Editor’s Note: The following article is a transcript of our discussion, edited for the sake of concision. The video contains the full, unabridged interview. My questions and comments are in bold.
With me today is one of the most influential aerospace and defense consultants in the world: Richard Aboulafia, a managing director at the consulting firm, AeroDynamic Advisory.
As the start of 2026 looms on the calendar, which aircraft families do you see as most overvalued or undervalued relative to market fundamentals, and what signals are you watching most closely?
On the widebody front, Boeing’s crushing it. The 777X faces very strong demand, with an order book that’s rounding 600. That’s extraordinary for a jet that costs a couple hundred million a pop.
Meanwhile, the 787 is having its best year since it was launched in 2004. So, terrific numbers for Boeing
The question is, can Boeing get production to where it needs to be? They’re making strides, but it’s a long road back. And as you more than anybody else knows, it’s a function of both supply and demand.
On the narrowbody front, the biggest question in the aircraft ramp world is the A321. The backlog is way over 5,000 jets, and that’s key to everybody’s plan for point-to-point routes, especially across the North Atlantic and intra-Asia, and even including the Middle East and Europe. It’s just a question of how quickly Airbus can build it.
Meanwhile, it’s tough to say any aircraft is undervalued in a market where people are trying to get capacity wherever they can.
It seems that Boeing is bouncing back from its severe woes, but Airbus and Boeing are still struggling with production stability. These crazy tit-for-tat tariffs are hurting supply chains and causing a lot of geopolitical uncertainty. How are these production shortfalls rippling down toward the lease rates and values for both widebodies and narrowbodies?
Strong demand and limited supply is creating an upward momentum for values. When I meet with the lessors and financiers in the industry, they’re bullish. They’re going long on aircraft, frankly, for all the right reasons, because this looks like a supercycle to me.
As a consequence, values look strong and production rates continue to disappoint. We’ll see what happens in December, but, boy, Airbus needs to deliver an awful lot to reach its goal of over 800 deliveries per year. Boeing, too, needs to show that it can get to that 38 per month and stay there on the MAX and then on to 42, 52, and 57. It’s a long road.
From conflicts to trade tensions, geopolitics keeps reshaping airline network planning. Which regions or airline business models are most likely to shift aircraft demand and values over the next 12 to 18 months?
The big losers are low-cost carriers, especially in the U.S. When structural costs increase and you’re trying to compete on costs and people are all of a sudden showing a willingness to pay more, that’s bad for a budget airline.
What fascinating is for years we’ve had declining fares, declining yields, and everyone adopted a mantra that people won’t pay more and you can stimulate the market and get people to fly if you charge less.
And for the first time in as long as I can remember, airfare are increasing and it’s not scaring people away. That’s good for the legacy network carriers. Is it good for the low-cost, especially the ultra-low cost carriers? No. It’s really bad.
With interest rates still elevated, how are you seeing capital costs influence airline and lesser behavior? Has the pendulum swung toward or away from sale-leasebacks and new aircraft commitments?
Interest rates are still relatively and stubbornly high, which is still pretty good territory for the lessors. And I’m not anticipating any major shifts in the part of the market that’s third-party financed. It’s good from an airline standpoint to get these things off your balance sheets.
There’s ongoing talk about next generation narrowbodies. How should the industry think about the effect of these future programs on the value trajectory of current generation fleets?
That’s one of my favorite topics. First of all, we’re waiting for clarity on next-generation propulsion before we can talk about next-generation single aisle.
And of course, you’ve got this fascinating divergence between Airbus and Boeing. Airbus sure seems to like the idea of open rotor, which of course, GE through CFM with Safran is pushing with the RISE program.
Boeing’s been pretty clear that they prefer ducted. Of course, you can’t have an ecumenical way. I don’t think anyone’s willing to go down their respective path first, until they get more test results.
You won’t see a next-generation single aisle, other than derivatives of existing generation aircraft, until well into the late 2030s. Even then, I don’t think it would be that much of a quantum leap to clobber values of existing generation jets.
Widebodies have staged a comeback, but inconsistently. Which long-haul markets or aircraft types are positioned for sustained recovery and which might face another value correction?
This question is really interesting because frankly, a lot of people love aviation as an industrial policy. So for about 20 years, you’ve had the Gulf super-connectors grabbing up all the capacity they can, grabbing up all the traffic they can. And now you’ve got Turkey and Saudi Arabia saying, we’d like to do the same thing.
Then you’ve got India saying, we’d like our traffic back, please. And then you’ve got other regional carriers saying yeah, we too would like our traffic back. And they’re all buying jets. A lot of jets; 408 alone at the Dubai Air Show last week.
What does this mean? We might have an issue with overcapacity with so many people going after the same market. On the other hand, a lot of these orders are fueled by sovereign wealth funds and people who aren’t going to relent. In other words, these jets could come online. It could be good from the standpoint of manufacturing and, frankly, people who travel would get better deals.
In terms of residual values in the long run, there are no signs right now of overcapacity. Given production shortfalls, we have a long way to go before we have to worry about that.
I recently wrote about the rise of electric aircraft, and you gently informed me offline that I might have gotten a little too enthusiastic about the rise of electric aircraft. Can you explain where my hyperbole began and where the real engineering and economic limits of electric aircraft actually are?
[Laughs] I think there’s this tendency to overrate the impact of exciting new technologies. And it will take a really long time before we have the alternative propulsion systems needed to do the job of the bigger jets.
Having said that, you’re right to be excited about some of the stuff going on with electric aircraft. But given what my engineering colleagues show me about energy density rates and other factors, it will take a long time.
Thanks for your time.
The above article represents edited excerpts. For the full interview, watch the video.
