ISTAT Online

Bridging East and West

ISTAT EMEA was held in Istanbul, Turkey, 22-24 September 2024. Located at the Hilton Istanbul Bomonti, the event delivered a dynamic blend of educational sessions, networking opportunities and cultural experiences, offering delegates a comprehensive view of the aviation industry while providing avenues for personal and professional growth. From insightful panels exploring the latest industry trends to guided tours of Istanbul’s cultural landmarks, the event created a vibrant atmosphere for learning and connection.

Opening Keynote

In the Opening Keynote, Murat Şeker, chief financial officer of Turkish Airlines, provided an outlook on both global and Turkish aviation. He acknowledged that global growth is projected to be lower than historical averages, with interest rates set to fall and price pressures easing in advanced economies. The service sector continues to drive growth, and the aviation industry has historically rebounded after crises.

Şeker emphasized that collective effort is required to tackle industry challenges such as geopolitical issues, economic uncertainties, supply chain constraints, regulatory hurdles and infrastructure limitations. He identified key needs, including fleet modernization, leveraging technology for operational efficiency and collaboration across stakeholders.

Turkey’s economic revival was a key point, supported by strong fundamentals, fiscal discipline, tourism and export growth. Turkish Airlines has grown significantly, with a fleet of 465 aircraft flying to 130 countries. Şeker outlined the airline’s ambitious plans to grow its fleet to over 800 aircraft and connect more than 170 million passengers by 2033, with sustainability as a core pillar.

Capital Markets & Debt Panel

The Capital Markets & Debt Panel, moderated by Joe O’Mara, head of aviation finance at KPMG, featured insights from top industry experts on the state of aviation finance and capital markets.

Okan Baş, senior vice president of finance at Turkish Airlines, expressed concerns about potential economic downturns but emphasized that a stable environment is expected as central banks provide guidance.

Victoria Goodenough, head of aviation for EMEA at SMBC Bank International, discussed the resurgence of the European market, noting key issuances by major airlines like easyJet and Lufthansa. She highlighted the growing appetite for JOLCO structures and revolving credit facilities, as well as the introduction of covered solutions in aviation finance, which were not available two decades ago.

Vinodh Srinivasan, managing director and co-head of structured credit group at Mizuho, spoke about the strong investor confidence in the leasing market, pointing out that lessors performed well during the COVID-19 crisis. He noted that the asset-backed securities (ABS) market still has investor interest, though there’s been a disconnect between lease rates and leverage since 2022. Wakim Wakim, head of treasury and corporate finance at AviLease, focused on the company’s goal of achieving an investment-grade rating by 2025. He mentioned that interest rate reductions are welcomed and that they are actively raising capital with strong commitments.

Greg Willis, chief financial officer of Air Lease Corporation, discussed the tight spreads in the U.S. and European markets, highlighting the positive reception in the Islamic market. He views the ABS market as a useful distribution tool but noted the need for new equity participants to fully revive it. Willis also stressed the advantages of having an investment-grade rating, which Air Lease achieved after three years.

Fireside Chat

In the Fireside Chat, moderated by independent adviser Bertrand Grabowski, Sinead Cormican, head of leasing customers at Airbus, provided insights into Airbus’ current challenges and future outlook. Discussing delivery targets, Cormican acknowledged that Airbus had to adjust its timeline for reaching production of 75 units of the A320 series to 2027 due to supply chain issues, which are currently more severe than in the pre-COVID-19 period. She emphasized that supply chain management is a continuous process, with adjustments made regularly based on a detailed assessment.

Regarding the Indian market, Cormican noted its immense potential with a growing middle class and major orders from airlines like Air India and Indigo in 2023, affirming Airbus’ belief in India’s growth trajectory.

On the development of new aircraft, Cormican said that while Airbus engineers are always exploring new ideas, the immediate focus remains on meeting delivery targets. She highlighted that significant double-digit improvements in technology are needed before launching new programs.

Engine Marketplace and Technology Developments

The Engine Marketplace and Technology Developments Panel, moderated by David Attenburrow, adviser and project manager for aircraft and engine financing, trading, contracting and economics, explored the evolving landscape of engine design, maintenance and future technologies.

