Plane wanted: billionaire purchases by airlines saturate Boeing and Airbus

In full hangover from the air crisis of the pandemic and congestion at airports in half of Europe this summer, airlines now face a new challenge: the shortage of planes.

Thomas Osborne
Thomas Osborne
08 October 2022 Saturday 23:48
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Plane wanted: billionaire purchases by airlines saturate Boeing and Airbus

In full hangover from the air crisis of the pandemic and congestion at airports in half of Europe this summer, airlines now face a new challenge: the shortage of planes.

Boeing and Airbus are behind in the delivery of aircraft, executives from several companies have alerted, compromising the growth plans of airlines and the renewal of fleets for short flights. The bottleneck is considerable. On the one hand, large airline groups have signed huge purchase contracts because they need new planes that consume less fuel and can carry more passengers. The future environmental legislation for the airline industry, with charges on emissions and new taxes, added to the increase in the price of fuel, outweighs the losses and the debt that the airlines carry, so many have decided to take out the checkbook now. And in a big way.

The Iberia and Vueling holding company (IAG) has placed a mega order for 50 Boeing and 37 Airbus aircraft, with a catalog value of 11,000 million euros, which its shareholders' meeting must ratify on the 26th of this month. It also has other purchase options on the list. Almost all IAG airlines fly with Airbus in the short haul (domestic and European flights). Among them, Vueling, based at Barcelona airport. It is precisely the shortage of short-haul aircraft that has led the group to diversify its suppliers, also adding Boeing, according to industry sources. In fact, the contract with the North American manufacturer is signed by Vueling, although from the group they qualify that the distribution of the new planes is still to be decided.

It is not the only airline that has launched to buy. The British EasyJet recently announced an investment of more than 21,000 million euros to incorporate 168 Airbus NEO, while Ryanair has budgeted 20,000 million euros in the acquisition of 210 Boeing B737 to support its aggressive growth plan in the coming years. So far they have received 73 planes. The group's CEO, Michael O'Leary, explained a few days ago at a press conference that deliveries are late and that he had planned to meet with Boeing executives to discuss the matter.

“Every time a crisis comes out, there is a peak in demand in the airline industry, and this has been very deep; In addition to European and American companies, Asians are also renewing their fleet now that their restrictions are waning and Boeing and Airbus have collapsed”, details Joan Tarradellas, professor of Economics at Eada and specialist in the airline industry.

Sources from the North American manufacturer comment that they are working to fulfill the contracts. At Airbus, an official spokesman insists on the complexity of the supply chain to manufacture an aircraft and on the interruptions of this, which is delaying deliveries. "Airbus commercial aircraft have some 3,200 suppliers, and each aircraft consists of three million parts," they underline from the European manufacturer. “During covid the whole supply system slowed down, and now they come back at different speeds; this is accentuated by the fact that the demand for the A320 family continues to be stronger than our supply capacity in the coming years”, they add from Airbus. At the beginning of the year, the goal of delivering 720 aircraft by 2022 was set and the commitment is set at around 700 aircraft, they say.

The airlines are risking their starting position in the post-pandemic air market, considers Tarralledas. The new planes are more efficient, IAG calculates that they will save 20% of the costs per kilometer and passenger transported, while Ryanair puts a 16% reduction in fuel per seat offered. This, in a context of rising fuel prices, can make a difference in the income statement of companies. "The new, more efficient models not only reduce consumption and therefore emissions, but also have a positive impact on the costs derived from emission rights," adds Vicente Segura, operations consulting partner at Deloitte.

These savings explain the investment effort of the airlines at a time when they have not yet recovered from the immense losses of the pandemic. "They are heavily indebted, but they maintain a solid cash position that they will dedicate to paying for this renewal of the fleet," says Tarradellas. “You have to differentiate the payment schedule of the purchase orders from the amount of the orders. Despite the great financial impact that the airlines have suffered, the renewal plans must be maintained and are necessary to accelerate the recovery of the sector”, says Segura, from Deloitte.

Hence, the net debt of 11,000 million euros of the parent company of Iberia and Vueling in the first half is not an impediment to its mega-orders of aircraft. Part of his 9,200 million cash will pay for the fleet, even if it arrives late.