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Increasing Competition Could Impact Rentals

June 11, 2018

The traditional operating lease product continues to focus on the newer more popular types whereas finance leases and loans may feature on used and older aircraft.

The operating lease market has expanded in recent years but compared to the jet sector, the number of lessors is more limited as is the proportion of turboprops that are on operating leases. The increased competition is however, notable and the premium being secured on turboprop rentals is not perhaps as great as it once was. The major turboprop lessors are able to secure aircraft at attractive rates and this allows for more flexibility when setting lease rentals. The financial standing of some turboprop lessees can exhibit lesser strength and as such can allow rentals to be higher although of course there can be the potential for an early handback of the aircraft which may involve the refurbishment of the interior at $100-200,000 and loss of lease revenue during any maintenance and remarketing.

The demand for new turboprops continues to demonstrate the robustness in this sector though the securing of orders may be at a price and there has been limited announcements of late. The recovery in the fortunes of the sector was not solely a function of higher fuel prices. With the rise of the regional jet, the turboprop lost favor among both operators and passengers. An all jet service was pursued, sometimes at the expense of operating economics. As the structure changed once more, from regionals feeding the mainline carriers to greater independence, operators needed to place operating economics higher than passenger preference. The structure of the turboprop market has also expanded beyond normal boundaries such that there is appetite from new market players in new regions. Finally, as turboprop manufacturing has centered on just two products, the need to retire older equipment has forced operators to seek replacements from the used sector. A primary consideration for the stability in future values has been the lack of replacement products. There is still talk of a stretch but not to the extent that this has resulted in serious discussions. The conversion to freighter represents a major alternative market for the 50 seat turboprop though some 70 seat turboprops may also be used to replace earlier generation jets.

Rentals are expressed in thousands of US dollars per month and are for indicative purposes only. Long lease terms, less credit worthy lessee, return conditions, will vary rentals considerably. Aircraft Rentals courtesy of The Aircraft Value Analysis Co. Ltd. (AVAC)

