Aircraft shortage worries 'overdone' as slowing global economy curbs jet demand

Concerns about aircraft supply shortages affecting airlines may be "overdone" as carriers report soaring profits, a slowing global economy curbs new jet demand and the use of larger narrow-bodies with higher seat counts boosts capacity, a report said.

China's diminished demand for narrow-body aircraft is also expected to reduce the effects of fewer deliveries from Boeing and Airbus over the next few years, according to a report by Bloomberg Intelligence on Friday.

"Despite reports of airplane shortages, our analysis finds that global airline profitability, weak return on capital and plateauing lease rates mean there may be no lack of planes," George Ferguson and Melissa Balzano, aerospace and defence analysts at Bloomberg Intelligence, said in the joint report.

"Demand could be abating on rising narrow-body seat counts, the peak of geared-turbofan [engine] inspections and slowing global gross domestic product [GDP] growth, especially in China."

A global shortage of aircraft has been pushing up fares and forcing airlines to keep older jets flying longer. Some carriers, such as Emirates, have invested billions of dollars to retrofit their older jets as they await delayed deliveries of new aircraft.

Airlines around the world have struggled to increase capacity in response to rising travel demand as supplies of jetliners are limited by parts shortages, industry-wide hiring problems and overloaded repair shops.

Bloomberg Intelligence's analysis of Boeing and Airbus aircraft shortages shows 466 fewer narrow-bodies were built than planned, from mid-2022 to the beginning of 2023, as supply chains slow down the manufacturers' production rates.

This deficit could rise to about 825 aircraft by 2025 and more than 1,100 by 2026, if supply-chain glitches continue to limit manufacturers, the report said.

However, offsetting this gap are 3,000 narrow-bodies delivered during the pandemic in 2020 to 2023 when travel demand was weak, according to the analysts.

Another offset is the larger seat counts of narrow-body aircraft delivered by Boeing and Airbus, amid a growing trend since the pandemic for airlines to move towards larger narrow-bodies amid higher pilot salaries.

During most of 2024, Airbus averaged 202 seats per A320 family of aircraft delivered, which is 8.8 per cent higher than in 2018, according to the report. Boeing's increase has been slight at 1.3 per cent, but this is against the backdrop of much fewer deliveries and lacking certification on the 737-10, the largest of that line.

"As both airframers boost deliveries in 2025, the higher amount of seats per airplane will have moreof an effect, mitigating delivery slowdowns due to supply chains," the report authors said.

High profits

Another important metric is airline profitability, which the report measured using global airlines' earnings before interest, taxes, depreciation and rental (Ebitdar) as an indicator of core airline earnings.

"We generally see lower Ebitdar margins at airlines globally, which doesn't seem to indicate there is a shortage," Mr Ferguson said in a LinkedIn post on Friday.

Of the 29 airlines on which Bloomberg Intelligence collects consistent quarterly Ebitdar margins, the majority are recording lower year-on-year margins and lower compared to 2019 margins, which shows no shortage of airplanes and may even lead to deferrals, the report said.

The authors concluded that "profits shouldn't struggle if airliners are few."

Weaker China demand

Slowing global economic growth, due to wars and trade disputes, will also curb jet demand over the coming years.

"A slower global economy likely means fewer narrow-body aircraft will be needed over the next few years, alleviating some of the potential shortages from supply-chain problems and strikes," Mr Ferguson and Ms Balzano said.

Global economic growth is projected to reach 3.2 per cent, unchanged from July forecasts, the International Monetary Fund said in its latest World Economic Outlook on October 22. Growth is forecast to hold steady at 3.2 per cent in 2025, amid heightened uncertainty due to conflicts, increasing trade tension, as well as elections and leadership changes in major economies worldwide, it said.

The IMF cut its growth forecast for China, the world's second-largest economy, by two-tenths of a percentage point to 4.8 per cent in 2024. Its 2025 forecast was unchanged at 4.5 per cent.

China's reduced demand for narrow-bodies will probably ease aircraft shortages from Boeing and Airbus over the next few years, the Bloomberg Intelligence report said.

Slower GDP growth after the pandemic and increased deliveries of Chinese manufacturer Comac's C919 planes are the main reasons, it said.

"Our base-case scenario sees 100 less deliveries into China per year over the next five years, largely due to lower growth as globalisation ebbs, perhaps accelerated when [US] president-elect Donald Trump takes office," the authors said.

"In a scenario where China bounces back to 5 per cent growth, demand is on pace to return to pre-pandemic levels. With less expansion, it could be 150 fewer planes per year."

'Clipped wings'

Still, global airlines throughout the year have complained about the shortage of planes costing them missed growth opportunities.

Emirates, the world's biggest long-haul airline, last week said its growth has been curtailed by late aircraft deliveries and other supply chain constraints, as it closely monitors troubled plane maker Boeing's turnaround efforts.

Abu Dhabi's Etihad Airways last month said it plans to invest nearly $1 billion to retrofit its older Boeing 777 and 787 Dreamliner aircraft. The move is aimed at capitalising on strong air travel demand amid a shortage of new jets. Etihad has a fleet of nine Boeing 777 passenger aircraft and 43 Boeing 787s, according to its website.