Global commercial aviation to add more than 10,000 planes by 2027

04 May 2017 Consultancy.uk

The global air transport fleet is set to undergo considerable upgrades and growth as new deliveries outpace retirements, as recent profitability spurs companies to invest in new, more efficient, stock. The fleet is set to grow at 3.4% CAGR to 2027, adding around 10,000 new planes – largely narrow- and wide-body classes. China is set to see its fleet grow by almost 4,000 planes as consumers become more interested in domestic and regional travel.

A new report from Oliver Wyman, a global management consulting firm, explores key features of the commercial air transport network. The report, titled ‘Global Fleet & MRO Market Forecast Summary’, considers wider trends within the market, as well as the effect of the key trends on the aviation maintenance space.

Global air transport industry financial performance

The air transport industry has, after many years of lacklustre performance, enjoyed strong profitability. Profitability for the industry has been lifted by two key trends, low fuel prices, which have fallen to lows not seen since prior to 2006, as well as increased demand as passenger numbers soar.

The net profit increased to $35 billion in 2015, with projections for 2016 at $40 billion. The lion’s share of profits are expected to occur in the US, accounting for 60% of global profits over the past two years. The high profitability has given the industry a period of breathing room, with many using the additional funds to acquire newer generation aircraft, which are more robust, fuel efficient and have higher capacity, as well as develop new customer journeys.

Global aircraft demand

The addition of more modern aircraft is going hand-in-hand with the retirement or conversion of older stock. Overall however, the global stock is expecting to increase from 25,368 aircraft in 2017 to 35,501 aircraft by 2027. The growth rate will start off at 3.8% annually during the first five years, before falling to 3% annually for the remaining five years, with deliveries expected to fall while retirements continue to be high.

The industry is expecting to see around 9,500 planes retired from the global stock to 2027, while around 20,200 deliveries will be taken. The cargo delivery sector will see relatively few new deliveries, while retirements levels see the segment decrease the number of total planes by 140.

Global fleet forecast by aircraft class

The research also noted changes in the makeup of the global fleet in terms of aircraft class. The turboprop and regional jet classes are expecting to see numbers fall by 0.4% and 1.1% CAGR respectively as airliners increasingly focus on narrow- and wide-body jets, whose numbers are set to rise by 4.6% and 5.3% respectively. The number of regional jet and turboprops are expected to see even more significant falls between ’22 and ’27, at -3.5% and -2.8% CAGR respectively.

Overall the number of narrow body aircraft is set to grow by 14,300 aircraft to just over 23,100, at CAGR 4.9%, while wide-body class aircraft will grow by 4.0% on average to 7,400 by 2027.

Fleet growth by region

The research notes that the global picture for additions, and retirements, varies considerably between regions. In North America, for instance, while deliveries will be high, at around 4,500 in the years to 2027, the number of retirements (~4,000) means that overall growth is limited to 11%. Western Europe on the other hand is expecting around 3,800 new deliveries, while retirements stand at close to 2,000.

China however is a somewhat different profile. The rapid growth of its economy, and the large population, have created a burgeoning middle class, whose appetite for travel, within and outside the country, is expected to increase demand for air travel in the near future. The region is expecting around 4,400 new deliveries, while expecting less than 500 retirements in the coming decade. Only India score higher in terms of the discrepancy between new deliveries and retirements, at 90%; while only Africa is expecting to see the total number of aircraft in the region fall, by -24%. The influx of new planes is creating additional capacity requirements on support staff and pilots in the region.

Fleet share change by region

The effect of growth the fleet in China, the Asia-Pacific, India and Middle East will see a shift in the global market share of air transport. China sees its total share increase by almost 8%, while North America sees its position slide by just under 7%. Western Europe, Eastern Europe Africa and Latin America too are expected to see declines in market share, although not nearly as steeply.

The authors add, “Net fleet growth by world region will be uneven, resulting in changes in regional size rankings over the period. The major growth engine will be Asia, especially China and India, which will become the largest region, nearly doubling in in-service fleet and related MRO demand. By contrast, North America will experience little absolute growth, although there will be a significant upgrading of the fleet over the period. North America will slip to the third-largest region, behind Asia and Europe.”

