KUALA LUMPUR: Airfares are likely to increase as airlines will have to pay higher leasing rates to aircraft lessors to keep their narrow body fleet in service longer than planned due to the limited number of new single-aisle planes globally.
Alton Aviation Consultancy managing director John Mowry said airlines have been negotiating lease extensions with lessors due to the lower production rates of airplanes which has pushed the lease rates up.
"While most airlines with orders that have been delayed have voiced frustrations on the inability to expand capacity as desired, it is noted that the more limited capacity has generally been supportive of higher airfare yields which may in fact benefit airline profitability," he told Business Times recently.
National carrier Malaysia Airlines Bhd, for example. has extended the lease of its B737-NG (new generation) fleet while it waits for the remaining delivery of its new B737 MAX 8 airplanes.
Boeing's B737 MAX aircraft delivery for example has seen a decline of nearly 40 per cent to 137 units in the first half of 2024 compared to 216 in the same period in 2023.
Mowry said the delivery number implied a production rate of 23 units a month.
The B737 MAX production was limited to 38 a month by the U.S. Federal Aviation Administration (FAA) following Alaska Airlines' B737 MAX 9 door plug blowout in January this year.
The American plane manufacturer never publicly shared how many B737s it produced after the limit, although its chief financial officer Brian West said in March that it is producing fewer 737s than the amount allowed.
Currently, the B737 production is temporarily put to a stop as Boeing's factory workers who mostly are members of the International Association of Machinists and Aerospace Workers (IAM) District 751 (IAM751) and District W24 (IAMW24) rejected a new contract offer given by the company.
The union members went on a strike starting Sept 13 at midnight until to-date.
Boeing and IAM are in the midst of re-negotiating the proposal that was rejected by the union last week. Besides the B737s, the production of B767 and B777 are also affected by the strike.
Mowry said the rejection of the new contract and the strike introduced another challenge for the beleaguered manufacturer which historically is the largest exporter from the United States.
"The strike comes at an inopportune time for Boeing's new chief executive officer (CEO) Kelly Ortberg who is seeking to right the ship, but also for the aviation industry," he added.
Ortberg took over the helm from Boeing's previous CEO Dave Calhoun on Aug 8.
The 64-year old former engineer has more than 35 years of experience in the aerospace industry.
In a recent letter to his employees, Ortberg has called for the restoration of trust in the company in order to turnaround the company as a commercial aircraft industry leader.
On Sept 8, Boeing said it had reached a tentative agreement with IAM751 and IAMW24, which represents over 33,000 Boeing members on a new four-year contract.
The offer includes a 25 per cent pay rise over four years – 11 per cent in year one, four per cent each in year two and year three and six per cent in year four.
It also includes lower healthcare cost, reduction of mandatory overtime, 12 weeks of paid paternal leave as well as job security with Boeing's commitment to build its next new commercial airplane.
The new aircraft is yet to be announced.
A vote was held on Sept 13 where members of IAM751 and IAMW24 overwhelmingly said no to their company's new contract with 94.6 per cent rejecting the offer while 96 per cent voting to strike.
Boeing then offered to reinstate a performance bonus, improve retirement benefits and increase a ratification bonus to US$6000 if the workers accept the offer by Friday (Sept 27).
However, IAM751 president Jon Holden said it would not hold a new vote on the offer due to the limited time given and it also does not fully address their concerns on retirement, wages and other issues.
The union members wanted a 40 per cent pay increase as they said they were not given a pay raise for the last 16 years.
They also disagreed with the loss of annual bonus. Boeing has temporarily furlough selected executives and non-union members for one week every four weeks although they will retain their benefits in order for the company to preserve cash due to the strike.
The company's CEO and other senior executives will also take pay cuts during the duration of the strike. Boeing also imposed a hiring freeze, cutbacks on travel and reduced purchases from suppliers.