Rentals of New Types Fail to Advance

November 26, 2018

Despite the arrival of new aircraft types into the market, lease rates remain at historical lows in terms of lease rental factors.

Lease rental factors (LRFs) express the montly lease rental as a percent of the current market value. The lease rental factor is dependent on interest rates and the relative strength of the market. Although the market is strong, the current low interest rates are keeping interest rates low. There is also strong competition among lessors even if there is an extensive backlog. The lease rental factors on new aircraft can therefore be as low as 0.6 percent. In years gone by a mid life aircraft may have viewed one percent as the norm but such LRFs reflect periods of higher interest rates.

The lease rentals are provided by The Aircraft Value Analysis Company Ltd (AVAC) or Rates are quoted in thousands of US dollars per month and exclude maintenance reserves. They assume a medium credit, average return conditions and an average lease term. Lease rentals for actual transactions may differ. European specification (a factor which has lesser significance due to the spread of the low cost model where galley equipment is less important), weaker credits and short lease terms may warrant a higher rental. A long-term rental to a strong credit will justify a lower rate. AVAC can privide a matrix of adjustment factors to reflect differing lease terms on request.



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