The market for large commercial jets is in a bubble and will not be able to support large production increases underway at and , an industry forecaster warns.
“If you want to buy a new aircraft, you have to wait years for it–to me that’s a sign of a bubble,” Adam Pilarski, senior VP at aviation consulting firm Avitas, told the International Society of Air Transport Trading conference in Phoenix.
In a bold prediction, Pilarski forecasts that high oil prices, a key driver of airline demand for new, more fuel efficient jets, will crash to $40 a barrel or less by 2018. Proven reserves now stand at 50 years’ worth of consumption, up from 30 years at the start of the 1980s.
And Pilarski waves off talk that China’s growing thirst for oil will drive fuel prices even higher. While China’s oil consumption increased 54% between 2005 and 2011, total global demand rose just 0.5%. “Whatever China increased in demand, the U.S. and Europe cut in consumption,” Pilarski said.
Airbus plans to raise output of itsnarrowbody jet to 42 per month this year, and Boeing’s 737 is on pace to hit that level in 2014. But Pilarski believes the market will not be able to absorb that many aircraft in the long run. He says demand for new jets has been inflated by high oil prices, up 200% since 2000, low interest rates and loan guarantees from export banks in the U.S. and Europe. “We are in a bubble environment with too many orders.”
Pilarski also believes that the two dominant airframers are seeking to increase sales to slow down new entrants into their market space, such as’s , the and the MS-21. “If they sell a lot, there’s less room for the CSeries and the Chinese and Russian manufacturers to come in,” he said. “It’s a good strategy that has seemed to work.”
Pilarski’s gloomy outlook for aircraft demand stood in stark contrast to a presentation from a senior Boeing official, who said his company’s biggest challenge is burning down its massive backlog, so delivery times to airlines can be shortened.
Mike Bair, senior VP-marketing at, said the airframer is still taking orders for far more jets than it can produce each year. “Undoubtedly, we’re going to end up way over book-to-bill this year,” he told the conference.
That is making it difficult for Boeing to reach its goal of reducing wait times for newly ordered aircraft to three to four years, down from seven to nine years currently, depending on the model. Bair acknowledged that demand for aircraft will hit another downturn at some point, just as it did in 2009. But he maintains the company will be protected by its hefty backlog.
“We will be able to motor through it like the last one,” he said. “We think we have enough levers to pull to keep ourselves going the way we’re going.”