Widebody Rentals Fail to Advance

May 13, 2019

The market for used widebodies remains reasonable but the rentals are failing to improve despite traffic growth.

The manufacturers are more able to match production with demand and are delivering new aircraft in reasonable quantities even if Airbus rates are low. In the first three months of 2019 Airbus delivered 28 widebodies comprising 19 A350-900s, three A350-1000s, one A330-200, one A330-300, three A330-900s and one A380. This compares with 26 in the same period of 2018. In the first three months of 2019 Boeing delivered 60 widebodies comprising 36 B787s, 10 B777s, 12 B767Fs, and two B747-8Fs. The A350 and B787 deliveries represent a significant number of seats and are serving to displace some older equipment or are allowing airlines to expand without adding capacity.

Used widebody aircraft are being moved between operators but not as many as might be expected in such buoyant market conditions. Lease rentals of used aircraft are failing to keep stable with the larger aircraft particularly vulnerable to lower than expected rates as operators struggle to fill aircraft with sufficiently high yielding passengers.

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) (for China

Widebody Lease Rates (Dry) US$ ‘000s pm – May 2019
Aircraft Age Rental Trend Analysis
A300-600R 1987-901991-97 40-7050-80 Lease rates are inevitably low because of the availability of more modern equipment and because of the lesser efficiency. Finding a lessee will be difficult at least one that will be willing to take the aircraft for anything longer than three years. There are surprisingly few that remain in service – surprising because of the number that were delivered within the last 30 years. Long gone are names such as American Airlines. The type is now primarily operated by Middle Eastern operators as the type can be flown to Europe, the Indian sub-continent and Asia. Inevitably, Iran features large in the list. There are only nine operators operating 22 aircraft.
A310-300H 1985-891990-97 45-6055-75 A good aircraft but which failed to sell in numbers. Just as Boeing is finding out, designing an efficient small widebody is not easy. Two aisles sees a larger airframe diameter which leads to greater drag just as the larger engines increase weight. There are also a limited number of markets that require smaller capacity and longer range. The A310 has limited appeal and lease rentals have fallen to levels that make it difficult for further declines to be contemplated. There has been no direct replacement for the A310 although the increasing capacity of the A321 has provided some alternatives. Finding a lessor that actually leases a -300 is far from easy as most will either be owned outright, be on traditional financing or on a finance lease.
A330-200 1998-022003-08e2009-19e 110-140110-390210-680 The A330 has been in some demand due to the problems being experienced with the B787 and this has allowed some improvement in short term rentals for the aircraft. However, in general terms rentals of the -200 are under pressure as the type ages and because of the greater interest in larger capacity equipment. The weakness in -200 lease rentals therefore continues apace. With 115 operators there is not likely to be much difficulty in placing the aircraft but this may be at the expense of lower rentals. Some operators of the type are struggling. There can be considerable variation in lease rentals with the B787-9 issue having an effect on short term lease rates. The newer 242 tonne version adds to the range – and attraction.
A330-300 1994-971998-022003-10e2011-19e 100-110110-390230-440360-740 For a number of years the -300 was the poor relation of the -200 but a decade this changed. The hiatus to the B787 was a factor but with Airbus realizing that the -300 had the range potential and economics for operators to make money, orders increased significantly. The lease rentals of the type are still under pressure as operators rollover their fleets in favor of newer types. 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 also been a positive for the type.
A340-300H 1993-971998-022003-08e 80-14090-150130-240 The market for the -300 continues to weaken as the aircraft is increasingly supplanted by newer models. There are a good number in storage most of which will never return to service. Lease terms are likely to be shorter than lessors would wish but there is little option but to accept what is on offer. The aircraft has therefore been a viable leasing tool in the past and may have paid its way. But not now. The appeal of the A340-300 in terms of leasing is either on a short term basis or keeping the aircraft with the existing lessee and collecting maintenance reserves such that the aircraft can be scrapped when major engine overhauls are due.
A340-500 2002-09 160-325 There were some who dismissed the -500 as soon as it was launched considering the type to be marginalized rather than a niche aircraft. They were quickly proved right as the type was too expensive to operate. 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 very difficult. Rates are therefore largely theoretical and any lease will be on the terms of the lessee rather than the lessor.
A340-600 2002-10 180-350 To some extent the -600 has better prospects than the A380. The market for the aircraft is limited and placing the aircraft is very difficult once an existing lease expires. The rates for the -600 are continuing to decline and there can be considerable variation. Lessors may prefer power by the hour arrangements or not even lease it at all. The B777-300ER is now set to become much more available on the used market at surprisingly low rentals and as such the -600 is vulnerable to competition. The size of the aircraft will limit remarketing.
A350-900 2014-19 750-1300 The A350 has proved itself much more capable than the original envisaged re-engined A330 could ever do. Deliveries of the type are now at much higher rates and placement can be expected to be easy. The rentals of the aircraft built a few years ago are falling to some extent but not sufficient to be a cause for concern. Reliability is something that is constantly being improved. There have been issues over the standard of interior finishes. Lease rentals are slightly lower for the older units while there has been no increase for those being delivered this year.
