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B747-400 Lease Rentals Continue to Fall As Operators Divest

November 13, 2017

The lease rentals of the B747-400 are a shadow of their former levels which is no surprise in view of the divesting from long term operators and the lack of attraction among second and third tier operators.

Introduced in 1989, the oldest passenger B747-400 is now nearly 30 years of age but more than half have either been converted to freighter or have been scrapped. British Airways is now to retire the last of its -400s in 2024 which will perhaps be too long for some passengers who have grown used to the A380. Airlines seeking aircraft for long haul intercontinental routes have increasingly moved to either the A380 or the B777-300ER. As time advances still further the A350-1000 and the B777-9 will act as even more efficient replacements.

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At their peak in the early 1990s, soon after service entry, lease rentals were nudging $1.2 million per month and American were rumored to be willing to pay in excess of $140 million for a new example. The demand at this time stemmed from the -400 initiating a change in the market structure. The long range capability of the -400, along with higher capacity and efficiency, meant that expensive and time consuming refueling stops were no longer necessary as they were with the B747-200. Flights between Europe and the Far East and between the U.S. and the Far East/Australia could now be served with aircraft directly and operators were willing to pay a premium. Lease rentals suffered during the Asian crisis of the late 1990s which saw a number being placed into storage. The events of 2001 also saw a significant fall in lease rentals before recovering not least because of the absence of alternatives. The aftermath of the financial crisis saw the most significant fall as production came to an end and the market structure favored the B777-300ER and A380. Lease rentals in the last ten years for an aircraft built in 1994 have fallen by more than 75 percent – $600,000 per month to less than $125,000 per month. Even the youngest example built less than 15 years ago will be fortunate to attract a rental of more than $180,000.

The type was never viewed as the most attractive of aircraft for leasing purposes. The lessors were always conscious of the problems of remarketing as well as that the aircraft represented a much greater proportion of the portfolio value. Any interval between leases would see a disproportionate loss of revenue. Operating the B747-400 requires dense international routes and most such carriers were able to secure attractive discounts from Boeing and acquire cheap financing such that a traditional operating lease represented a more expensive option. The major airlines also tended to maintain their own aircraft and lessors therefore had greater difficulty in securing attractive end of lease monetary compensation. A number of full payout sale and leasebacks were entered into which expected that the aircraft would remain with the same operator until retirement. AT&T Capital Services has a -400 with Delta who have also announced that the type will leave the fleet. Investec also leases an aircraft to Air India and AerCap to Virgin and Cathay; BBAM leases a unit to Cathay Pacific.

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