can avoid the ever increasing flow of passengers routing via the Middle East (inc. Istanbul). We must also wonder how on earth IAG and Air France plan to keep pace with the massive future expansion of the low-cost carriers (LCCs) in Europe? It is likely that IAG will stake a claim to the huge Spanish market and try to hold that while Air France tries to create a large scale French LCC market under its own leadership (with a little regulatory assistance of course). All other markets are at the mercy of the LCCs. Is it therefore not time for the small European airlines to start thinking about cross border mergers and reforming as LCCs? What is stopping this from happening? Government assistance and interference, and these factors will end-up driving a good few European airlines to the wall in the coming years as the EU starts to crackdown on “loans” as the LCC incursion gathers pace.

Victoria
By Victoria March 19, 2013 13:58
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