Romain Chambard, vice president of marketing at Rolls-Royce, highlighted that designing an engine requires balancing various attributes and making choices. He noted that the current performance, especially in terms of time on wing, is not final, as the product will evolve over time. Chambard emphasized that service is integral to Rolls-Royce’s offerings, with the goal of keeping aircraft flying as much as possible. He stressed that their service approach, particularly through power-by-the-hour agreements, ensures support throughout the engine’s life cycle.

Dr. Aybike Molbay, general manager for GE Aerospace Turkiye Technology, discussed the long-cycle nature of engine development, emphasizing the importance of learning from fleet experience and incorporating new technologies. She pointed out that the G9X engine, with millions of hours of operation, underwent 13,000 test hours before entering service, including dust testing. Molbay highlighted the need for highly skilled engineers to manage the complex life cycle of engine products. GE Aerospace plans to hire 900 engineers globally this year to meet this demand, focusing on customized learning plans to accommodate diverse backgrounds.

Christophe Poulain, vice president of commercial strategy, sales and marketing at CFM, noted that while significant progress has been made in engine technology, much remains to be done, particularly regarding sustainable aviation fuel (SAF). Most engines can currently run on a blend of SAF and traditional jet fuel, but the lack of SAF availability at scale is a major hurdle. He also spoke about the challenge of achieving carbon neutrality by 2050 and mentioned CFM’s RISE program, launched to address these technological challenges and advance the industry’s sustainability goals.

Adam’s View of the Industry

Adam Pilarski, Ph.D., senior vice president of consulting at AVITAS Inc., provided a thought-provoking analysis of global economic trends, aviation growth and potential future bubbles in aircraft orders in his presentation.

Pilarski discussed the factors contributing to higher inflation, such as deglobalization, decarbonization and an excess of money supply. He pointed out that inflation has decreased since COVID-19, staying around 3%, and questioned why the Federal Reserve remains fixated on a 2% inflation target. He also noted the risk of recession due to rising interest rates and ongoing global uncertainties, particularly in elections across several major countries.

Regarding China, Pilarski discussed its dramatic growth from 1982 to the present, with China now holding 19% of global passengers. However, he predicted that China’s growth is slowing due to demographic challenges, deglobalization and political shifts. He also compared China’s growth trajectory with India’s, noting differences in their development paths since the 1970s.

Finally, Pilarski warned of potential future bubbles in the aviation industry. He described two previous bubbles, one caused by the entrance of leasing companies and the other burst by COVID-19. He speculated about a third bubble on the horizon, driven by significant aircraft orders from regions like the Gulf, Turkey, India and Saudi Arabia, which are all banking on substantial growth. Pilarski cautioned that not all of these orders will materialize, and some regions will succeed while others may not.

Cargo Panel

The Cargo Panel, moderated by Camille Pousseur, marketing director at Stratos, explored the evolving cargo industry, its current challenges and the future outlook.
Lars Jordahn, global head at Maersk Air Cargo, highlighted that the global supply chain is undergoing significant changes, leading to a volatile market with challenges like supply shortages. He emphasized the need for a level playing field in terms of cost to accelerate net-zero emissions efforts.

Malcolm Macbeth, senior vice president of global air fleet management at DHL Express, remarked that while market dynamics feel similar to 20 years ago, integrators have captured a larger share, and B2C traffic has significantly increased. He shared that DHL is pressuring itself to meet net-zero targets, with 3% of its total jet fuel being SAF, far exceeding the global average of 0.17%. He also discussed the high cost of SAF and DHL’s approach to aircraft ownership, likening it to owning a house — buy if you have the cash, lease if you need liquidity elsewhere.

Ali Sedat Ozkazanc, CEO of MNG Airlines, noted that e-commerce and the pandemic have reshaped the market. One of the biggest challenges today is finding the right-sized aircraft, as many older planes are aging out. He shared his experience with medium widebody conversions, which MNG has done successfully.

