FOR CURRENT &
FUTURE AIRCRAFT VALUES

Rentals Experience Slight Fall

January 23, 2017

The market for most widebodies continues to remain relatively stable but the lease rentals for some types have fallen over the last quarter.

The problems being experienced by THY have seen a number of aircraft entering the market and lease rentals will likely be impacted. The move towards newer aircraft and the passing of any premium period for new products will contribute to a slight fall.

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). n

Widebody Lease Rates (Dry) US$ ‘000s pm – January 2017
Aircraft Age Rental Trend Analysis
A300-600R 1987-901991-97 50-9070-100 There is little expectation that the lease rentals of the -600R will now be above $100,000 except for the shortest of terms to the weaker credits. Power by the hour arrangements will likely be favored by some. The A300-600 may have been a stepping stone to the -600R but even the -600R failed to provide the competition to the B767-300ER that Airbus desired. On some routes such as intra-Asia, inter-Americas and the Atlantic the type showed that it could perform on a daily basis.
A310-300H 1985-891990-97 60-7570-100 Rates are considered to have fallen by a reasonable amount again as the type is increasingly moved from frontline service. The A310 still has considerable utility offering widebody appeal for thinner routes but age and reliability are against the type. Airbus and Boeing have no direct replacement for the type.
A330-200 1998-022003-08e2009-17e 140-190160-290270-770 THY is now remarketing a number and lease rentals were in any event on their way down. The type is still very popular but the product line is moving forward and the arrival of new types are taking their toll. The A330-200 is leased in relatively large numbers and lessors may therefore find remarketing more difficult as they compete against one another at least at higher rates. The new 242 tonne version adds to the range – and attraction.
A330-300 1994-971998-022003-16e 120-130130-295295-795 Again rates for the A330-300 are falling as the market moves to newer types and availability of used aircraft increases. Rates for newer aircraft are facing pressure from mid life aircraft that are entering the market. For new aircraft rentals of more than $900,000 now seem out of sync with the market though some sale and leasebacks may be achieving such levels. Because of the age profile of the aircraft then there can be considerable variation with post 2002 aircraft being the much more favored.
A340-300H 1993-971998-022003-08e 100-165110-170155-310 Rates for the A340-300 are holding relatively stable except that achieving rentals at the top end of the indicated ranges is likely to be hard going. The type is still being viewed as unattractive and age is an issue. Even if passenger traffic is growing above the long term average, this does not mean that operators will select any aircraft. With the turn of another year, then the negatives affecting the -300 multiply.
A340-500 2002-09 220-385 The market for the -500 continues to dissipate not least because Iran is now allowed to operate new aircraft though the new U.S. administration may say something about this turn of events. The arrival of newer long range types represents a considerable negative or the -500. The -500 has now been moved to other operators who see a low capital cost aircraft that can offer good capacity and does not need ETOPs capability in terms of the aircraft or crew.
A340-600 2002-10 240-410 Any rise in the price of fuel is seen as a negative for the -600 which continues to be on the periphery of the market. With only some 100 ever delivered the aircraft is facing the delivery of ever more B777-300ERs. Capacity is being enhanced and this is enabling the operating economics to be improved. Lease rentals are still weakening but not to the same extent as before. The high price of overhauling the engines used on the B777-300ER is making operators think about the relative efficiencies though.
A350-900 2014-17 900-1275 Now that the -900 has been in service for a couple of years, albeit in small numbers than expected, the type is providing excellent service and as such lease rentals, which remain theoretical, are seen as remaining stable.
A380 2006-17 595-2100 There seems to be only negative news for the A380 and lease rentals are viewed as falling again. Lessors though need to ensure that the lease rentals cover any shortfall in asset value and for that reason rates will not fall too much at least if the market will be willing to pay such high rentals. The aircraft may be more easily placed than might be supposed though reconfiguration may require some time on the ground between lessees.
B747-400 1989-951996-02 110-150120-260 United is now retiring its last B747-400 which just underlines how vulnerable the type is. The market for the aircraft is far from attractive and operators continue to seek newer types. The focus on premium traffic is all too apparent and the carriage of marginal economy passengers is less of an imperative. Leasing the aircraft has never been popular anyway.
B747-8I 2010-16 840-1200 Expectations for the lease rentals of the B747-8I will be marred by concerns over remarketing which is likely to be more difficult than for the A380. The aircraft is only available in small numbers and there will be few operators with a desire to take more of such a marginalized aircraft. 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 70-110 The rentals of the -200 remain at current levels such has been the fall I previous years. The market is moving towards newer types but there exists some utility for operators seeking to service long and thinner routes with an aircraft that can cope with lower utilization.
B767-300 1986-901990-98 70-10090-120 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 1988-951996-03 100-180135-260 The market for the -300 hangs on and lease rentals remain stable as a result. The freighter conversion market remains resilient and this is at least providing an avenue for disposal as more become available. Planning on low fuel prices into the longer term will lead to problems if negotiated lease terms are too long. The type though still has considerable merit.
B767-400 2000-02 155-230 The -400 operates in the wings of the market given that few were built. Lease rentals are low for such a size of aircraft. The aircraft may yet have a future in a high density charter role or alternatively the aircraft may continue to be operated until retirement by the few operators who currently use the aircraft.
B777-200 1995-00 150-240 A good aircraft but which always hung onto the cost tails of the -200ER. Lease rentals have once again shifted downwards. The type which was promoted as having good residual value potential when entering service has never lived up to such promise and lease rentals continue to decline albeit by a modest degree more recently.
B777-200ER 1996-012002-12 140-295270-570 Securing rates at the top end of the indicated range is likely to be difficult unless for a shorter term to a weaker credit. The market is moving away from the type as B787s are literally delivered in their hundreds. Yet, the aircraft still performs stalwart service for a range of operators which means that lease rentals for the next few years may be stronger than might be envisaged. The lower price of fuel has been an incentive but operators have other considerations than operating costs – IFE and reliability for example.
B777-300 1998-06 160-300 The -300 has the capacity which allows the type to be used on regional services by a handful of carriers. To some extent freighter conversion will pass the type by as the focus will be on the -300ER. Rates are still falling. The -300 is a great people mover for a few operators but finding a suitable operator is as difficult as selling it in the first place.
B777-300ER 2004-102011-17 380-800700-1900 Again, rates for the -300ER are falling as the market realizes that new types will offer greater efficiency. While the -300ER will remain a part of the fleet for decades, given its size, remarketing may not be that easy. Operators are also aware of the cost of engine overhauls on older aircraft as well as the reconfiguration costs. The first -300ERs are in the process of being released and demand on the used market may not be as strong as some envisage.
B787-8 2010-17 615-1100 Rates are falling back in line with expectation as the market moves towards the -9. The backlog for the -8 is falling rapidly. Despite the relatively recent entry into service the availability of used units on the market may not be too distant. Rates of $1.1m or more seem to be more difficult to achieve particularly with the prospect of low interest rates for some time.
B787-9 2014-17 890-1380 The B787-9 is now the most popular of widebodies and rates are holding up. The type is providing excellent service and Boeing is supporting the type well to ensure that reliability remains high. The aircraft has a considerable backlog and demand is expected to remain high though there will likely be a call for higher weights to improve the payload range still further.
Commentary reflects change from the last update to Widebody Rentals of October 2016.
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