aviation consulting firm, iba, considers the catalysts shaping 2019

January 22, 2019

Dr Stuart Hatcher, Chief Operating Officer at IBA, highlights several factors that will affect the aviation industry in the year ahead. IBA,  the  independent  aviation  advisory,  valuation,  and  consulting  firm analyses its market intelligence and research data to identify a range of factors impacting market growth and asset values as senior executives from airlines, aviation finance, OEMs and leading lessors meet at the 2019 global aviation finance conferences in Dublin.

According to Dr Stuart Hatcher – Chief Operating Officer at IBA, despite the pain seen in India, Europe, South America and South East Asia which is hard to ignore, aircraft pricing remains high. “Yet payment defaults are on the rise and contingency plans are being prepared. Even though the market realises that it has been some time since the last down-turn, most are under the impression that in this cyclical industry a fall will precede a rise once again, so investors are continuing to angle for good deals.”

The problem, says Dr Hatcher, is that as long as funding remains in such abundance, the downturn could arrive and there will be so many buyers looking for a bargain that pricing may not shift very much for assets in high demand. 

“Lease yields are more susceptible to market forces” he adds. “If they collapse quickly after rising for the first time in three years, IBA would hope that realisation sets in quickly and not prolong the inevitable slow-down. Increasing  defaults  in  the  asset-backed  securities  market could  also  be  a  defining  trigger.”  But  will  investor confidence falter at all in 2019? The IBA team of analysts pick out several key areas for consideration that could contribute to a more conservative approach: 

Economics & Traffic:

Oil price certainly contributed to an increase in airline failures in 2018, and with tighter cooperation between producers, IBA expect less market elasticity. Brent pricing at US$50/b is unsustainable for any exporter to balance their budget despite low extraction cost – so IBA expects that pricing will settle at US$70-80/b.

While the USD remains strong, yields remain too low for sustainable profitability outside of US market. 2019 is expected to offer some stability on oil price fluctuations, but airlines must remain flexible to manage capacity and fares.

Slowing  GDP  will  lessen  world  trade  and  moderate  passenger  growth.  And  whilst  raising  interest  rates  will indicate an improving economy and should improve lease yield, says IBA, a strengthening dollar will hinder

airline profitability and bankruptcies will follow. Foreign exchange issues are expected to remain while the USD remains strong and airline failures and rising costs are expected to increase unless oil price falls by >10%.

As Dr Hatcher observes, “The airline failure outlook for operators in countries bordering the Indian Ocean, South East  Asia,  Argentina  and  Mexico  highlight  significant  challenges  ahead.  Those  European  carriers  unable  to compete against the large legacy groups or LCCs will continue to struggle and failure/consolidation is inevitable; the value of slots remains a strong catalyst.”

OEM Performance:

Production is set to get back on track for Airbus neo & Boeing MAX.  Airbus expects A320ceo/neo to reach 60 per month by mid-2019 which will push deliveries to 700 for 2019 and 720 for 2020. Boeing’s 737 production is looking to reach 57 per month by mid-2019 which will raise deliveries to >650 for 2019 and >680 for 2020.  

The market remains challenging for widebodies says Dr Hatcher “The drop in oil price increased demand for older types and A330s have proved to be useful and cheap enough to transition, despite a large parked fleet, because they remain flexible like the B767. However I expect freight conversions of 767s and A330s to accelerate this year. The 777-300ER remains a mainstay of the global fleet and demand for new 777-8/9 remains poor. The 787 and A350 remain top of the list and potentially will shift the heart of the market away from the 777. For IBA, the 777-300ER remains on watch. Just how these assets trade in 2019 will be kept under close scrutiny especially as the market is avoiding re-configuration at lease-end at all cost.”

A further market disruptor, says Dr Hatcher, is Boeing’s New Mid-Sized Airplane (NMA). “This could make an appearance in 2019 to either give a boost to the large narrowbody/small widebody  market; or seal its fate. Boeing may not want to create the market alone.” 

In the regional jet arena, IBA predicts that OEMs will focus on scope in the first instance to build an aircraft that is compliant rather than wait for a change to happen. Weight, seats and size must be addressed. 


Leasing continues to grow and the strongest signals for investing are emanating from North America and Japan. Although Korea’s expansion into aircraft leasing is imminent, the number of new Chinese entrants has reduced and many are preparing for a possible market correction in lease rates and values – both beneficial to start-up lessors. Dr Hatcher remarks that the potential GECAS sale remains high on the agenda for 2019 as does the potential IPO, partial sell-down or complete disposal of several top 50 lessors. “Prices are high so it would seem to be a good time.” 


According to IBA, although retirements may be on the up for first time in seven years, age continues to rise for narrowbody, widebody and regional jets, whilst for turboprops it is declining. Demand for parts to maintain this ageing fleet will grow, particularly engines which remain in very high demand. Operators will find more cost-effective solutions to maintain their fleets and refrain from taking on the operational risk and higher ownership costs of new technology.