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FUTURE AIRCRAFT VALUES

Widebody Rentals Remain Low

August 5, 2019

The low interest rates are inevitably having an effect on lease rentals when compared with previous levels but the market for used widebodies is perhaps not as strong as for narrowbodies and this is making it necessary for rentals to be realistic.

The larger widebodies can be placed – notwithstanding the A380 – but remarketing takes time and effort. The need for reconfiguration for most widebodies requires effort well before the lease expires not least because of the potential delay in securing seats, galleys and lavatories. The larger widebodies may not see secondary leases at the levels previously expected as operators are conscious that higher fuel prices and lower fares are affecting the bottom line.

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 – August 2019
Aircraft Age Rental Trend Analysis
A300-600R 1987-901991-97 40-7050-80 There are very few -600Rs remaining in passenger service – or indeed in any type of service. The -600R was never delivered in large numbers anyway but with only some 20 left in service with mainly Middle Eastern countries, the potential for leasing is non-existent. As a D check or engine overhaul falls due there is even greater likelihood that the aircraft will be scrapped. 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 20 aircraft.
A310-300H 1985-891990-97 45-6055-75 The number of operators of the -300 have also exhibited a marked decline over the last decade although there are still some 22 operators flying 44 aircraft. Not all of the 22 operators are commercial operators and indeed, a good many are now used in the governmental role. The prospect for onward leasing is very low and operating lessors have all but disappeared although Carlyle Aviation Partners leases a unit to Air Transat. There has been no direct replacement for the A310 although the increasing capacity of the A321 has provided some alternatives. The aircraft is not expected to be in commercial service for many more years.
A330-200 1998-022003-08e2009-19e 110-140110-390210-680 The A330-200 is leased by a wide range of lessors and indeed the type became of the first Airbus widebodies to be widely adopted by the leasing community. Such attraction however, brought its own problems soon after service entry as post 2001 a number prematurely entered the market due to defaults and corporate collapses. The effect was to see a significant decline in rentals for a few years. Thereafter the rentals improved. The type has been overshadowed by the -300 in recent years but the capacity and range of the type makes it ideally suited to the needs of a myriad of operators. Indeed, there are well over a 100 operators of the -200 indicating that there a very significant number operating only a few aircraft. With no single operator dominating the operator base, it has been relatively easy to place 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. 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 Despite the arrival of the -900 the -300 has become the backbone of many fleet and despite the higher number of deliveries compared to the -200 there are some 30 percent few operators. The combination of high capacity, flexible range and lower capital cost makes it suited to a wide range of operators both large and small. However, as the type is now being replaced by the A330-900, lease rentals are falling. Placement is relatively easy notwithstanding the need to undertake reconfigurations. The Trent engine has not seemingly been a hindrance to placement. New lessor friendly TotalCare programs have also been a positive for the type.
A330-900 2018-19 800-950 The new -900 is performing well. Being so early in the program, there are inevitably few operators. However, the lessors have been quick to recognize the advantages of the aircraft and how operators see it as a means of meeting demand at a relatively low cost. Airbus are certainly promoting the -900 as a low cost option for medium haul routes leaving the A350 to perform longer sectors.
A340-300H 1993-971998-022003-08e 80-14090-150130-240 The A340-300 is far from the most attractive of aircraft but the type is still leased by a relatively high number of lessors including BBAM, Kahala, Aircraft Engine Lease Finance, AFS, Castlelake, Avmax. The type can still generate revenue for lessors as the aircraft can be used as a stop gap measure. As such shorter lease terms can see higher rentals. There are a good number in storage most of which will never return to service. The appeal of the A340-300 in terms of leasing is therefore 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 may have been few delivered in the first place but there are now even few remaining in service. There may even be less than ten in active service with a significant number being in storage while others are in the process of being parted out. The term parted out is perhaps a misnomer as the parts are not of much value when the vast majority are no longer in service. 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 There are a great many more -600s still in service than there are -600s. However, Virgin is to retire the last of its -600s this year with the A330neo being ordered in numbers. Lessors include BBAM, Doric, Aercap, Mitsui Bussan Aerospace and Orix. Of course, existing lessors will be seeking to ensure that the aircraft remain with the existing lessors for as long as possible and as such lease extension pricing will likely be competitive. Return conditions may see some compensation and as such the deal needs to be seen as a complete package rather than just focusing on lease rentals. 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 lease rentals are easing down slightly which is perhaps inevitable given that the type has now been in service for nearly five years even if the early years saw rather a disappointing number of deliveries. There may have been some quality issues initially but in terms of service, operators are finding that the fuel efficiency and performance is generating demand and profitability. The used market is theoretical for the time being but it is expected that the type will be attractive to a range of operators when it does become available.
