Air Transport World

Boom or bubble? Aircraft are in short supply, backlogs are rising and the industry is awash in capital.(ASSET MANAGEMENT)

THE STRENGTH AND longevity of the current aircraft buying cycle continues to surprise, but is it a legitimate reflection of the underlying vitality of the global economy or a bubble that is soon to burst? Among aircraft financiers and asset managers with whom ATW spoke, the consensus is that it's the former. They cite heavy demand for air travel--particularly in emerging markets such as India, Eastern Europe and Russia--a genuine shortage of modern lift, and the availability of capital despite the credit crunch to rebut suggestions that the industry is experiencing an overheated aircraft feeding frenzy.

Data certainly support the notion that demand is strong and supply is tight. According to IATA, passenger and airfreight yearly traffic increases both hit 16-month highs in August and passenger load factor reached 80%-a first for any month outside of July. While September numbers were not quite as robust, demand unquestionably is much healthier than had been anticipated a year ago. IATA recently forecast that traffic will grow at an average annual rate of 5.1% through 2011.

Additionally, few modern aircraft are available. The Ascend Online Fleets database shows that of 1,034 stored aircraft in mid-October, just 128 were 15 years old or younger.

"Let's look at the macro situation," says Robert Martin, MD and CEO of BOC Aviation (formerly Singapore Aircraft Leasing Enterprise). "We're now into the fourth year of very strong world GDP growth ... So that is certainly driving the revenue line of the airlines and I think it's what's driving the sentiment of the airlines [in terms of orders]."

That strong airline traffic has been matched by the foot traffic into and out of Seattle and Toulouse. Through Sept. 30, Boeing had booked orders for 903 aircraft, up from 736 in the year-ago period, while Airbus had sold 854 compared to just 226 in the first nine months of 2006. The results put Boeing on track to exceed its 2006 sales record of 1,050 gross and 1,044 net orders and, if it sells just 98 aircraft in the fourth quarter, would mark the third consecutive year in which it booked in excess of 1,000 orders. Airbus, meanwhile, already has surpassed its 2006 sales total of 824 (790 net) and could top its record of 1,111 (1,087 net) set in 2005. …

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