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B737-900 Lease Rentals Experience Major Fall

October 2, 2017

The adage that bigger is better does not relate to the experience of the B737-900 in terms of lease rental behavior with the type seeing a major divergence from the smaller -800 within a few years of service entry.

The B737-900 represented a major compromise when entering service in 2000. The -900 sought to respond to the A321 but Boeing, in launching the -800, was still wedded, and indeed remained so for at least another decade, to the perception that the ideal narrowbody aircraft was to feature 150 seats. The A321 was therefore considered to be of little consequence but Boeing recognized that a few operators may need a few more seats in denser route structures. The B737-900 was introduced but with very customers. Even today there are only six operators comprising Alaska (12), Jet Airways (2), KLM (5), Korean (16), Shenzhen (5), United (12). Boeing took another six years before recognizing that there was a need for something more in terms of capability and introduced the -900ER effectively replacing the -900.

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The combination of a limited customer base and arrival of a replacement within a few short years caused considerable problems for lease rentals. When entering service in 2000 the lease rental of a new -900 amounted to $360,000 per month, slightly more than the $355,000 for a B737-800 (www.aircraftvalues.net). But within a few short years, the limited demand for the -900 became apparent and by 2005 the lease rentals of the -800 were enjoying a 10 percent premium over the -900.

The majority of -900s remain with their original customers. Assuming a 12-year lease was secured at a rental of some $330,000 per month for a 2000 built aircraft then this should have easily paid off the capital and possible the interest. As the current value of the 2000 built -900 is around $8 million then even a rental of less $100,000 per month will be generating a return though this is less than the $154,000 per month that could be being paid for a similar vintage B737-800. With only some six years of production, there has inevitably been a measure of lease rental convergence between the oldest and youngest. A lease rental of under $100,000 can be expected though this may be somewhat academic as the type may reside with existing operators until virtually the end of their service lives.

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