Airline growth stalling – Seabury

AIRLINE growth was faltering outside of North America and should be a concern to planemakers, lessors and advisers with a stake in the aerospace industry, John Luth, the founder and chief executive of Seabury Group, said yesterday.

The aviation industry had amassed $86 billion (R1 trillion) in profit over the past five years, but warning signs were flashing, Luth said, adding that globalisation was slowing and economic recovery faltering in regions except China, India and the US.

“The confluence of these events, plus likely higher interest rates, all beg for caution,” said Luth, whose New Yorkbased firm advises aviation, aerospace and defence firms.

He has advised on aircraft orders worth more than $200bn, $80bn of financings and $90bn of debt restructurings, according to Seabury.

Airbus Group and Boeing are reaping the rewards of an unprecedented aircraft order spree, spurred by low interest rates and upgrades to newer models as airlines seek to pare fuel and maintenance costs.

Planemakers have amassed a record $1.14 trillion order backlog, up 78 percent from 2008, according to data by Bloomberg Intelligence.

Still, risks for aerospace companies are growing. Cheap oil could slow aircraft retirements, orders are tilted towards China and other emerging markets with volatile economies, and production rate increases could leave Boeing and Airbus with a glut of jetliners, according to Noah Poponak, a Goldman Sachs Group analyst in New York.

He recently downgraded his view of the aerospace industry to “neutral”, after six years at “attractive”.

The current boom in aerospace had lasted 13 years, longer than the typical growth spurt of seven years, Luth said. noting that prudent management and capacity discipline by airlines could help ensure that an eventual downturn was gradual rather than sudden. – Bloomberg