The pandemic stopped a decade of profitable air carrier operations (in 2020 U.S. air carriers lost $35 Billion compared to a $14.7 Billion profit in 2019). In today’s lower traffic environment single aisle jets remain attractive, accounting for 70% of expected new equipment deliveries over the forecast horizon (split between the 150-seat market A320, Boeing 737MAX8 and the 180+ seat market A321neo and B737Max10[1]). Twin aisle aircraft will wait for the return of international travel as 2022 world travel is forecasted at 61% of pre-pandemic levels[2]. It is air cargo demand that is expected to exceed pre-pandemic levels by 13% in 2022. A desire to avoid crowded terminals, as well as major carrier cuts to smaller communities, resulted in more than 323,000 private jet flights this past October (the first 10 months of 2021 were up 9% from the same period in 2019 and were ahead of the previous high in 2007). Orders for new business jets are up more than 50% over the past year (new private jets sell for between $5 Million to $ 70+ Million). An example is the A220-100 (the “TwoTwenty”) operating as a (large) private business jet with 33% lower operating cost and a 5600 nautical mile range. The regional market is testing zero emission hydrogen/electric engines and United is planning to retrofit its existing United Express fleet with the ZeroAvia2000-RJ engine as early as 2028.

Unlike restrictions that have been imposed on people’s movements around the globe, global government policies are oriented toward maintaining the flow of goods and commodities. Freighter demand is benefiting, being driven by the growth of e-Commerce and continuing supply chain congestion. Record cargo revenues are expected to continue ($175 Billion in 2021, $169 Billion in 2022). Freighter equipment will split 70/30 between conversions of existing units and new deliveries. Increasingly newer generation aircraft are being converted including the A321, B737-800, A330 and B777-300ER. UPS recently ordered 19 (additional) 767s. UPS was the launch customer for the 767 freighter in 1995 and has ordered 91 of the type since. They operate Boeing 757s, 767s, 747s, MD-11s and the Airbus A330. Midlife equipment continues to operate even though the aircraft survivor curve analysis used for modeling forecasts an average economic life of 22 years for single-aisles and 20 years for twin aisles.

Market fundamentals for railcar leasing will improve in 2022[3]. Through November U.S. rail freight carload traffic is up 7% over 2020 (but remains down 8% from 2019). Freight rail traffic growth is projected in the mid-single digits for 2022[4]. November coal carloads were up over 11% reflecting the rising price of natural gas which is up more than 180% over the last 12 months[5].  High steel prices (up 137% October over October) are causing a 15 to 30% premium on new railcar pricing.  Cars in storage are down from 32% in July 2020 to 20%.  The Class One’s focus on precision scheduled railroading can be expected to continue low rail industry operating ratios which were above 85% in 1990 and now have declined to under 65%.

While the pandemic shut capacity, demand was driven by Washington’s fiscal stimulus. Spending came back faster than supply. The result – higher prices. The pandemic also led to the early phasing out of a number of relatively young aircraft. The high cost of new equipment now makes midlife air and rail equipment more attractive. Market disruptions often work to provide investment opportunities. As activity improves targeted midlife transportation investment opportunities exist. 


Glenn P. Davis, 312-635-3161

[1] Cirium Fleet Forecast, (Indigo Partners ordered 255 A321neos during the recent (November) Dubai air show to be placed with low-cost carriers, Wizz Air, Frontier Airlines, JetSmart and Volaris.

[2]  IATA outlook, Boston, October.

[3] Trinity Industries, Railway Age, October 21, 2021.

[4] Cowen and Company Freight Transportation Equipment Analyst Matt Elkott, October 25, 2021.

[5] Coal will account for 23% of U.S. electricity generation in 2021, up from 19% in 2020.

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