Industry Experts Caution Against Bubble Risks Amidst Surge in Aircraft Mega-Deals

In under a year, the global aviation industry has experienced a remarkable transformation, transitioning from near collapse to boundless excitement and experts caution against bubble risks. Airlines, once plagued by grounded fleets and substantial losses, are now reveling in enormous profits, engaging in a competitive frenzy of record-breaking aircraft orders.

On Monday, Indigo showcased the industry’s newfound confidence by announcing its acquisition of 500 jets from Airbus SE, surpassing the previous record set only a few months ago by Air India. These purchases join the extensive orders placed earlier this year by Ryanair Holdings Plc and Saudi startup Riyadh Air, bringing the cumulative number of announced deals to approximately 1,500 aircraft.

However, while some executives flaunt their corporate prowess, seasoned industry veterans caution against the signs of an overheating market. “With an abundance of aircraft flooding the market, I sincerely hope that these players are proceeding cautiously,” remarked Akbar Al Baker, the CEO of Qatar Airways.

Al Baker is a prominent customer of both Boeing Co. and Airbus, boasting an extensive history of striking his own high-profile agreements. Another notable figure is Steve Udvar-Hazy, the pioneer of aircraft leasing and co-founder of Air Lease Corp.

“In an interview at the Paris Air Show, Udvar-Hazy remarked that the current trend in the airline industry, characterized by a rush to order aircraft, lacks economic or realistic justification. He acknowledged that such behavior is typical in the industry.”

Both Air Lease, based in Los Angeles with an existing order book of approximately 400 planes, and Al Baker express their interest in adding to their already substantial orders. However, Al Baker emphasized that he is not in a hurry to do so.

Asia and Europe Airlines

Airlines that anticipate significant growth at the intersection of Asia and Europe have overshadowed these two individuals. The surge in orders, which began as the travel industry initially recovered from the effects of Covid-19 in the United States two years ago, has resulted in Boeing’s 737 Max being nearly sold out until 2028, while Airbus has limited delivery slots available before 2030.

Securing the ordered aircraft will also pose a challenge. Both Airbus and Boeing are grappling with supply chain issues and a shortage of skilled labor, making it difficult for them to increase production.

However, airlines are concerned that if they delay their orders, they will be pushed to the back of an ever-growing line, potentially missing out on the ongoing travel boom that shows no signs of slowing down.

Udvar Hazy compared the frenzy of purchases to children in a candy shop, highlighting the exuberant nature of the airline industry.

IndiGo’s recent announcement of acquiring 500 Airbus jets adds to the already extensive backlog of undelivered aircraft at India’s largest carrier, reaching approximately 1,000.

Further negotiations are underway during the industry’s prominent gathering, which rotates between Paris and London. Turkish Air is currently considering a significant deal for 600 jets, while Riyadh Air, a rising player from Saudi Arabia, contemplates the addition of up to 400 narrow-body aircraft.

Udvar-Hazy emphasized that although the company consistently explores opportunities in the market, they do not have the inclination to make large and imprudent orders solely for the purpose of gaining publicity.

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