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Some Widebody Rentals Remain Under Pressure

October 2, 2017

With still above trend traffic growth even in the international arena there may be an expectation that lease rentals would remain stable but for the larger widebodies in particular, the relative strength of lease rentals is not dependent on traffic growth alone.

Major influences impacting widebody lease include the arrival of new types, the preference for upsizing to larger capacity aircraft, the age profile of existing types and the appetite for ensuring a young fleet. 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 – October 2017
Aircraft Age Rental Trend Analysis
A300-600R 1987-901991-97 50-8565-90 After experiencing stability for some years the lease rentals of the -600R have move down slightly illustrating the limited appeal of the type. The displacement of the type by newer models continues apace and lessors would do well to ensure that an existing lease is extended. Increasingly, power by the hour arrangements may be made. There will be considerable variation depending on the terms of the lease with respect to the lessee and the term.
A310-300H 1985-891990-97 60-7570-95 The market for the A310 remains very difficult and once a lease ends it can be extremely difficult to find another lessee for any reasonable length of time. Rates at the upper end have fallen to some extent. There is likely to be much discussion as to whether to keep the maintenance reserves and scrap the aircraft when it comes off lease at the end of the term. A small widebody generates considerable drag due to its wider fuselage but perhaps if a wider single aisle that allows passengers to pass one another can be designed that may provide a solution.
A330-200 1998-022003-08e2009-17e 130-170140-255240-770 The lease rentals of the -200 continue to experience a fall and even the newer examples will be fortunate to see rates of more than $800,000. Lessors will be mindful of the fall in values and therefore the need to generate profit via rentals but the lessees are likely to be able to drive rates down, particularly for secondary leases. The A330-200 is leased in relatively large numbers and lessors may therefore find remarketing more difficult as competition increases. The newer 242 tonne version adds to the range – and attraction. The move into 2017 has not seen an increase in lease rates. But placement is still very much possible though perhaps more work is required with more risk the shorter the lease term.
A330-300 1994-971998-022003-17e 110-120120-275275-795 The lease rentals of the A330ceo continue to fall which is no surprise as the A330neo is due to enter service next year, slightly later than originally planned. The type has considerable utility in such places as China. Lease terms are likely to be of shorter duration but lessors will be seeking long leases at lower rates perhaps as a means of preventing a third lease. Placement of Rolls powered examples are taking place despite some perhaps misplaced concern over the portability of the TotalCare engine support program. The aircraft is still very much viewed as a people mover and higher densities will likely improve seat mile costs.
A340-300H 1993-971998-022003-08e 95-155100-160145-285 The A340-300 can still be of use to a range of operators. With a new interior such as those of Lufthansa, the aircraft can be made to pay particularly in the context of lower fuel prices. The average lease term has become shorter but the aircraft is able to avoid ETOPs rules. Lease rentals have remained stable over the last quarter but may see a fall in the next six months as more B777-200ERs become available.
A340-500 2002-09 180-355 There can be no disguising the lack of interest in the aircraft. At one time the A340-500 had a high Aircraft Rating because of its perceived niche operational characteristics but such a niche has turned into marginalization. The interest in non stop flights was strong but eventually the aircraft needed to be filled with mostly business passengers and four engines were not viable. Ultra long haul direct flights limits origin and destination points and constrains scheduling flexibility but yet the B787-9 is to be used on a direct London-Australia flight in the near future. The flexible engine support programs on the Trent are playing their part. Lease rentals are edging downwards again.
A340-600 2002-10 210-390 The market for the -600 is far from robust but the greater capacity provides the opportunity for better efficiency and Airbus is promoting a higher capacity solution. The number of operators capable of supporting the aircraft are few in number but those that use the type are able to make a profit in a high traffic / low fuel price environment. The lease rentals have experienced a sustained decline but at these rates they make sense for lessees when seeking a comparison with the B777-300ER though lessors will inevitably squirm.
A350-900 2014-17 860-1275 The deliveries of the -900 is increasing after a very slow start which was partly caused by interior issues. The type though is proving itself capable of serving a variety of routes and the efficiency is considered to be comparable to that of the B787. The lease rentals of the oldest have moved down slightly while those newly delivered remain unchanged for the present.
