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]