Fergus Wilson, group fleet and leasing director at ASL Aviation Holdings, commented that the market has shifted to a more volume-driven approach rather than weight-based. ASL is exploring sustainable options such as hydrogen electric and drones.

On the future of the cargo industry, the panelists were optimistic, with Jordahn stating, “It always looks bright.”

Appraisers Panel

The Appraisers Panel, moderated by Alice Gondry, director of aviation research in the Global Aviation Finance Office at MUFG, provided insights into the future of narrowbody aircraft, asset values and the challenges facing the aviation industry.

David Archer, director of valuations for mba, explained that supply chain disruptions, often referred to as the “new COVID catchall term,” are deeply rooted and take time to resolve. He suggested that recovery from these issues would likely stretch into 2026 or 2027, rather than the more optimistic projections for 2025.

Paul O’Driscoll, strategy and business development at Ishka, highlighted difficulties in the current funding environment, where competitive lease rates have posed challenges. He pointed out that owners of serviceable assets, particularly engines, have fared well. Regarding U.S. low-cost carriers (LCCs), he acknowledged challenges such as pilot shortages but rejected the notion that the low-cost model is dead, stating, “I’m not saying everyone will survive, but low-cost is not a dead model.”

Alexandros Vathylakis, valuations analyst at Cirium Ascend Consultancy, noted that the COVID-19 downturn was not an economic crisis, which allowed aviation traffic to bounce back faster than in previous cycles. He cautioned that the values of new-generation aircraft could be influenced by their reliability and time-on-wing performance.

Mike Yeomans, director of valuations at IBA Group Ltd., discussed the extended longevity of older aircraft generations due to recent market trends. He noted that North American LCCs have struggled with capacity and liquidity issues, leading to delivery deferrals from carriers like JetBlue and Frontier. Additionally, Yeomans remarked on the strong demand for large factory freighters, as Boeing continues to push orders for the 777F amid delays with the 777X.

The panel also briefly discussed which manufacturer might be the first to launch a new narrowbody, with Archer suggesting it would be Boeing, but not until 2040. O’Driscoll and Vathylakis speculated that it could also be Embraer. Overall, the panelists shared a cautiously optimistic view of the future, recognizing the industry’s resilience despite current challenges.

Next-Generation Aviation

The panel on next-generation aviation, moderated by Michael Halaby, FRAeS, managing director and head of aviation advisory at MUFG Bank, featured insights from leaders in advanced aviation technologies, exploring the future of electric vertical takeoff and landing (eVTOL), hydrogen-powered aircraft, blended-wing bodies and hybrid propulsion systems.

Michael Cervenka, chief commercial and technology officer at Vertical Aerospace, discussed eVTOLs, highlighting their primary use cases in connecting airports to surrounding areas, tourism and locations with challenging ground transportation. While quieter, cheaper and more environmentally friendly than helicopters, eVTOLs have limitations, including shorter range, lower payloads and limited hovering capability. He also noted that the commercialization of such technologies is near but will start at higher price points, estimating around $3 per passenger mile.

Sergey Kiselev, chief business officer at ZeroAvia, focused on hydrogen-powered aircraft, with its first model — a 19-seat aircraft — expected to enter service in 2026. He emphasized that operational savings, especially in engine maintenance and fuel costs, could reduce overall costs by 30%, allowing airframe replacements and other advancements in aviation.

Thomas O’Leary, co-founder and CEO of JetZero, discussed the potential of blended-wing body aircraft, which use an all-carbon composite fuselage. He emphasized that the technology, long supported by NASA, is now ready for commercialization and could be key to achieving aviation’s climate goals. While it may not make flying cheaper for passengers, O’Leary highlighted that the blended-wing body could serve core markets and address both aviation growth and decarbonization goals.

Madhu Vijay, chief financial officer of Ampaire, explained his company’s focus on hybrid-electric propulsion systems as an alternative to traditional powertrains. He outlined three key principles for success: leveraging existing infrastructure, ensuring safety across various aircraft and maintaining economic viability. Ampaire is already progressing through FAA certification, positioning itself as the leader in hybrid systems.

