Delta Air Lines chief executive Richard Anderson sees an impending “huge bubble” in orders for narrowbody aircraft, he says at an Aero Club of Washington luncheon.
“There’s going to be a huge bubble in narrowbodies, so those residual values are going to plummet, which is going to be a great buying opportunity for a carrier like Delta,” says Anderson speaking at the event in Washington DC on 24 June.
The bubble will be evident in Airbus narrowbodies – the A320 family – first, he says.
Not everyone agrees.
“I wouldn’t quite call it a bubble, and I definitely wouldn’t use the word ‘plummet’ to describe what could happen to values, but we do recognise that in the next five years or so there may be some cancellations from weaker carriers in the orderbook, and opportunities for other carriers to jump into earlier delivery slots,” says George Dimitroff, head of valuations at Flightglobal’s Ascend Consultancy.
“The pricing on those vacated delivery slots would be subject purely to market conditions at that point in time, which are difficult to predict far in advance,” he adds.
Dimitroff and others say that despite a record order orderbook, which totals more than 11,500 aircraft – or 60% of the current in-service fleet – according to Ascend, the backlog stretches out longer than ever before and a significant number of the aircraft are likely to be used for replacement.
“I don’t think there will be an excess glut of capacity,” said Akbar Al Baker, chief executive of Qatar Airways, on the possibility of an order bubble at the IATA Annual General Meeting in May. “There is a huge requirement for fleet replacement.”
Delta admittedly stands to benefit from a decline in values as a result of an order bubble.
Declining residual values for A320 family aircraft would lower maintenance costs for the airline by allowing it to buy used aircraft for parts, says Anderson as an example. This would allow them to avoid buying parts from Airbus directly.
In addition, the low residual values would allow Delta to acquire used aircraft cheaply. The carrier prefers to buy either used aircraft, for example its decision to sublease 88 Boeing 717-200s from Southwest Airlines in 2012, or order well-established in-production aircraft, for example its order for 40 Airbus A321 and A330-300s in September 2013.
Rob Morris, head of consultancy at Ascend, called talk of an order bubble “idle chatter”, in May.
Source: Cirium Dashboard
