In the latest City Insider article for ABN Bruce Andrews, partner at Alderman & Company, looks at what the implications are for the lack of aircraft capacity through the lens of one of the world’s biggest carriers.

Air travellers can expect fewer flights and higher ticket prices in the coming months.

The quality crisis at Boeing came to light earlier this year after several safety related recent incidents including a missing external panel upon landing, a lost wheel upon take off, a runway slide, and a hydraulic fluid leak upon take off.

The underlying issues have yet to be resolved and likely will not be resolved for some time.

FAA oversight as well as internal investigations into these quality issues have caused a dramatic slowdown in Boeing aircraft deliveries and will likely cause further delays to the certification of the Max 10, which many airlines have on order.

United Airlines is one of the major victims of this crisis.  United Chief Financial Officer Michael D Leskinen said in United’s Q1 earnings call that the company has revised its projections of narrow-body aircraft deliveries in 2024 from an expected 101 earlier this year to 61 – a 40% reduction.

This number is even more striking compared to the 183 the company is under contract for delivery in 2024.

Leskinen further declared that United has swapped its Max 10 deliveries through 2027 for Max 9s, showing the company’s scepticism surrounding the Max 10 certification and production schedule.

United has additionally signed letters of intent to lease 35 Airbus A321neos, to be delivered in 2026 and 2027.  This decision will likely impact ticket prices since, due to the current lack of aircraft supply, these last-minute leases are costly.

Though delivery delays will likely slow United’s growth, the company has not provided much detail on whether or to what degree it will have to cut flights in the coming months.

Leskinen says United is planning to “sweat [its] assets until end of life.”  It’s more expensive to fly older aircraft, because of higher fuel burn and higher maintenance costs, compared to new aircraft. These added costs too are likely to find their way to traveller’s wallets.

Nearly all airlines are affected by the Boeing quality issues leading to diminished narrowbody deliveries as well as Airbus narrowbody delivery slots being sold out through 2030.

We expect this will lead to capacity limitations for several years. Aggravating the reduced delivery issue, Airbus is also having to deal with the need to ground, inspect, and potentially repair up to 3000 Pratt & Whitney Geared Turbofan engines on the A320-neo family aircraft.

Each of these repairs could take up to 300 days (about 10 months) translating into further negative impact on global airline capacity.

Some analysts estimated that the 2024 capacity impact could be as much as a 19% reduction in the expected airline aircraft availability. This level of disruption has far-reaching implications to both the flying public and business operations if these capacity constraints continue.

Potential Implications:

• Since the airlines won’t be taking on fewer deliveries their capital expenditure could be reduced and therefore it is possible that their cash position could improve. Because of public demand it is likely that the airlines will raise ticket prices, further improving their cash and profitability;
• Because the airlines will have fewer efficient aircraft than anticipated they may need more fuel and fuel prices could likely rise;
• The airlines may also have too many pilots because they planned for more aircraft. This could result in pilot furloughs or reductions. United has already started asking pilots to take voluntary unpaid leave;
• The number of travellers predicted to travel in 2024 is 4.7 billion people compared to 4.5 billion in 2019. Thus, demand would be extraordinary at a time when capacity is reduced – leading to crowded aircraft and the increased potential for cancellations or delays due to weather or mechanical problems, because there will be very little slack in the system. Maintenance, repair, and overhaul (MRO) businesses will see record demand, as airlines seek to maximize the number of aircraft in service;
• Aircraft lease rates will continue to rise. According to most sources, narrow body leases have already risen 20% year to date.

By way of summary, airlines worldwide are being dramatically impacted by reduced capacity expectations. The implications are widespread and are expected to impact the flying public and the commercial aviation business for many years.

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Bruce Andrews has over 25 years of experience in M&A in the defence industry.  Before joining Alderman & Company as a Partner, Bruce had worked in key positions at several leading organisations.

• President and CEO of AGC, Incorporated, a 60-year-old engine components manufacturer of assemblies for military aircraft. Bruce was hired in 2008 by the Trust that owned the company to lead a turnaround and exit of the business, which Bruce accomplished through a sale to Loar Group in 2013.

• CEO of GenMech Manufacturing. GenMech was a privately owned New York-based manufacturer of military aircraft components. Bruce led the growth and eventual sale of GenMech Manufacturing to SPX.

• CEO of Monitor Aerospace, a privately owned New York-based manufacturer of military engine and aircraft components.

• Group Vice President of United Nuclear Corporation, now part of the General Electric Company. 

Bruce’s current charitable work includes serving as Chairman of the Board of Directors of the McAuliffe-Shepard Discovery Center, an Air and Space museum located in Concord, New Hampshire and Deacon of the South Church of Kennebunkport, Maine.  Bruce holds an MBA from the University of New Haven and a BS in Chemical Engineering from the University of New Hampshire.