Airline Panel

The Airline Panel, moderated by Lynn Guiney, head of airline marketing at Macquarie AirFinance, brought together fleet management experts from major airlines to discuss fleet strategy, engine performance and the challenges of meeting sustainability goals.

Murat Baş, senior vice president of fleet management and strategy at Turkish Airlines, discussed balancing their fleet between Boeing and Airbus. He emphasized that the ongoing negotiations with Boeing focus not only on aircraft pricing but also on securing competitive maintenance and engine support, particularly for their fleet of LEAP engines. On supply chain issues, he acknowledged industrywide engine challenges but remained optimistic about long-term solutions. He emphasized that trust in OEMs is critical despite delivery delays.

Simone De Wit-Huijs, vice president of fleet planning at Etihad, highlighted the airline’s ambitious goal to double its fleet by 2030, adding 23 aircraft next year and 21 the following year. While the A350-1000 engine has had performance issues, especially in the Middle East, she expressed confidence in working closely with Rolls-Royce to address them. De Wit-Huijs also spoke about Etihad’s commitment to sustainability, with over 30 ESG initiatives in place.

Maciej Dziudzik, director of fleet at LOT Polish Airlines, emphasized the importance of regional jets in feeding long-haul operations, noting that while they’re evaluating new-generation jets, engine choices remain a challenge. He praised Embraer for stepping in flexibly when Boeing had issues.

Harris Manolopoulos, director of fleet at SmartLynx, discussed the decline in lease rates for the A320ceo and noted the challenge lies more with MRO and engine shop capacity than aircraft availability. He stressed that airlines are not prepared to accept further lease rate increases and mentioned that while new-generation engines are improving, they aren’t as reliable as the older ceo engines yet.

Tamer Yuzuak, executive vice president of finance and fleet management at Pegasus Airlines, a launch customer for LEAP engines, mentioned the tough decisions involved in fleet and engine selection. While they have stuck with LEAP engines, they are open to considering GTF engines for future orders if financially viable. Yuzuak highlighted Pegasus’ sustainability efforts, with 85% of their fleet being new-generation aircraft and their commitment to IATA’s 25 by 2025 target.

Aftermarket Trading Panel

The Aftermarket Trading Panel, moderated by Simon Goodson, CEO of Aerfin, explored trends in LLP (Life-Limited Parts) pricing, airframe values and the role of private equity in the aftermarket aviation industry.

David Chaimovitz, CEO of Setna iO, emphasized the importance of managing the supply chain at a granular level, using AI and precise inventory management to assess the market on a part-by-part basis. He expressed concern about supply chain recovery, predicting it will take at least a decade for OEMs to catch up, which will extend the life of existing aircraft. On private equity, he criticized its short-term focus, suggesting it may cause issues during market downturns.

Sharon Green, CEO of Unical, while owned by private equity, acknowledged both the benefits and challenges of such ownership. She noted that while private equity introduces smart individuals, they often lack industry-specific knowledge. The greatest challenge for Unical has been managing repairs and maintaining parts in optimal condition. Green emphasized the need for over-investment to mitigate supply chain risks.

Tommy Hughes, CEO of VAS Aero Services, recently acquired by Airbus, highlighted that the current market struggle is not demand but supply. The acquisition has helped VAS by aligning their assets more efficiently. He explained that the pricing escalation in the market stems from availability issues, not demand.

Abdol Moabery, CEO of GA Telesis, discussed the cyclical nature of the aftermarket, predicting a significant influx of aircraft retiring and entering the disassembly market by 2028, with over 1,000 aircraft per year by 2030. He pointed out that aircraft lifespans have been extended, but at some point, continued investment no longer makes sense.

Moabery also described the capital-intensive nature of the business, explaining how they often have to finance OEMs by purchasing parts in advance of repairs. On private equity, he praised its role in institutionalizing smaller companies, allowing them to grow into global entities, but acknowledged that private equity can be “a pain in the butt” with its demanding practices.

Finance Panel

The Finance Panel, moderated by Leah Ryan, managing director at Alton Aviation Consultancy, provided insights into how recent interest rate cuts, capital markets and ESG considerations are affecting aviation financing.