European Specification Turboprop Lease Rates (Dry) US$ ‘000s pm – June 2018
Aircraft Age Rental Trend Analysis
ATR42-300 1985-901990-95 30-3530-45 The age profile of the ATR42-300 does not lend itself to the traditional operating lease and as such a loan may be used. Lessors have to be conscious of the need to incorporate the potential for limited, if any, residual value. A few are in convertible combi configuration which is always useful but as a passenger aircraft the combination of age and increased maintenance will likely cause operators to seek newer aircraft.
ATR42-500 1995-012002-082009-12 45-6055-7065-80 There were a reasonable number of -500s sold – 130 in total – which for a 50 seat was expected. The lease rentals of the -500 can be expected to have fallen slightly in the context of advancing age. Operators may not wish to pay a substantive premium for leasing a newer -500. As the -600 has been in service for a number of years then there may be greater preference for the newer variant but for many the -500 provides sufficient service. There are a number available for immediate lease.
ATR42-600 2012-18 75-150 The -600 has been in service for a sufficient number of years for the number on lease to have increased. The market for the type can perhaps be characterized as sporadic rather than steady and lease rentals for the newest aircraft can be heavily dependent on the lessee. There are few if any being advertised but this is perhaps a reflection of the limited number that have been delivered! Only some 40 have been delivered.
ATR72-200 1989-96 30-40 A good aircraft but one which is rather old. Other airlines tend to lease the aircraft to other operators. ASL Airlines of Ireland leases some freight equipped aircraft. The manufacturer – ATR – leases some this variant. The extent of the manufacturers involvement in the used has fallen significantly over the course of the last 20 years. Their previous participation was a virtual necessity but today there is much less need. Lease rentals are steady but retirement is an ever present option when a major maintenance event occurs but at least the aircraft can be maintained with relative ease. The aircraft is perhaps more likely to be financed through a loan.
ATR72-500 1998-022003-12 45-6050-90 There are many -500s on the market and this continues to have a negative effect on lease rentals which have fallen again. Many are available for immediate lease which always serves to undermine the ability of lessors to command a premium. NAC and ATR are among the lessors of the aircraft although AVAP, Castlelake, Aergo Capital, Investec, Injet Leasing and Solenta Aviation also feature. The lease rentals have suffered over the last year. The age profile of the -500 also makes it vulnerable to replacement with the -600 which has been in the hundreds. Product support is often overlooked but this is essential for both experienced and inexperienced lessees. Those in lesser condition will require some incentive with respect to pricing. A total of 365 -500s were produced which given the limited demand in some years, represents a success.
ATR72-600 2011-18 80-165 The last year has not been good for the -600 with lease rentals suffering due to something of a surplus arriving at the same time as delivery rates were high. There has been a measure of improvement but rentals are by no means at previous levels. There are now relatively few available. Lessors include NAC, AVAP, Elix Aviation Capital, GECAS and Transportation Partners. With no new aircraft waiting in the wings the aircraft is considered to be a desirable turboprop asset but a sense of realism is needed. The depth and breadth of the operator base is notable but that can be at the expense of placement with weaker credits.
Beech 1900C 1983-87 15-25 There is little appetite for the 1900C even if the 19 seater still has a role to play not least because the aircraft is rather old. The versatility if not the interior comfort of the 1900C endeared the type to many operators but the market has moved on. The type is more suited to traditional financing rather than leasing and the price is sufficiently low as to allow cash purchases.
Beech 1900C1 1987-92 10-30 The 1900C1 introduced slightly better performance but comfort levels were still largely absent. Rentals have remained a constant for many years though a straight purchase is perhaps preferable for many operators.
Beech 1900D 1991-01 20-35 There are always a number on the market and the age profile is advancing such that they are not as desirable as they once more nor are they so endearing to the travelling public. There are many on the market and this will impact the ability to place the aircraft. Most are being advertised for sale rather than lease. The lease rentals can be higher for quality units. Any lessor will be looking at the longest possible lease. The 1900D remains the last of the 19 seaters to be produced and therefore still has reasonable demand but unfortunately the number on the market is also considerable. The standup headroom – subject to an average person – is a bonus on such a small aircraft.
DHC6-300 1969-751976-88 40-5550-75 The Twin Otter has represented the ideal vehicle for leasing over the years and the type has perhaps represented the best of investments of any turboprop or jet. The DHC6 continues to provide excellent service and though the aircraft can be easily placed much depends on the condition of the aircraft and indeed the variant. The type is still very much in demand and continues to provide service around globe to a multitude of operators in various guises. Lease rentals are holding steady but the actual rate is dependent on the length of the lease and the lessee. The -400 is selling but is not having an impact on -300 rentals.
DHC7 1977-821983-88 <20-3020-30 The market for the DHC7 is non existent. The very downtown airports that the aircraft was designed to service had little appetite for such operations. There were few Dash7s ever produced and there are fewer aircraft on the market. The aircraft remains very specialist even with the lower price of fuel. Inevitably a number have been scrapped and others have been written off and there are very few remaining in service.
Dash8-100Dash8-100BDash8-100Q 1984-911992-961997-01 20-4025-3530-40 The aircraft is tending to be acquired via traditional lending rather than a vanilla operating lease which is not surprising in view of the issues that would face a lessor. There are a significant number of -100s on the market which is not surprising as most were built in the 1980s and as such are not necessarily suited to commercial operations any longer. However, there has been some evidence in recent years that there has been a shortage of quality equipment. There are a number being offered for lease which allows new market entrants and those seeking to replace earlier types to acquire the type at relatively low cost. The type is facing pressure from newer variants as well as larger offerings. The -100 offers PW120A engines, while the -100B is powered by PW121 engines. The Q also has PW121 engines but a restyled interior and a vibration suppression system.
