# Analysis-Climate and COVID cast shadow over jet demand outlook
Author:  Pal Sinha, Barnali 
Author URL: https://financedigest.com/author/pal-sinha-barnali
Published: 2021-09-24
Category: BUSINESS
Category URL: https://financedigest.com/category/business
Meta Title: Jetmakers Predict Strong Demand Amid Environmental Measures
Meta Description: Discover the latest insights on the $150 billion jet industry's response to environmental challenges and projections for post-COVID demand growth.
URL: https://financedigest.com/analysis-climate-and-covid-cast-shadow-over-jet-demand-outlookhtml

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By Sarah Young, Conor Humphries and Tim Hepher

LONDON/TOULOUSE (Reuters) – Jetmakers see strong demand for airliners even as the industry braces for tough new environmental measures, but some financiers have raised doubts over forecasts that the $150 billion industry will return to pre-COVID growth in just a few years.

Lessors and underwriters of securities that finance aircraft purchases met in London this week to survey COVID damage and contemplate the impact of moves to combat climate change through regulation and new technology.

Some speculated that the industry’s deepest fear could come true: These trends might shorten the operational lifespan – and hurt the [valuations – of even the most modern aircraft](https://www.financedigest.com/u-s-automotive-and-aircraft-interior-genuine-leather-aftermarket-is-expected-to-push-sales-at-3-6-cagr-with-the-market-valuation-reaching-us-11-1-bn-in-2031.html "U.S. Automotive and Aircraft Interior Genuine Leather Aftermarket is expected to push sales at 3.6% CAGR, with the market valuation reaching US$ 11.1 Bn in 2031").

If confirmed, that could upend assumptions that have made the dollar-based jet industry an investor [hot spot](https://www.financedigest.com/don-your-wellies-for-tour-of-new-development-in-hot-spot-bedford.html "Don Your Wellies For Tour Of New Development In Hot Spot Bedford") for a decade.

[BOEING FORECAST](https://www.financedigest.com/boes-saunders-worries-inflation-will-be-higher-than-forecasts.html "BoE’s Saunders worries inflation will be higher than forecasts")

After trimming forecasts at the height of the pandemic, [Boeing last week](https://www.financedigest.com/sterling-hits-2-1-2-week-high-eyes-on-boe.html "Sterling hits 2 1/2 week high, eyes on BoE") increased its 20-year demand forecast, citing the swift U.S. [economic recovery](https://www.financedigest.com/sme-productivity-programme-re-purposed-to-help-businesses-prepare-for-covid-19-economic-recovery.html "SME productivity programme re-purposed to help businesses prepare for Covid-19 economic recovery"). Once a pandemic [travel slump disappears by around](https://www.financedigest.com/5-time-efficient-ways-to-travel-around-the-philippines.html "5 Time-Efficient Ways to Travel Around the Philippines") 2024, it said annual demand growth would resume a long-term trend of 4%-5%.

At a London conference of the leasing industry, which buys around 60% of global jet output, Boeing downplayed fears of a structural [contraction of business](https://www.financedigest.com/euro-zone-business-activity-contracted-again-in-aug-outlook-bleak-2.html "Euro zone business activity contracted again in Aug, outlook bleak") and leisure travel.

With [business travel](https://www.financedigest.com/foreign-business-travel-missing-ingredient-for-irish-hotel-recovery-dalata.html "Foreign business travel missing ingredient for Irish hotel recovery – Dalata"), I think it’s hard for me to believe that it won’t be back to where it was,” said Darren Hulst, Boeing vice president for commercial marketing.

Airbus, laying out its vision for more sustainable flying at a two-day company conference in Toulouse, was more [cautious ahead of its own outlook](https://www.financedigest.com/recruiter-hays-boosted-by-record-net-fees-but-cautious-on-outlook.html "Recruiter Hays boosted by record net fees, but cautious on outlook") update expected in November.

We are still scratching our [heads trying to best factor in all the things that have changed recently in the world and in our sector,” said Chief](https://www.financedigest.com/climate-impacts-heading-to-uncharted-territories-of-destruction-un-chief.html "Climate impacts heading to ‘uncharted territories of destruction’ -UN chief") Executive Guillaume Faury.

Climate concerns will have “an impact, a significant impact, but the [demand remains](https://www.financedigest.com/fingerprint-scanners-to-remain-top-selling-accounting-for-over-one-third-of-access-control-demand-in-2021-future-market-insights.html "Fingerprint Scanners to Remain Top-selling, Accounting for Over One-third of Access Control Demand in 2021: Future Market Insights") very strong and we have seen this all around the world,” he added.

DEMAND SCEPTICISM

But at the Airline Economics and Airfinance Journal conferences, which both attracted just a small fraction of the 2,000 or so delegates who usually attend, many participants believed the [industry would see](https://www.financedigest.com/airline-body-iata-sees-industry-recovery-now-in-2023.html "Airline body IATA sees industry recovery now in 2023") slower growth than Boeing and some suppliers have forecast, at least in more mature markets.

