DUBLIN (Reuters) – A long period of production shortages by aircraft manufacturers will support supply and demand to increase airline capacity and lower profits for at least another decade, the head of second-tier aircraft leasing company Avolon said on Friday.
Aircraft manufacturers and suppliers are struggling to continue to recover from the pandemic in travel due to rising costs, labor and parts shortages, issues that have been exacerbated by safety at Boeing (NYSE: ) and a strike by its workers last year.
Avolon's annual report forecast that airlines' net profits will increase by 16% to more than $36 billion by 2025, driven by low fuel prices, strong revenue and the fact that the lack of aircraft has allowed them to prioritize the most profitable routes.
“That lack of production supports the balance of supply and demand, not just for the next three or four years, but for at least another decade,” Avolon CEO Andy Cronin told Reuters.
Cronin said Avolon's view that balanced supply and demand would be “strongly in our favor” at the time prompted it to order 200 aircraft by 2023. It added 118 aircraft last year through the acquisition of smaller rival Castlelake Aviation Limited, bringing its total fleet to 1,129 aircraft.
The Dublin-based lessor said Boeing and rival Airbus will continue to struggle to hit their production targets even as they ramp up deliveries.
Avolon, a subsidiary of Bohai Leasing Co Ltd of China, also predicted that orders from Chinese firms will increase rapidly to 800 aircraft by 2025, citing growing demand for travel and the need to replace aging fleets. .
Although the Avolon report describes the aviation view of 2025 as strong, it also noted that economic cycles usually last four to six years and the current cycle is already four or five years old, with the growth of Europe slowing down.
“We see it as a visible low point at the moment. I think there's uncertainty about foreign policy and trade policy, and the implications of that as it relates to the airline industry,” Cronin added.