Dash8-200A Dash8-200Q 1992-961997-02 30-4030-40 The aircraft offers improved performance and this is always attractive to those operators using the aircraft on marginal routes. Availability is not so extensive but is still notable. Lease rental ranges remained virtually static but there can be considerable variation depending on the lessee and the term of the lease. Offering the same capacity as the -100 indicates that the -200 is just as exposed to changing market forces which have increasingly favored larger aircraft but such a position ignores the need of operators to meet the same traffic needs rather than seeking larger aircraft. The -200A offered operators the chance to use PW123C engines.
Dash8-300Dash8-300Q 1988-961997-08 35-4545-65 The more recent heritage of the Q series and the larger capacity has allowed for leasing to be envisaged. There are a number being advertised on a lease basis. Lessors would be well served to secure a long term lease rather than continually have to remarket which will only become more difficult as the years progress. The type can still be leased to a variety of operators but perhaps specialist knowledge is the key to extracting a beneficial rental. There still exists demand for quality units. Some 267 -300s of all guises were built before production ceased which is more than a credible number.
Dash8-400 2000-11 50-90 Just as with the ATR products, Bombardier features in the lessor listings as do NAC and Rand Merchant Bank. As the years progressed more were placed via the operating lease. The age of the aircraft makes secondary leases increasingly likely and this will push down rentals to a limited extent. The market for the -400 is becoming more difficult as more enter the used arena.
Dash8-400NG 2011-18 80-190 Aergo Capital, NAC, GECAS and Investec are lessors of the aircraft and placement continues albeit specialist knowledge is something of a necessity. There are relatively few on the market but there will always be some available. Bombardier has been pushing the sale of new examples and as such a sense of realism is needed with respect to lease rentals particularly when seeking to secure rates at the upper end of the quoted range. Lease rentals for the older aircraft have fallen slightly as have those for new aircraft.
BAe J32 1988-93 15-30 The aircraft has a long history but remains in demand not least because of the support of BAe – and the absence of new production. The aircraft is available on both a lease and through a sale but most prefer the latter as prices are around $400-500,000.
BAe J41 1992-97 20-35 The age of the aircraft ensures that there are a ready number on the market at any one time. There were only ever 104 sales and most are being advertised on the basis of a lease. The market is skewed towards the lessee rather than the lessor. The J41 arrived too late to capture a sizeable portion of the market.
BAe ATP/J61 1988-93 30-45 With again a limited production run of 63 there are only a few ever on the market. Conversion to freighter has taken place but operators may be more interested in other turboprop freighters. Lease rentals are not really an issue with the lessee being able to dictate rentals to some extent.
Do328 1992-01 20-30 The much improved version that is expected from Turkey will not likely have a major impact on the values of the Do328 given the gap in production. Lease rentals are at perhaps at levels that prevents further falls. There are a few being advertised for lease but this will not prevent variability in lease rentals.
EMB110 1980-89 10-25 A good basic aircraft that does what is says it can – carry passengers from A to B with the minimum amount of amenities and fuss. There are a large number in storage which makes for difficult remarketing. Leasing the aircraft may not be the most obvious course of action for operators with normal finance being the preferred option.
EMB120 1985-931994-99 15-2520-30 There are a number on the market – as usual. Some are for sale, some are for lease and some are for lease purchase. The lease rentals for the type may not be high but with such stability comes reassurance of some return. Maintenance and cabin refurbishment costs are contained. The Brasilia is in good use still and offers operators an EFIS cockpit. Even if larger aircraft are being sought the type remains a possibility for a range of operators.
Metro III 1981-91 <10-25 Again, an outright purchase is likely to be the preferred option with a traditional loan. A better aircraft than the Metro II but the LGW is still disadvantaged. The HGW version is very much the more sought after and rentals are able to remain steady. There are a number on the market.
Metro 23 1992-99 20-30 There are perhaps fewer Metro 23s on the market than Beech 1900Ds but potential lessees have to be sought rather than turned away and the lessee will have some influence on any lease arrangement. The rates for the Metro 23 can vary depending on the lessee and the term of the lease. The aircraft is good at what it does but lessors will not make a great living out of leasing the type.
Fokker 50 1987-96 30-40 There are always a number of Fokker 50s on the market in varying condition and any lease rental can be variable. Most wish to be sold as is but leases also remain relevant to some extent even if rate. The fortunes of the type have been variable.
Saab 340A 1984-89 20-30 There are a good many Saab 340As and Bs on the market and most are being offered on the basis of a sale or lease. Any lessor will not wish to give the aircraft way so the lessee may not be in the left hand seat when it comes to negotiations. Some 10 percent of the 459 Saab 340s delivered have been scrapped. The 340B provided better performance and was more sought after. The 340BPlus is the more attractive because of yet again improved performance, so vital for the smaller capacity aircraft and this is proving to be attractive for a range of operators. The type can offer a gravel kit as well as wingtip extensions.
Saab 340B 1989-96 25-40
Saab 340B+ 1995-99 30-40
Saab 2000 1994-99 30-45 The Saab 2000 still has some utility as a commercial aircraft but the program has always suffered and a few are on the market at any one time. Leasing the aircraft on a long term lease is clearly preferable but in this market any port in a storm is welcome.
Commentary reflects change from the last update to Turboprop Rentals of April 2018.
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