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By Connor Diver, Senior Aviation Analyst at Ascend by Cirium
All to play for in IAG single-aisle competition
Several major airlines announced significant orders for new single-aisle jets in 2021. Deals include those which saw Qantas and KLM, both long-time Boeing single-aisle customers, order large numbers of new Airbus aircraft. Earlier in the year, United Airlines placed a sizable order for a combination of Boeing 737 Max and A321neo aircraft.
One major airline group which has yet to show its cards is IAG. In a December 2019 presentation to investors, IAG laid out a requirement for the delivery of 217 single-aisle aircraft between 2023 and 2029 as replacements for A320ceo family aircraft. Of those, 62 were identified as early retirements to enable lower unit costs and support sustainability goals.
According to Cirium fleet data, IAG currently operates 295 A320ceo aircraft with only 56 A320neo deliveries remaining.
In 2019, IAG shocked the industry by announcing a Letter of Intent (LOI) for 200 737 Max aircraft to be delivered from 2023 onwards. This, the airline said, would help reduce its reliance on one supplier and spur competition between the OEMs. IAG has encountered problems with both Airbus and Boeing in recent history. Delivery delays affecting the A321neoLR forced Aer Lingus to postpone the launch of new transatlantic routes in 2019. Similarly, recent quality issues affecting the 787 delayed deliveries to British Airways.
Notwithstanding the significant headwinds caused by the pandemic, it is clear that IAG still has a need for new single-aisle aircraft in the short to medium-term. The average age of its A320ceo fleet is 14.2 years but one fifth are at least 20 years old.
The official status of the 737 Max LOI is unclear, although it is possible that the aircraft may still have a role in the future of the IAG Fleet. In November 2021, CFO Steve Gunning called it “a very good aircraft” and outlined the need for additional short haul aircraft come 2024 or 2025. A firm order for the Max would be a recent rare example of Boeing flipping an Airbus customer. One factor that might favour Boeing is the availability of production slots in the near-term, something known to have influenced the recent Allegiant order for up to 100 of the type.
Another thing to consider is the financing of any new deliveries, particularly as airlines look to deleverage during the recovery.
Thankfully, there is still an appetite among banks to finance new generation aircraft types as a way of both reducing residual value risk and making good on their sustainability pledges. Indeed, environmental concerns for IAG, financiers, and lessors alike may mean that we see more use of green-financing or even ESG-linked operating leases in any future order.
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