Ryanair has sealed a deal with union BALPA that will bring full pay restoration for the airline's UK pilots. The agreement will come into force having been approved by BALPA members in a ballot. "While the recovery from the impact of the pandemic is still ongoing and our industry faces significant challenges, this long-term agreement delivers stability, accelerated pay restoration, future pay increases and other benefit improvements for our UK pilots," states Ryanair's people director Darrell Hughes. All of Ryanair's European pilots are covered as a minimum by emergency agreements reached in 2020, but the company is now seeking to update this through deals with unions. So far, it has renegotiated agreements with 70% of its pilots. These will run into 2026 or 2027. As part of its plan to operate at 115% of its pre-Covid capacity this year, Ryanair says it is prioritising early restoration of pay through renegotiated agreements, to enable growth.

Negotiations between Scandinavian airline group SAS and pilot representatives have been extended by three days to 2 July as mediators try to seal a last-minute deal to avoid strikes. Over 1,000 SAS pilots are threatening industrial action at the peak of the summer flying season, in the latest blow to the group. This follows the failure to agree a replacement to a collective labour agreement which expired on 1 April. "SAS welcomes the mediators' decision as it continues to be the company's firm ambition to reach an agreement and avoid a strike," it states. Unions are concerned that instead of reinstating pilots laid off amid the pandemic, SAS is seeking to hire foreign staff into its new SAS Connect and SAS Link units on lower pay rates. They accuse SAS of creating these new divisions solely to circumnavigate labour agreements. The airline laid off 560 pilots during the crisis. They were granted the right to reinstatement within five years ahead of SAS hiring new pilots. SAS has struggled to regain its footing as it emerges from the crisis and has been contemplating a Chapter 11 filing in the USA as one possible avenue to reorganise its balance sheet and restructure its debt, sources told Cirium earlier this month. The Scandinavian airline group has, Cirium understands, hired Seabury Securities as a strategic adviser to assess how it can reduce its costs and liabilities, and a Chapter 11 filing is one option being tabled. "SAS is in big financial trouble, and employees cannot save the company alone," Henrik Thyregod, chairman of the Danish Pilots Association, recently told Cirium. "The sense is that even if the pilots flew for free for SAS, it is not enough."

Air-travel demand is recovering faster than many predicted but rising inflation coupled with a depletion of people's "Covid savings" could cause the market to slow down later this year, BK Associates managing director Pooja Gardemal suggested during a recent ISTAT webinar. Labour shortages are another "major problem" facing the industry, Gardemal said during the 28 June webinar, although Ascend by Cirium head of valuations George Dimitroff sees a silver lining when it comes to capacity discipline. "Some of the staffing problems may work in favour of the airlines because it's helping them maintain some capacity discipline," says Dimitroff, noting that cancelling flights gives airlines "better pricing power". However, airline costs could also increase "as they have to pay people more to retain them", he adds, and there may only be a limited window in which passengers are willing or able to pay higher airfares, as the price of groceries and energy bills continues to rise.
Gardemal points to "Covid savings" built up by people during the pandemic when they were forced to stay at home, noting that this extra money combined with a pent-up desire to travel has resulted in high demand for flights this summer. But as the cost of living rises and these savings start to run out, demand could begin to wane. "Later this year and next year I think we're going to see a change there. People will start to slow down and next summer there will be a rationalisation," says Gardemal. "At a certain point, this starts to affect demand." Rising interest rates have had a mixed effect on the aircraft leasing market. While higher rates are "not great for those in the business of debt", Gardemal says they do help lease rates. When taking into account the "huge slowdown" in the aircraft asset-backed securities (ABS) market, rate rises are "more detrimental than good for our industry", she notes.
Dimitroff agrees that ABS transactions are "suddenly not looking as attractive as a method of financing", but says that for "conventional lessors" without a strong focus on selling into the ABS market, rate rises are "a positive". In the current environment, he adds, paying an extra $20,000 to $30,000 a month in rent is worth it for airlines because of the savings they will achieve through operating newer-technology aircraft. Power-by-the-hour and sale-and-leaseback agreements, both of which became more popular during the pandemic, have not gone away, despite some lessors perhaps wishing they would. Dimitroff says that while many lessors want sale-and-leasebacks to be over, there are "still lessors out there doing deals for narrowbodies". "The party's not over yet [on sale-and-leasebacks]. There are still those who are very drunk at the party and stay back after the music's gone off and the lights have dimmed," he observes. On the aircraft values side, Gardemal says the market is "definitely seeing" a recovery on new-technology aircraft but "mid-life widebodies are not doing well". Airbus A350 values have recovered to "in the nineties percent" of base value, says Dimitroff, although Boeing 787 values are still "far from base". Bankruptcies at Norwegian, LATAM and Avianca "really affected" the 787 market, although he is "absolutely" confident that values will recover. The availability of regional jets and turboprops has started to decline, causing values to recover, and Dimitroff predicts they will "remain stable for the next couple of years". However, one challenge facing the regional aircraft market in the USA is a shortage of pilots, particularly captains, which is "preventing some US regionals from taking delivery of used [Embraer] E-Jets". Values for freighter aircraft increased during the pandemic and "many lessors have jumped on the cargo bandwagon", says Gardemal, but there are questions over how long this will continue. "We're in a freighter bubble right now," says Dimitroff, pointing to the high level of passenger-to-freighter conversion work during what he describes as a "heated and unique situation". Airbus A321 P2F conversion programmes are in the ramp-up phase and the next three to five years will see increased activity in other passenger-to-freighter conversion programmes, creating "lots of supply", he predicts. However, from 2025 values could come down. Aircraft values for end-of-life aircraft have risen as a result of increasing engine maintenance costs, says Dimitroff, and this is incentivising owners to part-out younger assets.