A380 2006-17 555-2100 The market for used A380s is seen as very fragile and with some early examples on the market, finding a lessee will be difficult. This means that the lease rentals that will be secured will be variable and may even have to be on a power by the hour arrangement. The reconfiguration and the time and effort needed to perform such changes is an issue that will persist although some lease agreements will see the aircraft returned in a two class configuration.
B747-400 1989-951996-02 100-140110-240 Rates are slipping again as there is little attraction in operating a passenger -400. The cost of maintaining the aircraft is rising ever higher. Both Delta and United will retire their -400s this year which signals a clear move to the larger twins. With such vintage of aircraft there can be considerable variation in rates. The size and original cost of the aircraft should elicit higher rentals but the replacement with much more efficient twins and the A380 means that the market for the type is limited even with second tier carriers.
B747-8I 2010-17 770-1200 A good aircraft but as a vehicle for leasing there is little attraction. Rates have fallen again and the backlog is limited to a few passenger units with two built for Transaero being reconfigured as Air Force One replacements at a cost of billions. 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 70-100 Rates have fallen slightly which is to be expected for such an old aircraft and again considerable variation can be expected depending on the term and lessee. The rentals of the type have failed to provide much solace for the few lessors that participated in leasing but then the credit standing of the lessee was seen as the more important.
B767-300 1986-901990-98 70-9085-110 The aircraft is far from ideal and was always expected to be displaced. Like the A300-600R the rates offer good value and rates are at levels that makes further falls unlikely in the short term.
B767-300ER 1988-951996-03 100-170120-240 The B767-300ER is still being placed despite the majority now being more than 20 years of age. Lease rentals are holding steady for the moment but will fall again in the near future not least because both Airbus and Boeing are increasing delivery rates for the A350 and B787 respectively. The lower price of fuel continues to make it attractive to wide range of operators. Lease rentals are falling lower but only by a modest amount and not on a par to so many other types.
B767-400 2000-02 140-220 The -400 is a large aircraft but the type is limited to a few operators. The -400 operates in the wings of the market given that few were built. Lease rentals are low for such a size of aircraft.
B777-200 1995-00 140-220 The -200 is far from attractive but for the next five years some leasing can still be expected to take place. The aircraft is facing pressures from a variety of sources and as such lease rates have fallen. The lessors will have been seeking to dispose of the aircraft for some time either by selling to an existing lessee or via parting out.
B777-200ER 1996-012002-12 140-250230-495 The aircraft still has some utility and leasing is taking place but rates are a shadow of their previous levels and realism regarding onward leasing is essential. Rentals are still falling as lessees realize that the costs associated with engine and airframe overhauls are a significant drain on cash. The type has moved onto to second tier operators and this process will continue apace as the B787-9 and B787-10 take hold. The lower price of fuel has been an incentive but operators have other considerations than operating costs – IFE and reliability for example.
B777-300 1998-06 140-270 An aircraft that had a few supporters but which are now too few to prevent rentals from falling. There were just as few actually built. The aircraft has the capacity but not the range. Rentals are falling by a small amount. To some extent freighter conversion will pass the type by as the focus will be on the -300ER.
B777-300ER 2004-102011-17 340-720610-1900 A few aircraft are in the market and lease rentals can be expected to be variable depending on the needs of the lessor. To all intents and purposes those -300ERs being delivered today represent only a marginal improvement over those produced 15 years ago. This makes it difficult to see high rentals for the younger aircraft. All too often with a very popular aircraft there can sometimes be a reluctance to incorporate changing circumstances into lease rentals.
B787-8 2010-17 590-1100 To some extent it is difficult to acknowledge how long the B787-8 has been in service as its still perceived to be a new aircraft. Yet, the backlog has greatly diminished and there are few new orders. While most leases were longer than eight years, there will be some used units entering the market in the near future. Even rates for new aircraft may be less than $950,000.
B787-9 2014-17 870-1380 Rates for 12 year leases to strong credits will likely see levels of just above $1 million per month in todays low interest rate environment. The -9 is clearly the focus of attention with the lessors placing orders for the variant, sidestepping the -8. Rentals are holding firm but expecting to be able to apply a sizeable premium will not settle well with lessees.
Commentary reflects change from the last update to Widebody Rentals of June 2017.
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