Lion Air with An Eightfold Expansion of Its Fleet

KOMPAS.com - The head of one of the world's largest aircraft-leasing companies issued a stark warning on Wednesday that Airbus and Boeing Co. are building too many planes, with some recent blockbuster orders unlikely to be completed in full.

Boeing and Airbus, a division of European Aeronautic Defence & Space Co., are boosting output by about 40% over the next two years, citing demand from emerging markets and the need for developed-nation carriers to replace older planes. The world's two dominant aircraft makers also want to sell more aircraft to fund future programs after delays on their Dreamliner and A380 jetliners sapped cash.

“Clearly, there is a vast amount of overordering,“ said Aengus Kelly, chief executive of AerCap Holdings NV, which owns 350 planes. AerCap, based in the Netherlands, is the No. 3 global leasing company after the Gecas unit of General Electric Co. and ILFC, a unit of American International Group Inc. that is slated for an initial public offering of stock.

Airbus and Boeing have over the past year built record order backlogs, selling hundreds of the revamped versions of their best-selling narrow-body planes, but Mr. Kelly cast doubt on whether some deals involving carriers such as Lion Air of Indonesia and Norwegian Air Shuttle AS would ever be realized in full.

“Is it realistic that a small airline in Indonesia is the largest customer of the world's largest exporter?“ Mr. Kelly said during an interview, referring to Boeing's 230-plane order from Lion Air, valued at $22.4 billion at list prices.

Boeing and Airbus have been sanguine about the production buildup, maintaining the demand is there as well as the funding. “Airbus's production correlates precisely to real demand,“ said an Airbus spokeswoman.

A Boeing spokesman declined to comment directly on Mr. Kelly's remarks, but said “we feel our long-term market forecast, and our production-rate increases happening right now, are in line with true demand.“

The revamped Airbus A320 and Boeing 737 jets have secured hundreds of orders, often from still-small carriers such as Lion Air and Norwegian, which last month split a 222-plane deal between the two aircraft makers.

Lion Air executives maintain that orders that envision as much as an eightfold expansion of its fleet are justified by soaring domestic and regional demand. Their counterparts at Norwegian are similarly bullish, viewing opportunities in Europe's low-cost market to grow from a fleet that totaled 62 planes at the end of last year.

“I would be surprised if Ryanair and easyJet allowed a large competitor to emerge on their doorstep,“ Mr. Kelly said, referring to Europe's two dominant discount operators, Ryanair Holdings PLC of Ireland and easyJet PLC of Britain.

Leasing companies have assumed an increasingly important voice in the airline industry as carriers opt to rent rather than buy. They have also been among the most pessimistic commentators about the ability of carriers to fund new purchases.

Investor concern about aircraft demand has deepened in recent weeks as the combination of high fuel prices and tepid demand has claimed more than half-a-dozen airlines. Mr. Kelly said distress levels in the industry still remain well below those seen in late 2008 and early 2009, though AerCap did step in and repossess two planes from Kingfisher Airlines Ltd. of India and one leased to Global Aviation Holdings Inc., the U.S.-based charter specialist that filed for bankruptcy protection earlier this year.