Signs are evident in politics and trade negotiations that economic and geopolitical rivalries are creating global uncertainties.  Avoiding turbulent weather is a combination of art and science. With cues from weather charts, radar returns, and real time reports from other aircraft, Pilots are trained to avoid thunderstorms and slow to ‘turbulence penetration speed’ to avoid airframe damage when unexpected turbulence is encountered.  

International Relations Affect Demand

A reversal of ‘globalization’ is leading to slower growth.  Both Air and Rail operators face growing freight traffic demand disruptions due to China, Brexit, and continuing Middle East (Iranian) tensions.  The impact was evident at this year’s Paris Air Show where there was a decrease in orders and commitments.  Boeing received a 200 plane letter of intent from International Airlines Group which included the 737 Max 8, (which still remains grounded) and the larger 737 Max 10.  American Airlines agreed to buy 50 long-range single aisle jets from Airbus (A321XLR) with delivery starting in 2023.  Overall Airbus managed to secure 410 orders, Boeing 283.  With demand growth for air travel averaging 6.7% during the past five years Boeing’s current commercial outlook forecasts new airplane demand to top 44,000 deliveries through 2038 driven by lower air fares, higher living standards and a growing middle class in China and India.  Both Airbus and Boeing agree long-term demand for jets remains healthy.  

‘Precision Scheduled Railroading’ and the decrease in general freight and intermodal loadings are impacting rail equipment lease rates and asset values.  Brent crude and jet fuel are trending upward as prices remain under pressure from fears of a supply disruption amid heightened tensions in the Middle East.  The U.S. Energy Information Administration (EIA) estimates U.S. oil output will average 12.1 million barrels a day this year, up 1.2 million barrels a day from an average of 10.9 million barrels a day in 2018.  While shale crude production continues to drive current tank car demand, there are concerns.  As the industry matures and more pipelines are brought online tank car demand is likely to moderate.

Long Term Endeavors

Financing and managing aviation and rail transportation assets is a long term endeavor.   Both Aircraft and Rail Equipment are durable and can remain in service until the cost to maintain exceeds the revenue the markets offer.  Railcars are scrapped because they are in poor physical condition and repair or modifications are not economic. For aircraft the decision is driven by flight hours, pressurization cycles and the availability and pricing of newer units which save operating cost through lower fuel consumption, and improved range and payload.  

Midyear market concerns?  Some are unmistakable. China, populism, demographics, technology, climate change.  For financial markets, a flatter curve is thought to be troubling for future market performance and a stronger dollar makes it harder to export U.S. products. In the current environment equipment specific knowledge increases the opportunity to intelligently unlock portfolio values.  Call RESIDCO.

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