FOR CURRENT &
FUTURE AIRCRAFT VALUES

SLBs Deals Belie Mid Life Rental Weakness

April 16, 2018

The number of sale and leasebacks continue with financial institutions buying used as well as new aircraft from both first and second tier operators.

The SLB transactions, featuring higher rentals, can distort the real vanilla operating lease rates being paid for widebodies. On a standalone basis, the rates for widebodies can be much lower particularly if the lease is long and to a good lessee. Despite the overall strength of the market, the long haul market is facing some weakness due to higher fuel prices and tough competition from the low cost carriers that are seeking to enter this segment of the market. The recent profitability enjoyed by airlines has also seen wage levels rise. The older widebodies are being increasingly displaced by new aircraft and lessors are having to incentivize rentals to ensure that aircraft are placed. Secondary leasing of widebodies has nearly always been more volatile due to the more limited operator base and the variability of the market. Seeking to remarket used widebodies in such market conditions can be more challenging and lease rentals and the terms upon which they are based need to be more flexible than for narrowbodies.

The lease rentals for newer aircraft types remain relatively stable though again the rates for older examples can experience considerable volatility. Sale and leaseback transactions, which constitute an increasingly large proportion of new aircraft deliveries, continue to involve higher lease rates than those attributed to vanilla dry operating lease rentals. Lease rentals are provided by The Aircraft Value Analysis Company (AVAC) www.aircraftvalues.net (for China www.aircraftvalues.com).