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BDO administrates Flybmi amid aviation industry turbulence

21 February 2019 Consultancy.uk

Around 400 jobs in the UK, Germany, Sweden and Belgium have been lost following the collapse of commercial airliner Flybmi. The administration, which will be overseen by professionals from BDO, constitutes the third failure of a commercial carrier since the start of 2019, with the industry having suffered from sustained turbulence for the duration of last year.

The initial 4 a.m. announcement informing customers that Britain’s longest-surviving airline, Monarch, had been placed into administration meant that many passengers arrived at airports only to find their flights cancelled and holiday plans inconvenienced, while many were left with no means of returning to the UK. Beyond the immediate ramifications, however, the collapse of Monarch also drew to a close six years of steady improvement for commercial carriers across the world. 

Since the economic shock of 2011 – an echo of the 2008 financial crisis – the number of commercial airlines falling into administration across the world declined at a relatively consistent rate. According to data from ProtectMyHoliday.com – barring an anomaly of a year which saw only four airlines falter in 2014 – the number of collapses in the sector declined continuously. In 2017, the figure stood at just 10, compared to a huge 46 in 2011, and a  staggering 61 in 2008.

Global number of airlines to have failed since 2005

Following Monarch’s precipitous fall, however, the situation once more seems to have commenced a nose-dive in the following year. 15 airlines failed in 2018, and less than two months into 2019, another three have followed suit. That puts 2019 on pace to reach 24 airline collapses. 

The latest of these firms to spiral into administration is Flybmi, an East Midlands-based airline which until February operated 17 regional jet aircraft on routes to 25 European cities. The company operated more than 600 flights a week from regional airports including Bristol, Newcastle, Aberdeen and the East Midlands.

News of the firm’s demise emerged as it cancelled hundreds of flights at short notice over the space of a single weekend, leaving many passengers stranded and out of pocket. Flybmi advised customers to seek refunds from credit and debit card companies, or to rebook with other airlines, before eventually appointing administrators from professional services firm BDO.

The appointment, initially reported by UK paper The Telegraph, came following a weekend of chaos, with passengers and staff desperate for information, but without an administrator to turn to, as authorities had remained tight-lipped on the matter. The process was reportedly delayed until the following Monday by a Scottish law which prevents insolvency specialists being appointed over the weekend.

Turbulence ahead

Commenting on the task at hand, BDO Business Restructuring Partner and joint administrator Tony Nygate said, “As joint administrators, we are taking all necessary steps to ensure customers, staff and suppliers are supported through the administration process. Our job is to maximise recoveries and minimise distress for all parties, acting as smoothly and swiftly as possible.”

Administrators from the firm now face questions over what preparations were in place prior to the carrier’s collapse, including actions that could have softened the blow for thousands of stranded passengers. Meanwhile, some 376 employees in the UK, Germany, Sweden and Belgium have been made redundant, with the remainder staying to assist with the administration. Unions have since demanded urgent talks with Flybmi’s administrators, with Unite, which represents about 40 of the airline’s 376 staff, calling for a buyer to be found in order to ensure wages are paid in full.

Unite Regional Secretary Paresh Patel told the press, “Unite is shocked and saddened by the news that Flybmi has gone into administration…  This is a terrible blow for the airline’s workforce and their families, as well as the East Midlands economy. We will be giving maximum support to our members who work for the airline across the UK at this very difficult time for them.”

The Brexit process seems to have played a key role in the downfall of Flybmi. Airlines are required by law to purchase carbon credits to offset their carbon emissions – something which until recently was subsidised through a free allocation of credits by European authorities. Now, however, Brussels has excluded UK firms from their allocation of credits ahead of the UK’s divorce from the EU in March, and it is anticipated that this may  well lead to more casualties in both the airline industry, and the broader British economy.

Glen Flannery, a Partner at law firm CMS, told The Telegraph, “The European Commission has started to implement its No Deal Brexit contingency plans. With effect from January 1st, it has temporarily suspended the UK’s free allocation of carbon allowances, auctioning, and the exchange of international credits. This has created a huge amount of uncertainty for UK participants, the full effects of which have yet to play out.”