A350-1000 2018-19 1100-1500 The number of deliveries is increasing and in service experience is good. The type may not have the capacity of the B777-9 – which itself may now be delayed – but this may not necessarily be an issue if the seat mile costs are contained. Not all operators in any event wish to carry marginal economy passengers. There will be a number of sale and leasebacks going forward which are not strictly operating leases.
A380 2006-19 350-2000 The market for the A380 continues to suffer as it becomes ever more apparent that placing used aircraft will remain very, very difficult. There may be some interest but only at very low levels. In terms of new sale and leasebacks, rates of $2 million or more per month may still apply. Lessors will be interested in end of lease compensation lump sums. But as before there will also be greater interest in assessing the structure of the deal based on the assumption that the aircraft will be scrapped after the first 12 year lease. 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 90-120100-200 The lack of interest in four engine aircraft has long extended beyond the A340-500 and the A380 with the B747-400 giving an indication of how the market structure has changed over the last decade. The passenger -400 has not been favored by the lessors even when it was at its height of popularity. There are few that are operated by a vanilla operating lease. The aircraft can be placed but short term rentals are more likely. The higher operating and maintenance costs are taking their toll although operators with in house capability continue to see its value.
B747-8I 2010-17 500-900 Production has effectively ceased and lease rentals are suffering just as much as for the A380. Indeed, the very limited operator base for the -8I should warrant even weaker rentals. 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 -200ER was an aircraft which carved the way for long haul twin engined operations overwater. The type proved that operating a smaller aircraft over longer sectors was economically viable. Many a route that is now filled by a B777 or A350 started as a -200ER route. However, heritage has only a limited role to play in the modern age and as such lease rentals have been weak for as long time. 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.
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 The -300ER remains very much in demand as it offers the right capacity at the right price – just like the A330-300. The type can be used on medium haul routes where the effect of greater fuel consumption is of lesser significance particularly when compared to a newer 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 2000-02 120-170 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 A good rather than a great aircraft that had a role to play but any attraction has long since passed as the market is clearly focused on newer types. The aircraft needs an experienced lessor to manage the not inconsiderable risk and even then……
B777-200ER 1996-012002-12 110-210180-430 The weakness facing the type in terms of more versatile replacements was overlooked for a number of years but no longer. The type is experiencing an era of replacement and given the issue of maintenance and reliability as well as reconfiguration, placing the type is not necessarily straightforward. Yet, it must be remembered that the -200ER is still leased by a variety of experienced lessors most of whom will wish to extract the maximum from the aircraft for a few more years even if it is on a power by the hour arrangement.
B777-300 1998-06 120-250 The -300 may not be considered as the premier type but the aircraft has still managed to be placed with ex Emirates aircraft going to Cathay and ex-SIA aircraft going to Rossiya. Lease rentals are continuing to fall and this trend will remain a feature for many years to come. The extent freighter conversion will pass the type by as the focus will be on the -300ER not least because the time on the -300 will be too high. Shorter sectors will have seen a higher number of accumulated hours and cycles.
B777-300ER 2004-102011-19 280-500400-1450 The backlog is diminishing and inevitably there will be greater focus on where used aircraft will be placed in the coming years. The delay to the service entry of the -300ER may see some temporary stability. However, it is recognized that the size of the aircraft will make it more difficult to place on the used market as there are relatively few operators with the density of traffic able to fill the aircraft. 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 2010-19 420-900 The rentals of the -8 remain weak as the market continues to focus on the -9. The -8 is also of an age – difficult to believe – that will likely see a number entering the used market in the near term. The early -8s perhaps feature a heritage which will not be endearing such that only low rentals will entice placement.
B787-9 2014-19 670-1290 A great aircraft even if some are still parked awaiting rectification of the Trent engines. The performance of the aircraft along with its economy makes it sought after. Many a new route has been opened up by the -9, as forecast by Boeing. 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.
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 May 2019.

 

 

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