Investment Rating - Industry rating: Outperforming the market [1] Core Insights - Aircraft manufacturers are slowly recovering capacity, but the number of grounded aircraft remains high. Supply chain and labor shortages continue to impact production, leading to delivery delays. From January to July 2025, Boeing and Airbus delivered only 701 aircraft, with a monthly average of about 100 aircraft, which is 74.6% of the peak monthly delivery of 134 aircraft in 2018. Meanwhile, aircraft order demand remains strong, with backlogged orders at historical highs [2][4][6]. - Global aviation market demand continues to grow, with the global passenger load factor reaching a new high for the year. The global air passenger volume is on the rise, with all regions showing growth in revenue passenger kilometers (RPK). The Latin America region leads with a 7.2% year-on-year increase, followed by Asia-Pacific and the Middle East with increases of 5.5% and 5.4%, respectively. International routes are performing strongly, particularly in the Asia-Pacific and Latin America regions [2][13][17]. - Overall, while aircraft manufacturers' capacity is recovering, it still struggles to meet the ongoing expansion in aircraft demand. Aircraft leasing companies are seeing high demand for orders, with limited available slots in the coming two years. The Asia-Pacific aviation market has significant growth potential, providing broader development space for Chinese aircraft leasing companies. Compared to global leasing leader AerCap, Chinese leasing companies are currently undervalued and have higher order elasticity, making them worthy of attention [2][6][38]. Summary by Sections 1. Aircraft Supply Continues to Tighten - Boeing's average monthly delivery has significantly improved compared to last year, while Airbus's monthly delivery is slightly below last year's level. As of the end of July 2025, Boeing delivered 328 aircraft and Airbus delivered 373 aircraft, with average monthly deliveries of approximately 47 and 53 aircraft, respectively [5]. - The backlog of aircraft orders remains at historical highs, with Boeing and Airbus accumulating new orders of 699 and 501 aircraft, respectively, this year. As of July 2025, the total backlog was 15,262 aircraft [6]. 2. Civil Aviation Passenger Demand Update - Global air passenger volume (RPK) increased by 4.0% year-on-year in July 2025, with global capacity (ASK) increasing by 4.4%. The global passenger load factor reached 85.5% [13][17]. - All regions experienced growth in air passenger volume, with the domestic market in China showing steady performance, with a year-on-year increase of 3.8% in passenger volume [23][24]. 3. Aircraft Leasing Company Dynamics - The average remaining lease term for China’s leasing companies is relatively long, with China Aircraft Leasing Company showing significant improvement in fleet age to 6.3 years. The average remaining lease term for China’s leasing companies is 7.9 years, ensuring long-term stability for their contracts [38][43]. - Aircraft rental prices are rising, leading to improved rental yield for leasing companies. China’s leasing companies maintain rental yields above 10%, with financing costs relatively low for China’s leasing companies at 4.5% [44].

Core Viewpoint - The report from Zhongtai Securities indicates that the decline in supply growth presents an opportunity for improvement in the aviation industry, with expectations of a performance turning point for airlines due to favorable supply-demand dynamics, stable ticket prices, and high passenger load factors [1] Supply Side Analysis - The introduction of new aircraft is expected to slow down due to factors such as a slow recovery of the supply chain, retirement of old aircraft, insufficient new orders, and uncertainties in China-US relations. The projected supply growth rates (ASK) for the industry from 2025 to 2027 are 6.32%, 4.56%, and 2.26% respectively [1] - Boeing and Airbus are facing delivery delays, with 2024 deliveries expected to be 766 and 348 aircraft respectively, which do not return to pre-pandemic levels. The delivery progress for the first four months of 2025 is also lagging behind annual plans [1][2] - The shortage of engines is significantly constraining deliveries, with only 1,407 LEAP engines expected to be delivered in 2024, supporting only 700 new narrow-body aircraft, which is well below the pre-pandemic demand [1] Domestic Aircraft Production - The C909 aircraft is steadily increasing its production capacity, with a projected delivery of 35 units in 2024, while the C919 is expected to take longer to ramp up, with only 16 units delivered by the end of 2024 [2] - There are 195 total orders for the C909 and 330 confirmed orders for the C919, with significant deliveries planned from 2024 to 2031 [2] Inventory Perspective - The supply chain crisis persists, and the retirement of aircraft is expected to accelerate, with projected retirements of 134, 143, and 152 aircraft from 2025 to 2027 [4] - The utilization of wide-body aircraft remains low, with a significant shift in capacity allocation towards domestic routes, which may impact overall efficiency [3] Engine Issues - The PW1100 engine is facing significant operational disruptions due to contamination risks, leading to large-scale recalls and repairs, while the LEAP engine is experiencing durability issues that require upgrades [4] - The impact of these engine issues is expected to be more pronounced for the PW1100, with a notable increase in grounded aircraft compared to previous years [4]

Core Insights - The aviation industry is facing significant challenges in 2025 due to engine issues and parts shortages, leading to record-high grounded aircraft numbers [1][2] - Willie Walsh, the IATA director general, highlighted the ongoing disappointment among airlines regarding delayed aircraft deliveries and engine-related operational disruptions [1][5] Group 1: Engine Issues - Nearly 70% of grounded aircraft globally are equipped with Pratt & Whitney's PWG1000 series engines, particularly affecting the A320neo fleet [2] - The PW1100 engine has been flagged for safety concerns, requiring extensive inspections that could lead to an average of 350 aircraft being grounded daily from 2024 to 2026 [2][3] - In May 2025, domestic airlines reported an average of 4.4 days of grounded aircraft, with PW1100-equipped planes averaging 16.2 days, significantly higher than the average [3] Group 2: Supply Chain and Delivery Delays - The backlog of undelivered aircraft has surged to over 17,000 units, double the pre-pandemic average, with delivery times potentially extending to 14 years [5][6] - Airlines are experiencing increased rental costs due to limited aircraft supply, with narrow-body aircraft rental rates rising by 20-30% compared to 2019 [7] - The supply chain issues are expected to persist through 2025 and possibly into the next decade, impacting airline operations and profitability [5][6] Group 3: Market Dynamics - While some airlines face challenges due to aircraft shortages, the delays in new aircraft deliveries may alleviate overcapacity in the domestic market [6] - Aircraft leasing companies are benefiting from the situation, with Avolon reporting a 36% increase in net profit in Q1 2023 [9] - The delays in Boeing and Airbus deliveries are providing opportunities for domestic manufacturers like COMAC, which plans to ramp up production of the C919 aircraft [9]