The panelists largely agreed that while interest rate cuts are expected to increase demand for financing as borrowing costs decrease, the market already anticipates these changes. Tye Holmes, head of origination for aviation in EMEA at MUFG Bank, noted that many investors have already baked these expectations into their strategies, which should lead to higher financing demand. Douglas Runte, managing director at Deutsche Bank, emphasized that, after years of market uncertainty, participants are now emerging from short-term strategies, with many favoring long-term capital market solutions.

Christophe Bernardini, managing director for origination at PK AirFinance, explained how his firm operates as an alternative lender, relying on raising funds through capital markets rather than traditional banking. He highlighted the growing role of innovation in capital markets, particularly structured products like ABS, which have expanded liquidity. He pointed out that while PK AirFinance is still considered one of the more expensive lenders, its close relationship with lessors allows for more tailored solutions.

On regional lending activity, Holmes remarked that North America continues to lead in aviation financing. Richard Moody, managing director and head of global transportation finance at HCOB Aviation Capital, added that his firm takes an agnostic approach to financing, looking for good value opportunities rather than focusing solely on specific aircraft or geographic regions.

When discussing the future of aviation financing, Runte shared that capital markets remain crucial, though some airlines might face challenges entering the enhanced equipment trust certificate (EETC) market due to the rigorous requirements. He also noted that many airlines are now in debt paydown mode, focusing on improving their financial positions post-pandemic.

Regarding ESG considerations, most panelists indicated that while ESG is increasingly important, its impact on financing decisions remains relatively limited.

Rob’s View of the Industry

In his presentation, Rob Morris, global head of consultancy at Cirium, provided an optimistic outlook for the aviation industry, while cautioning about some ongoing challenges. Key points include:

• Global Demand Growth: Aviation demand has returned, with a projected 14% growth in 2024 and around 5% in 2025, although about three years of growth were lost since 2020. Airlines are planning for continued growth through 2025, with a global schedule projecting 7% year-onyear growth.
• Economic Outlook: Near-term economic growth projections do not support recession fears but instead suggest slightly higher growth in the short term. Passenger yields are stable, and fuel prices remain low, representing 32% of airline expenses in 2023.
• Airline Performance: Airlines have faced weakened financial performance, largely due to cost pressures such as labor, maintenance and currency fluctuations. However, margins remain positive, and demand is not the issue.
• Supply Chain and Aircraft Deliveries: Supply issues continue to plague the industry, with aircraft deliveries expected to fall short of projections. New aircraft deliveries in 2024 are projected at around 1,200, down from an initial estimate of 1,525. The production ramp-up for single-aisle aircraft is slow, and fleet utilization is almost back to 2019 levels despite the shortfall in new deliveries.
• Leasing Market: The leasing market’s growth has plateaued, with a marginal decline in market share. Lease rates, however, have rapidly recovered due to supply demand imbalances. Lessors hold a significant portion of the market’s supply cards, with limited used aircraft availability driving up pressure on the supply side.
• Fleet Dynamics and Sustainability: The average age of in-service aircraft continues to rise post-COVID, driving the need for greater retirements and replacements later in the cycle. CO2 emissions efficiency has improved slightly, but overall progress toward sustainability remains limited. The market seems unconcerned about higher fares stemming from SAF costs dampening demand in the long term.
• Challenges Ahead: Morris highlighted key risks that could disrupt growth, including geopolitical tensions (Russia-Ukraine, Middle East conflict), changes in China, and COVID-related uncertainties. Supply-side deficits and sustainability pressures will likely persist, with failure to make credible progress toward net-zero emissions posing a significant threat to long-term growth.

Regional Airlines, OEMs and Lessors Panel

The Regional Airlines, OEMs and Lessors Panel, moderated by Anne-Bart Tieleman, CEO of TrueNoord, focused on the current state and future of regional aircraft, particularly 50-150 seat aircraft. Panelists discussed the resilience of the regional airline sector, supply chain challenges and the potential of new technologies.

