Aircraft manufacturers are stabilising production runs but problems will likely persist in the supply chain as they ramp up deliveries in the next two years, the head of the world's third-largest aircraft lessor said.
A rapid post-pandemic recovery in air travel has left planemakers and smaller suppliers struggling to keep up with demand amid rising costs, parts shortages and a scarcity of skilled labour.
"We continue to see increased levels of stabilisation coming to the production runs," Avolon CEO Andy Cronin told Reuters, adding not to underestimate the challenges ahead in the next two years.
"While we're continuing to try to ramp (production) very aggressively, we'll continue to see problems somewhere in the supply chain," he said.
Avolon today posted a 14% year-on-year rise in second quarter lease revenue to $613m.
Andy Cronin said this showed increasing demand for planes across the globe, even as parts of Asia and China recover a little bit slower than anticipated.
The Dublin-based firm committed last month to buy 20 Airbus A330neo aircraft, and said it is already in advanced talks on placing some of the new Airbus planes.
Its Airbus purchase followed another recent order for 40 Boeing 737 MAX 8 planes.
Cronin predicted lease rates would rise further after market rates for Airbus A330-300s and Boeing 737 MAX planes jumped 30% and 12% respectively in the first half of the year compared to the second half of 2022.
Other models rose by high single digit percentages.
Cronin said India's fast-growing airline industry potentially faces higher leasing bills amid the bankruptcy of airline Go First.
Foreign lessors are currently blocked from reclaiming planes caught up in the bankruptcy.
Avolon has no exposure to Go First but has leased jets to fellow Indian carriers Akasa Air and Vistara.
Cronin said unless a resolution is found soon, there is a risk that sale leaseback financing in India is reduced.
"I think there will always be people willing to do it, but it will certainly increase costs for the airlines," he said.
In its results statement, Avolo said its EBITDA for the three month period rose by 19% from $486m to $578m.
Avolon said it executed 31 lease transactions comprising new aircraft leases, follow-on leases and lease extensions in the second quarter, while it also entered into letters of intent for the sale and leaseback of nine planes.
It delivered five new aircraft and transitioned 13 aircraft to a total of 10 customers, while it also sold three aircraft and executed sale agreements for a further 17 planes.
It added two new customers, which gives it a total of 149 airline customers operating in 65 countries.
Avolon said it ended the quarter with an owned, managed and committed fleet of 875 aircraft, including orders and commitments for 297 fuel-efficient, new technology aircraft.
During the three month period, Avolon said it raised a total of $3.4 billion of debt capital.
The Avolon CEO said the second quarter was an excellent one of the company and demonstrated the positive net income and lease revenue trajectory of the business.
"Our increased trading and sale and leaseback activity, along with placement from our order book at attractive lease rates, will drive our financial performance in the future setting the foundation for long-term profitability," Mr Cronin said.
"Our commitment with Boeing for 40 new 737 MAX aircraft and Airbus for 20 new A330neo aircraft reflects our confidence in the future outlook of the industry and our customers' demand for additional aircraft to meet future growth plans in an undersupplied market," he added.