Widebody Lease Rates (Dry) US$ ‘000s pm – April 2018
Aircraft Age Rental Trend Analysis
A300-600R 1987-901991-97 40-7550-85 The -600R was once the primary widebody being produced by Airbus but its limited range always meant that it would play second fiddle to the B767-300ER. American divested its fleet many years ago and onward disposal proved difficult. There are only ten operators operating 24 aircraft with virtually all being located in the Middle East or North Africa. Leasing the aircraft is still viable but short terms are likely and then there exists the difficulty of what maintenance reserves to charge. Low utilization will likely favor power by the hour arrangements. The type though does have good capacity for regional routes and with such low rentals a profit can be made.
A310-300H 1985-891990-97 50-6560-80 The A310 has been in service for over 30 years and as such the retirement of two thirds by one means or another is not surprising. The aircraft still has a reasonable operator base and the leasing of the aircraft is still possible though the marketing of such aircraft on this basis is few and far between. There has been no direct replacement for the A310 although the increasing capacity of the A321 has provided some alternatives even if its means that fewer economy passengers are to be carried. A widebody though, affords operators the opportunity to offer a reasonable business class offering. Lease rentals are falling.
A330-200 1998-022003-08e2009-18e 120-160130-240230-750 The A330-200 continues to falter as the age profile increases the level of availability. There are a number being advertised for sale or lease. While placement is still possible operators are not rushing to replace B767s with the type. The arrival of new types is an issue that cannot be ignored. The newer 242 tonne version adds to the range – and attraction.
A330-300 1994-971998-022003-10e2011-18e 100-120120-260250-500400-775 The rentals of the -300 are falling as replacements start to arrive and the widebody sector continues to suffer despite still above trend traffic growth. Yet the type is used in a multitude of roles and features an expansive operator base that will aid re-leasing. The weight and age of the aircraft is an important consideration with the early examples particularly difficult to place. The Trent engine has not seemingly been a hindrance to placement. New lessor friendly TotalCare programs have been a positive.
A340-300H 1993-971998-022003-08e 80-14090-150130-265 There are a good many in storage most of which are not expected to return to service which says a great deal about the leasing opportunities. Lessors of the -300 include Castlelake, ICBC, GOAL, GECAS, AFS, Aercap. The aircraft has therefore been a viable leasing tool in the past and may have paid its way. But not now. The lessors may be able to secure placement on a short term lease as operators await their new aircraft.
A340-500 2002-09 160-325 More than half the fleet are in storage which is not surprising in view of the move towards longer range twins. Leasing the aircraft is difficult and the most recent movements include placement with governments. Hi Fly was the last operator to take the type in 2015. Rates are therefore largely theoretical and any lease will be on the terms of the lessee rather than the lessor. Indeed, lease rentals continue to fall with operators seeking to offer non stop long haul services seeking to use the B787-9.
A340-600 2002-10 180-350 The sale of aircraft by Etihad is notable as the aircraft were young and the reported price very low. There is a great difficulty in placing the aircraft and many are in storage being cannibalized for spares. Leasing the aircraft is difficult to say the least. Power by the hour arrangements are likely but even then this will prove to be a problem.
A350-900 2014-18 820-1300 The number of A350-900s in service has much improved and the type is proving itself a viable product for operators. Reliability is something that is constantly being improved. There have been concerns over the standard of interior finishes. Lease rentals are mostly holding steady but the type has been in service for over three years so some downward change is to be expected.
A380 2006-18 475-2200 The market for the A380 is weakening even as Emirates places more orders. Virgin has finally cancelled its order but that was always to be expected. Those of Amedeo have yet to be placed and the SIA aircraft have yet to be placed. The rentals are therefore expected to suffer a significant fall in the near future. The 575 tonne version offers operators greater versatility particularly in the context of filling the lower hold with cargo as more passengers use the overhead bins for luggage. Some sale and leasebacks can see rates of $2.2 million a month and this should allow lessors to recoup a considerable proportion of the capital over the course of a 12 year lease even assuming that they paid $250 million to the lessee. British Airways have recently suggested that the offer price made by Airbus was too high which perhaps suggests a figure in excess of $250 million.
B747-400 1989-951996-02 90-130100-230 The demand for the -400 is very limited and removal from passenger service carries on at some pace. The aircraft is facing new pressures as the twin engined fleet grows still further displacing the queen of the skies. Lease terms will likely be short with lessees seeking to avoid costly return conditions. Leasing the aircraft has never been popular anyway as the majority were acquired by the major airlines through a finance deal.
B747-8I 2010-17 700-1100 There are none on backlog and it seems that those in service will be retained by existing operators until retirement. Some can be expected to be cannibalized for spares in a few years time. Lease rentals are therefore falling at a reasonably fast rate which will only continue. Some sale and leasebacks have taken place but lessors will now have to be very conscious of making sure that a remarketing plan is in place well ahead of lease expiration.
B767-200ER 1985-92 70-90 With ETOPs being proven on the -200ER, the doors were opened for a new generation of twin engined widebodies that have served to fundamentally change the structure of the market and cause the demise of the trijets and some quads. Lease rentals are at low levels and will yet fall further.
B767-300 1986-901990-98 70-9085-100 Something of an aircraft that met the needs of a few operators and as such leasing has been of little interest to the lessors except as part of a deal. Lease rentals are but a fraction of their previous levels and yet may still fall further.
B767-300ER 1988-951996-03 90-160110-230 The B767 continues to hand on and there continues to be demand but operators can pick and choose as there are a number in storage and on the market. Boeing has finally announced that restarting of the passenger version is not an option which means that the Middle of the Market aircraft – the B797 – will see development in the near term. Very few have been delivered in the last decade making the majority of the fleet rather old.
B767-400 2000-02 130-210 The -400 operates in the wings of the market given that few were built. Lease rentals are low for such a size of aircraft but then demand is also limited and this will continue.
B777-200 1995-00 120-200 The market for the -200 is limited and lease rentals are a shadow of their former levels. For so long the Ripple Effect allowed the rentals of the -200 to hang onto the coat tails of the -200ER but no longer. The -200 allowed some lessors on the periphery to lease a widebody but the aircraft needs an experienced lessor to manage the not inconsiderable risk.
B777-200ER 1996-012002-12 120-210200-445 A great aircraft in its day but that day has long since passed. The aircraft is facing an uncertain future and expecting the lease rentals to remain at these levels is optimistic to say the lease. Age and new types are having an effect and retirement is becoming much more of a reality as finding another operator willing to take the aircraft is proving difficult. The lower price of fuel has been an incentive but operators have other considerations than operating costs – IFE and reliability for example. The Trent powered aircraft can still be placed. GECAS, Aircastle are among lessors but there are now a great many in storage.
B777-300 1998-06 120-250 The -300 is facing pressures that cannot be ignored and the type is certain to see ever lower rentals as existing operators replace the type. To some extent freighter conversion will pass the type by as the focus will be on the -300ER.
B777-300ER 2004-102011-18 320-680570-1800 The -300ER is facing the problem of a new type, advancing age and the replacement of some examples. The lease rentals are falling as the very popularity and size of the aircraft will prove to be a hindrance in placement. Existing operators will increasingly favor the newer and sometimes smaller aircraft which can meet the demands of a changing market structure.
B787-8 2010-18 440-1100 The -8 was held in high regard when first entering service but since then things have changed. The rentals are a far cry than the $1m a month that was first mooted. Today they are much less. The aircraft is likely to enter the used market in the near future and rentals will be even lower. There may be a need to be more realistic going forward. The backlog of the -8 is falling in favor of the -9.
B787-9 2014-18 820-1400 The B787-9 is now the most favored of widebodies – or twin aisle – and the lease rentals are remaining reasonably stable. The aircraft is proving itself even if there are issues with the Rolls-Royce engines. Longer lease terms – 10-12 years – to good credits can easily see rentals of less than $1m per month. Rates are expected to remain stable with the B787-10 likely to see rates in excess of $1.3 million though 10-12 leases will see lower rates. Sales and leasebacks can see relatively high rentals.
B787-10 2018-
Commentary reflects change from the last update to Widebody Rentals of December 2017.
THE SEARCH FOR AIRCRAFT VALUATIONS
A one-of-a-kind database filled with aircraft valuation data, including information on leasing, valuations and vital statistics, as well as Aircraft Assessment Reports.
Search an Aircraft Valuator
Error Demonstration

Live chat by BoldChat