A350-1000 2018-19 1200-1500 The A350-1000 may be seen as too small by some when compared to the B777-9 but with operators not wishing to transport large numbers of marginal economy passengers then perhaps a slightly smaller aircraft is not a hindrance, assuming the seat mile costs are similar. There will be a number of sale and leasebacks going forward which are not strictly operating leases.
A380 2006-19 350-2000 Lease rentals of the A380 are plummeting in the wake of the announcement that production will cease but then lease rentals were already facing downward pressures as it became apparent that placement was difficult. The A380 remains the aircraft of choice for many passengers not least because there is little indication that the aircraft is actually flying. Yet, positive passenger perceptions do not fill the aircraft and operators have been turning their attention to smaller aircraft. 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. Lease rentals are expected to fall although some sale and leasebacks may see higher rentals.
B747-400 1989-951996-02 90-120100-210 The -400 cannot hide from a market environment that no longer sees any attraction in the type. The world has moved to twin engined aircraft seemingly forever. Finding a lessee for those aircraft being released by existing operators will be difficult just as it has been for nearly a decade. The higher operating and maintenance costs are taking their toll although operators with in house capability continue to see its value. Any lease term 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 as lessors realized the difficulty in placing the aircraft onto the used market.
B747-8I 2010-17 600-1000 The market for the -8I is even worse than for the A380 and lease rentals are falling as a result. The aircraft is by no means attractive and when retirement looms there will be few takers although conversion to a freighter may be economical if the price is sufficiently low to warrant the $30m+ cost of conversion. 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. The preference will be for lease extensions rather than having to deal with a return.
B767-200ER 1985-92 60-80 The aircraft still has some utility as it can fly longer sectors. The fuel consumption though is a concern even if the lease rentals are not and maintenance is an on-going issue. Reliability is a key concern when flying long haul because of the difficulty to finding a replacement should there be an AOG. 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.
B767-300 1986-901990-98 65-8575-90 The type was only ever ordered by a few operators. The type has dispersed slightly but finding a lessee will be difficult. Leasing has been of little interest and lessors have been wary of participating.
B767-300ER 1988-951996-03 95-145105-215 This was the widebody that really allowed lessors to participate in widebody leasing. Compared to the larger widebodies, the B767-300ER represented lessor risk given that its cost was lower and the operator base was expansive. Even today the type is generating good returns for the lessors that have the experience to manage an ageing type. Boeing may or may not develop the Middle of the Market aircraft – the B797 given the issues with the B737MAX. The age of the B767 is however high which makes for shorter lease terms.
B767-400 2000-02 120-180 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 1995-00 100-180 There was always the feeling that the -200 represented something of a false dawn for lessors. For those that could not lease a -200ER the -200 was seen as close enough – except it never has been a match for the more versatile variant. Lease rentals are still falling as the market moves to other types. The aircraft needs an experienced lessor to manage the not inconsiderable risk.
B777-200ER 1996-012002-12 110-210180-430 A good vehicle for leasing for a while but that time was more than a decade ago. The demise of the type was largely ignored for several years but today lessors are seeking to eek out a few more years of rentals at any cost before inevitably scrapping the aircraft. 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. Higher fuel costs, inferior IFE and lesser reliability are taking their toll.
B777-300 1998-06 120-250 The -300 was produced in very limited numbers and the leasing community never saw it as a viable leasing tool. Lease rentals are continuing to fall and this trend will remain a feature for many years to come. To some extent freighter conversion will pass the type by as the focus will be on the -300ER.
B777-300ER 2004-102011-19 280-530430-1450 Despite the -300ER being so well liked there has to be a recognition that there are some very larger operators of the type who do not like operating older aircraft. Availability is therefore an issue going forward and placement with second tier carriers will likely be at the expense of lower rentals. With production coming to an end there will be a need for rentals to become increasingly realistic. The -300ERs very popularity and size of the aircraft will prove to be a hindrance in placement as they are a great many being leased via sale and leasebacks.
B787-8 2010-19 440-925 The market for the -8 is perhaps more fragile than might be realized. There have been very few orders of late and the backlog is very limited. The -8 proved the concept but the -9 was the variant that operators needed. Lease rentals are therefore very much a shadow of the levels seen at the time of launch.
B787-9 2014-19 670-1290 This is the B787 of choice and lease rentals are remaining reasonably stable as a result although it has to be noted that the oldest is already five years of age. The -9 has however, had its problems in terms of the Rolls-Royce engines which resulted in a number being grounded for some time. This has not really affected lease rentals which are somewhat theoretical as the type has yet to be placed onto the used market.
B787-10 2018-19 1050-1475 The B787-10 has entered service perhaps in an understated manner. The lease rentals have yet to be proven but at present appear to have some stability even if the range is likely to be increased sometime soon.
Commentary reflects change from the last update to Widebody Rentals of February 2019.


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