For different reasons, Boeing and Airbus make fewer aircraft than they would like, creating shortages in many airlines. But not all airlines!
We have seen that aircraft shortages have frustrated many airlines recently. Aside from production issues, airlines like Spirit also have to deal with lengthy engine checks, involving the Pratt & Whitney PW1100G engines.
To complicate matters even further, a number of airlines, including Spirit, have to deal with overcapacity issues in many routes, after adopting aggressive network expansion in 2021-22. This may sound like a way to alleviate those aircraft shortage issues. But in many cases, aircraft size and route frequency concerns get in the way of the two issues canceling each other out.
Aircraft Shortages A Headache For (most) Airlines
As for the manufacturers, Boeing’s woes mean that its 737 MAX production will take months to stabilize. And even when it does, it will need FAA approval to expand it beyond 38 aircraft per month.
Over at Airbus, part shortages are still keeping aircraft production from increasing fast enough to satisfy the airlines. Airbus is targeting a narrowbody aircraft production rate of 75 planes per month, by 2026. But at the moment, deliveries to the airlines are reportedly 1.5 months behind schedule.
All this suggests that aircraft shortages will continue to cause headaches for airlines and lessors in the coming months and years. But for other airlines, this circumstance is creating some unusual revenue opportunities.
As we’ve seen previously, aircraft shortages mean that airlines need to pay considerably more when leasing new or used aircraft. But it also means that if an airline sells an aircraft to a lessor and leases it back, it will get a bigger payout.
Some Really Good Timing
Such sale-and-leaseback deals have been a popular way for airlines to increase their liquidity. This was a common practice during the pandemic. Of course, doing it now exposes airlines to higher lease rates.
But during the pandemic, some airlines, like Frontier in the U.S. or Wizz Air in Europe, placed aircraft orders, at unusually low prices. These jets are starting to get delivered now – and since the bulk of a plane’s value is paid on delivery, the airlines are paying for them now, too.
So, the aircraft shortages mean that these airlines can sell and lease back these jets, getting MORE money from the lessors than they paid to buy them. This has allowed Frontier and Wizz Air to increase their liquidity AND record a profit.
Some analysts worry that these deals could create problems down the line for the airlines, by increasing their operating costs. The airlines reassure their investors that they are aware of this. In addition to Wizz Air and Frontier, America’s big three (Delta, American, and United) have done the same thing, on a smaller scale.
