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Pilarski says: How is this cycle different from all the others?
12 April 2012
The bubble will burst and a reduction in announced orders will spill out, writes Adam Pilarski, senior vice-president, Avitas, in his monthly column.
It appears to me we are in a major bubble. The bubble element involves record orders, which in turn lead manufacturers to believe that the orders are real - hence, they increase production substantially.
I speak mainly about the narrowbody jets produced by Airbus and Boeing. The existing backlog is so large that it would consume the next eight years of production at today's levels of narrowbodies and almost 12 years of widebodies. These are very high multiples, and lead manufacturers to take solid steps to increase production rates.
Despite fairly low lease rates - and talk of some lessors having trouble placing future deliveries - a major leasing company, RBS Aviation Capital, sold at a premium to book. Aircraft are bought as if there are no problems facing the industry, which leads me...
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