Commercial aircraft rental market drives lease prices high as demand for newer aircraft peaks
- As travel demand returns demand increases on newer available aircraft models
- A shortage in supply of some parts for new aircraft slows delivery
- Those leasing are in the main extended their leases
If you are looking to add newer aircraft to your fleet, or a single aircraft for personal or business use, you may need to pay a lease premium or be in for quite a wait with narrow body aircraft in particular demand.
The cause? A tight supply of aircraft is driving up the price airlines pay to rent planes, just as travel demand returns.
The rising leasing rates
The rent on a new Boeing 737 Max rose more than 20% between April 2020 and this July to $316,000 a month, as per estimates by aviation advisory firm IBA Group.
The competing Airbus A320neo climbed to $324,000 a month, up more than 14% from April 2020.
An A321neo, they are being leased at $375,000 per month in a July.
The world’s largest aircraft leasing firms, like Air Lease, Avolon and AerCap, are now facing hot demand for aircraft available. And if their are very few available to lease, that in turn would inventively add to the long waiting list for new green aircraft.
Therefore, considering a new A320 or 737 BBJ Max completion? You may want to get your order placed sooner rather than later.
Supply chain problems and labor constraints have challenged manufacturers from increasing production. Part of the issue stems from sanctions on Russia that has crimped titanium supplies since that country’s invasion of Ukraine in February.
For example Raytheon CEO Greg Hayes on an earnings call last month, when referring to the conglomerate’s Pratt & Whitney engine unit: “Now we’re not talking about dozens and dozens of aircraft, but you’re talking five to 10 airplanes – that are going to be without engines because we don’t have the titanium forgings that we had expected to get this year,”
The demand for newer aircraft
This year’s surge in oil prices make newer, fuel-efficient planes more attractive than older ones, and higher interest rates could also drive up lease rates.
More than 51% of the world’s nearly 23,000 single-and-double-aisle jetliners are owned or managed by leasing firms, according to aviation consulting firm Cirium.
Reasons for commercial leasing vary and include weak airline credit ratings that in-turn result in driving up their borrowing costs, and the desire, or need, to conserve cash, rather than shelling out to buy new aircraft.
Leasing firm executives told CNBC that many of their customers are extending leases, with new planes hard to find.
“You have the rising interest rates and higher cost of capital,” said Mike Yeomans, director of valuations and consulting at IBA. “That will push lease rates higher through the rest of the year.”
Steven Udvar-Hazy, executive chairman of Los Angeles-based Air Lease, said the company’s lease extension rate is nearing a never-before-seen 90%, and that it usually runs about 65% to 75%.
“We’re seeing a lot of lease extensions on a planes that a year ago we projected that we would have to remarket” said Udvar-Hazy.
The trend is the result of a resurgence in airline bookings while Boeing and Airbus – still recovering from a demand and production lull during the earlier days of the pandemic along with supply chain issues – are unable to ramp up production as much as they would like to.
For now, airlines are “now looking at a world where they can actually deploy more aircraft,” said Andy Cronin, Dublin-based Avolon’s CEO designate. “We’re definitely seeing a shortage of aircraft and accelerating demand over and above what we would have expected at this stage.”
Cronin said lease rates for Boeing Maxes and Airbus A320neos have risen by 10-15% so far this year.
Global passenger traffic rose in 76% in June from a year earlier, but is still down about 29% compared with before the pandemic, according to the International Air Transport Association’s latest available data.
Original article at CNBC: https://www.cnbc.com/2022/08/25/sky-high-rents-hit-the-aircraft-market-as-boeing-jets-top-300000-a-month.html
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