Miguel Falcon, vice president of Air Nostrum, highlighted the critical role of regional airlines, noting their ability to step in during crises like 9/11 and stabilize routes during demand fluctuations. Regional airlines provide a consistent buffer to adjust to market needs, ensuring continuity in air travel.

Guillaume Huertas, head of leasing and asset management at ATR, emphasized the importance of regional operations, noting that 40% of the world’s airports are only accessible by regional aircraft. He pointed out that regional aviation is resilient, contributing to local economies and maintaining stability even during the COVID-19 pandemic, as passengers rely on these flights out of necessity.

Michał Nowak, global head of airline marketing at Embraer, acknowledged the company’s legacy as a leader in regional aircraft but highlighted its ongoing efforts to redefine its role, especially in complementing narrowbody aircraft. He stressed the complexity of the market, with diverse routes ranging from 200 km to 6,000 km, and shared that supply chain challenges have led to a more cautious approach, avoiding overpromising. Nowak also noted that Embraer is developing an eVTOL, reflecting its commitment to future technologies.

Philippe Poutissou, vice president of asset management and product strategy at De Havilland Canada, discussed the versatility and longevity of turboprops, particularly in niche markets like firefighting. He noted that while the company’s Dash 8 is not currently in production, 62 units have returned to service in the past 18 months. De Havilland is actively engaging with operators to explore future aircraft needs and retrofit solutions, underscoring the importance of sustainability and efficiency in regional aviation.

Lessor CEO Panel

The Lessor CEO Panel was moderated by Sarah Aoun, head of global lessor sales at GE Aerospace.

Andy Cronin, CEO of Avolon, emphasized that the challenges in the industry, particularly production delays from OEMs like Airbus, remain unresolved and are expected to persist for four to five years. Avolon has maintained its strategy of capital allocation based on value through the cycle, raising $4.5 billion this year, mostly unsecured.

However, rising interest rates have increased the cost of capital, making it harder to achieve investment-grade ratings.

Tom Baker, CEO and president of Aviation Capital Group, discussed the complexities of growth for lessors, noting that every growth channel comes with uncertainty. While profitability is becoming easier, growth is getting harder, particularly with the increased competition and costs for reliable narrowbody aircraft. He warned that higher lease rates should not be blamed for airline losses, as many airlines still operate with low lease rates from the COVID period. Baker also critiqued rating agency models, suggesting that they fail to accurately reflect the dynamics of the leasing space.

Robert Korn, president and co-founder of Carlyle Aviation, spoke about Carlyle’s history of growth through M&A and the slowdown in aircraft sell-downs by other lessors. He also mentioned that North American airlines, which had delayed aircraft retirements, will likely see a correction in capacity. Korn anticipates more consolidation in Europe and uncertainty about mergers in Asia.

Firoz Tarapore, CEO of DAE, addressed the continued supply chain challenges for OEMs, particularly Boeing’s strike, adding uncertainty to production timelines. Tarapore also highlighted the differences in liquidity between developed markets, like the U.S., and emerging markets, with a widening spread between them. He expressed concern about airlines’ ability to manage capacity, which directly impacts profitability and lease rates.

“The one thing airlines get consistently wrong is the issue of capacity,” he said. “That impacts their profitability and the downdrafts from that. We’re seeing a softening in pricing on the passenger side but not on capacity yet. How they manage the next phase will be critical to how lease rates behave. This is top of mind for us. To the airlines’ credit, they learn lessons every time a bad thing happens.”

Networking and Other Activities

In addition to the lineup of educational sessions, ISTAT EMEA provided delegates with a range of events and opportunities to explore the city.

Networking was a key focus, including the Networking Dinner at the opulent Ciragan Palace Kempinski.

A highlight was the Women@ISTAT session, moderated by Rosemarie O’Leary of Avolon. This panel featured Ileana Sannibale of ITA Airways and Merve Bener of Pegasus Airlines, who shared their experiences navigating leadership roles in aviation. Their discussion, coupled with the DEI Breakfast, underscored ISTAT’s commitment to fostering diversity, equity, and inclusion within the industry.

All ISTAT ONLINE OFFERINGS