Avolon expects more airlines to close with profits falling again

Irish aircraft financier says returns will stay above a ‘gradually rising cost of capital’

An Taoiseach Leo Varadkar and Dómhnal Slattery, chief executive of Avolon, pictured at the official opening of the company’s new headquarters in Ballsbridge. Photograph: Robbie Reynolds

An Taoiseach Leo Varadkar and Dómhnal Slattery, chief executive of Avolon, pictured at the official opening of the company’s new headquarters in Ballsbridge. Photograph: Robbie Reynolds

 

More airlines will close this year and while their profits will fall, returns will stay above interest rates, according to Irish aircraft financier Avolon.

The Dublin-based company, which buys aircraft from manufacturers Airbus and Boeing, and leases them to airlines around the world, says 2019 will be a “tricky one to call” in its latest aviation industry outlook, called ’Buckle Up’.

Avolon predicts that airline profits will decline moderately again this year after dipping in 2017 but returns will stay above a “gradually rising cost of capital”.

The International Air Transport Association said in December that results from airlines showed higher costs and competition squeezed earnings in the third quarter of last year.

Margins fell to 10.7 per cent in the three months ended September 30th from 14.2 per cent during the same period in 2017.

Avolon also believes that more airlines will fail this year, but the industry will quickly absorb any excess capacity, ensuring that aircraft values remain “robust”.

German holiday airline, Germania, filed for bankruptcy last week grounding all its flights. Carriers including Wow and Flybe are seeking buyers.

Norwegian Air Shuttle is asking shareholders for €300 million and plans to cut operations at many bases, including Dublin, where it will reduce the number of aircraft to one or two next winter from six.

According to Avolon, Boeing took 988 orders for commercial aircraft last year while Airbus took 827. Among the manufacturers of smaller craft, the lessor says that Embraer booked 200 orders in 2018.

Airbus and Boeing have more orders for the single-aisle craft used for short-haul routes, than they can meet, while demand for the twin-aisle ’planes used for longer voyages is slower, Avolon says.