Natixis Corporate & Investment Banking is pleased to sponsor the Growth Frontiers Global - Dublin conference, which begins today and runs until Wednesday. On this occasion, Valentin Mory, our Transportation & Mobility Analyst, answers our questions about the major trends emerging for the year 2025, with Jean Chedeville, Global Head of Aviation Finance, corroborating his views.
The aviation industry is entering 2025 with covid-related demand and cost pressure in the rear-view mirror. Persisting issues with new aircraft supply are causing frustration but bode well for airlines’ performance.
Valentin Mory
Transportation & Mobility Analyst
Are the macroeconomic prospects favorable for the aviation industry in 2025?
Overall, the outlook for 2025 should hold steady in terms of prices, although we observe a slight pressure particularly among regional operators’ latest quarterly results particularly in the US. Demand has returned to pre-pandemic levels and is expected to remain strong across nearly all regions. This is both a corollary of a long-term trend in air transport, which is expected to grow by an average of 3.8% per year by 2043, and of a global growth rate projected to remain at 2.9%* in 2025, supported by a gradual decline in the policy rates by major central banks.
Supply remains contained, and the risk of overcapacity for airlines is mitigated by a structural undercapacity in the delivery of new aircraft, which has been exacerbated by COVID and has persisted since then. Costs are expected to remain under control in 2025, aided by a landing of jet fuel prices from highs reached in 2023, that will offset wage inflation. Overall, the later bodes well for Airlines’ margins in 2025.
Our industry fundamentals are solid: passenger demand is strong, airlines financial performance is very satisfactory, and asset values will remain attractive for some time. This serenity translates into substantial interest for investments in various parts of the capital structure, it being private or public.
Jean Chedeville
Global Head of Aviation Finance
Could these positive margin trends fuel the sector’s decarbonation?
Airlines and aircraft lessors indeed have quantified and committed decarbonization targets, and this market upturn allows for the release of margins necessary for the required investments. However, the two main levers for decarbonizing air transport - sustainable fuel (two-thirds of the mitigation lever by 2050 according to IATA’s roadmap) and technological progress (10%) - remain hindered by supply capacity constraints.
The production of Sustainable Aviation Fuel (SAF) is insufficient to meet demand. The improvement of fleet energy performance is hampered by manufacturers' delivery schedules. For example, delivery times for some aircraft in Airbus's catalog are extending up to 10 years. Currently, only 25% of the global fleet consists of next-generation aircraft.
Sustainable Aviation Fuel will be the biggest contributor to the decarbonization of the industry, and Natixis CIB is involved in its development through various initiatives like IMPACT-on-sustainable-aviation and Skypower.
Jean Chedeville
What is causing this undercapacity in supply?
Manufacturers’ order books are full, but production capacities are not being utilized at full throttle due to supply chain issues. Some suppliers continue to face financial difficulties related to the pandemic, and the failure of a single part leads to delays in the manufacturing of the entire aircraft. This is compounded by the fact that, unlike the automotive industry, the aerospace sector is organized around single-source suppliers, making it impossible to turn to alternative suppliers for key components—such as engines.
Additionally, extensive checks must be considered in the production process. Nevertheless, companies can gradually replace their fleets, and optimize their flights and aircraft occupancy, hence the renewed popularity for the Airbus A380. These limited production capacities clearly have an impact on the secondary market for aircraft, which is performing well in terms of both the value and liquidity of used aircraft.
Thank you Valentin and Jean
*Natixis CIB Research forecasts