One [senior aerospace executive said that COVID-19 had cost the industry](https://www.financedigest.com/senior-managers-regime-what-does-it-mean-for-the-industry.html "SENIOR MANAGERS REGIME – WHAT DOES IT MEAN FOR THE INDUSTRY?") five years of growth in the short term. And post-COVID, long-term growth could be slower than [historical trends](https://www.financedigest.com/acetylated-distarch-phosphate-market-comprehensive-shares-historical-trends-and-forecast-by-2027.html "Acetylated Distarch Phosphate Market Comprehensive Shares, Historical Trends and Forecast By 2027") notably because of pressure from environmental measures.

Some analysts agree. It will take a long while for people to get back to the comfort that they had in 2019 about international travel,” said Peter Morris, chief economist at Ascend by Cirium, which provides [data analytics](https://www.financedigest.com/the-importance-of-data-analytics-for-success.html "The Importance of Data Analytics For Success ") to the industry.

“I think we’d be more cautious” than Boeing, he said.

REGULATION AND ASSET VALUES

In the background, delegates fretted whether environmental regulation and faster [technological change](https://www.financedigest.com/how-advanced-self-service-technologies-are-changing-the-face-of-finance.html "How Advanced Self-Service Technologies are Changing the Face of Finance") shorten the lifespan – and undermine the valuation – of the most popular jets.

The [COVID crisis has already hit](https://www.financedigest.com/oil-hits-3-week-high-as-china-eases-covid-curbs.html "Oil hits 3-week high as China eases COVID curbs") the values of Airbus and Boeing’s most popular mid-life planes, the A320ceo and the 737NG, as airlines seek newer jets to save fuel in an increasingly competitive and tightly regulated market.

That generation of jets “might [need a price](https://www.financedigest.com/swedish-energy-minister-need-to-decouple-gas-from-electricity-price.html "Swedish energy minister: need to decouple gas from electricity price") reckoning,” said Simon Clements, executive vice president at Novus Aviation Capital, referring to resale valuations that drive the sector.

An even bigger question is whether the current generation of short-haul jets – the 737MAX and the A320neo – may face shorter service [lives as urgent efforts to address climate change hasten the arrival of technology](https://www.financedigest.com/how-technology-has-changed-our-lives.html "How Technology has Changed Our Lives") that is more sustainable.

Any shortening of the roughly 25-year life cycle used by valuers to depreciate assets could affect [future sales](https://www.financedigest.com/flooded-battery-to-remain-top-choice-across-industries-accounting-for-49-0-of-lead-acid-battery-sales-in-2021-future-market-insights.html "Flooded Battery to Remain Top Choice across Industries, Accounting for 49.0% of Lead Acid Battery Sales in 2021: Future Market Insights").

We are getting a [lot of questions about will that mean](https://www.financedigest.com/why-fundraising-no-longer-means-kissing-a-lot-of-frogs.html "Why fundraising no longer means kissing a lot of frogs") you’re going to not be able to use the MAX, and the neo for 25 years?” said Phil Seymour, president of consultancy IBA.

Already the [average age of jet retirement for the industry](https://www.financedigest.com/average-annual-uk-grocery-bill-highest-since-at-least-2008-industry-data.html "Average annual UK grocery bill highest since at least 2008 -industry data") as a whole has dipped from around 30 years in 2008 to just over 25 years last year, according to Ascend by Cirium’s Rob Morris.

Leasing models now assume an [aircraft retains 10% of its original value](https://www.financedigest.com/aircraft-refurbishing-market-value-to-surpass-us-7-4-bn-as-demand-for-retrofitting-increases-by-5-7-cagr-fmi.html "Aircraft Refurbishing Market Value to Surpass US$ 7.4 Bn as Demand for Retrofitting Increases by 5.7% CAGR: FMI ") after 25 years, but that could be shortened to 20 years if valuations shrink, Seymour said.

British low-cost airline easyJet this month said it was reducing the assumption for the [time jets stay in its fleet to 18 years](https://www.financedigest.com/german-tax-revenues-fall-in-august-for-first-time-this-year.html "German tax revenues fall in August for first time this year") from 23. But its [chief executive](https://www.financedigest.com/exotix-draws-sberbanks-us-chief-executive-in-triple-hire-to-extend-global-capabilities.html "Exotix Draws Sberbank’s US Chief Executive in Triple Hire to Extend Global Capabilities") told Reuters this was an accounting matter rather than a verdict on jet lifespans.

[Bond investors, hungry for yield, appear to be willing to accept the risks, said Marjan Riggi, managing director, Kroll bond ratings](https://www.financedigest.com/stocks-bonds-extend-rally-on-hopes-rate-hikes-ease.html "Stocks, bonds extend rally on hopes rate hikes ease"). Every [time an aviation deal](https://www.financedigest.com/uk-and-eu-reach-post-brexit-customs-deal-for-n-ireland-the-times.html "UK and EU reach post-Brexit customs deal for N.Ireland-The Times") goes out there, it is snapped up just like that,” she said.

(Writing by Conor Humphries; Editing by Cynthia Osterman)


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