Irish lessor Avolon reported a 30% increase in full-year profit for 2018 to $717 million while revenue increased 10% year-over-year (YOY) to $2.57 billion. Avolon delivered 33 new aircraft last year, executed 153 lease transactions and agreed to sell 130 aircraft.

The Dublin-based lessor said its owned, managed and committed fleet grew 7% in 2018 to 971 aircraft, and it has placed all the aircraft it has committed to buy for 2019 and 80% of orders through the end of 2020.

Avolon predicted airline profits will decline and more carriers will fail this year. However, the company added that capacity will quickly be reabsorbed by the market.

In a 2019 Industry Forecast, titled “Buckle Up,” released Feb. 11, Avolon concluded that “there are simply too many cheap seats being sold in the market and too few expensive ones.” This, combined with an uncertain geopolitical environment, has led the lessor to predict additional airline failures and dips in profit.

“The airline industry will see a further moderate decline in profitability, although returns will remain above a gradually rising cost of capital,” Avolon said in the report. “There will be more airline failures, but the aviation world will continue to spin on its axis, and aircraft demand and values will remain robust as capacity is quickly reabsorbed.”

From a lessor perspective, Avolon said in the report that “the ability to apply appropriate risk-management processes to airline customers and pick up early warning signs of trouble ahead is a critical success differentiator.”

There may well be more trouble ahead, predicted Avolon, if OEMs “continue to sell the dream of greater efficiency, longer range and lower seat costs, especially when fleets are ordered in bulk,” and if airlines are unable to “resist the temptation to chase market share and load factor through irrational pricing.”

Nevertheless, leasing companies look set to gain even when airlines go bust.

“The speed at which aircraft released from recent airline failures have been placed back on lease reflects a strong incipient demand for liquid aircraft types and the embedded remarketing and technical skills in lessor platforms that keep the show on the road,” Avolon said.

The report takes aim at the tendency of Airbus and Boeing to overbook aircraft, which the lessor said has resulted in both single-aisle programs being sold out until 2023 and “persistent talk” of production rate increases.

“While beguiling, this is not the right course of action given the broader industry economic and financial backdrop,” Avolon said. “Like the airlines, the OEMs have long fallen prey to the siren call of market share, eschewing the basic economic laws of supply and demand despite an oligopolistic market that has narrowed further as Bombardier, and likely soon Embraer, essentially withdraw from independent commercial airplane production.”

Kerry Reals,