Conventional thinking is that, absent a black swan event like COVID-19, aviation’s demand-supply imbalance will take years to correct itself.
Many also foresee the industry reaching a rough equilibrium, but aviation could jolt from excess demand to excess supply just by riding its normal cycle.
Consultancy McKinsey believes a sudden shift to oversupply could occur through the combination of reckless OEM production increases and a global economic recession, a scenario it describes as “plausible and important to contemplate.”
The MRO sector would suffer, McKinsey adds, noting that a big wave of older aircraft and engine retirements would probably result, removing the most maintenance-hungry part of the global fleet from circulation.
The consultancy also points out that the current aircraft supply shortage is probably smaller than some observers might believe. While roughly 5,000 fewer new aircraft have been produced in the last six years than might have otherwise been produced had output followed pre-pandemic trend lines, not all of those aircraft would have been required, given the pandemic’s impact on demand and lower-than-expected retirements.
“When looking at the aircraft shortage through the lens of this higher-than-expected rate of delayed retirements, our analysis finds that the global shortage could be closer to roughly 2,000 aircraft (with around 75% of the shortage relating to narrowbody aircraft),” McKinsey says.
Even so, the consultancy also believes that the industry has a good chance of a soft landing if several factors occur, including: OEMs ramping up production sensibly; supply chain performance improving in tandem; air travel demand growing steadily; and decelerated fleet renewal at the world’s leading airlines being offset by aircraft demand from fast-growing airlines in developing countries.
McKinsey concludes: “Aircraft OEMs, engine suppliers, MROs and airlines could all benefit from equilibrium and stability as OEM production grows in line with demand and the ecosystem is able to plan effectively. Lessors and some niche players—such as late-life-cycle MRO suppliers—could experience recalibration as current, highly favorable conditions settle back to long-term averages.”
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