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Widebody Lease Rentals Yet to Recover

June 21, 2021

The market for widebodies remains under severe pressure as there exists a cautious approach to opening up international borders, particularly long haul, and this is causing great difficulties for the placement of both new and used widebodies.

The U.S. domestic market is seeing a major recovery but perhaps because of the limited opportunity to travel to other countries. International traffic is not merely down by a few percent but remains a fraction of pre-pandemic levels. for April 2021, traffic was 87 percent lower when compared to April 2019 even if it is nearly 700 percent higher than for April 2020. European international traffic was still 82 percent lower than two years previously with Asia/Pacific being over 94 percent lower. Carriers have been adding capacity but actually filling aircraft has been an entirely different matter. Even though capacity has been reduced by 76 percent in April 2021 versus the same month in 2019 on international routes, the load factor was only 44 percent compared to 83 percent of two years ago. This clearly demonstrates the issue for the international carriers – even when capacity is added to routes, the demand is not there. The recovery is fragmented at best and another year at least is required before the vaccination program has expanded sufficiently to allow borders to open. Many destinations that previously enjoyed high levels of international traffic have yet to start a vaccination program in earnest.

The countries that have been at the forefront of the vaccination program, having perhaps been less successful on the containment of the virus, have taken some six months to achieve a vaccination level of some 70 percent with borders to open. For those countries that are still at the early stages of the vaccination program, to achieve a similar 70 percent will take at least until early 2022. As was indicated in AVN a year ago, only when the vaccination program is completed on a global scale can there be a semblance of a recovery. Some widebody aircraft have been acquired by new or smaller operators but this is the issue with start ups and aspirational operators – the number of aircraft being acquired falls far short of the number being released by incumbent operators. The issue for existing operators is it is not possible to retain aircraft and the infrastructure on the promise of a recovery. The ancillary costs associated with maintaining an existing fleet over and above financing of the aircraft are extensive. Airlines have historically relied on cash flow with cash reserves being limited. consequently, a loss of revenue means that the organization has to contract sooner rather than later to avoid liquidation – Stobart Air is the latest to fail. The new operators are therefore able to take advantage of much lower lease rentals, levels that will likely prevail until next April.

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 – June 2021
Aircraft Age Rental Trend Analysis
A300-600R 1987-90

1991-97

30-50

35-60

The market for the -600R in terms of leasing has not been relevant for many years. The Covid Event has essentially served to accelerate its demise but there was little opportunity for the type in any event. The -600R was always seen as being in the shadow of the more popular B767-300ER not having the range of the Boeing product. The have been notable operators of the type but the drift down to second tier operators was perhaps quicker than for other types. There is no improvement expected for the -600R not least because of the now very limited operator base. Iran Air, Meraj Air and Mahan Air are the only operators. The aircraft has been maintained despite the sanctions and even a damaged A300 was returned to service.
A310-300H 1985-89

1990-97

25-40

30-65

The A310 filled a niche market but now that niche has expanded as evidenced by the demand for an even larger A321 and studies by Boeing with respect to the B797. Designing a small widebody was always difficult in terms of achieving the necessary comfort and efficiency. The wider fuselage of the widebody inevitably creates more drag because of the greater diameter and associated weight. However, the interior space offers improved passenger comfort particularly with respect to the premium section. The widebody design also lends itself to greater fuel capacity with lower hold freight capability. Nonetheless, the capacity is more limited. The demand for the A310-300 has always been limited even if it fulfils a gap in the market.
A330-200 1998-02

2003-08e

2009-21e

65-100

75-230

180-420

The predicament of the A330-200 is all too apparent and personifies the issues surrounding the international market. More than eighteen months after the Covid virus was first identified, some 50 percent of the A330-200 fleet remains in storage. Another 250 may be in service but a reasonable number of these are used as essentially preighters or may be used for only a few hours or day or a few times a week. There are some 85 -200s that listed as being owned by operating lessors but which are also in storage. Some of the lessees will have requested reductions in rentals and some have handed back aircraft. The issue for rentals is that there are many being advertised for sale or lease.
A330-300 1994-97

1998-02

2003-10e

2011-21e

65-90

80-140

125-300

260-470

The A330-300 is also seeing a number being advertised for sale or lease and this is the issue for the A330-300. Even before the Covid Event there was something of a surge in availability albeit with a reasonable proportion being reabsorbed on the basis of lower rentals. In terms of the level of active versus stored aircraft, this is better than the -200 with some 420 in active service but “only” 250 being in storage. There are 289 on operating lease of which 175 leased aircraft are active with 36 lessees with another 89 leased aircraft in storage. Another 122 are on a finance lease of which 31 are in storage. The lease rentals have inevitably suffered during this catastrophe. The younger aircraft may see some improvement in the near term but the older examples, which are in excess of 25 years of age, will find the market very difficult. The replacement of the type has perhaps been accelerated due to the Covid Event.
A330-900 2018-21 460-700 The rentals for the -900 have improved slightly as the focus of the market is clearly on the more modern aircraft offering better economics. Air Belgium has taken two new A330-900s – 1844 and 1861. The aircraft were destined for Air Berlin then RwandAir with Air Lease Corporation being initially involved. The aircraft however, reverted back to Airbus who have been seeking to dispose of the aircraft. Air Belgium currently operates some A340-300s which are seen as expensive in an era of rising fuel prices.
A340-300H 1993-97

1998-02

2003-08e

50-90

70-100

80-125

The very factor that has caused Air Belgium to secure the two A330-900s – higher fuel prices – will likely affect the market for the -300 again. The -300 has already toppled into the abyss such that higher fuel prices are only another factor. The type has long since lost its allure for operators.
A340-600 2002-10 70-160 The market for the -600 has dissipated. Some new operators may see a future given its low cost but then the same was said for the MD80 post 2001. The four engined configuration was always an issue once the B777-300ER emerged hence why only some 100 were ordered of which a few remain in active service out of necessity perhaps than desirability.
A350-900 2014-21 550-900 Rates for the A350-900 have increased slightly as the market is favoring newer types even if demand remains limited. The greater appetite for a freighter version of the A350 points to Airbus having to stimulate demand which is not surprising. There remain some 80 in storage which is an improvement in the last few months but of these 42 are operating leases. At least nine A350-900s are in the process of being remarked from lessors such as AerCap, Skyworks and Avolon. The type is well placed to seen an improvement in lease rentals as the market improves.
A350-1000 2018-21 730-1050 Inevitably some have been placed into storage but not that many. Etihad has some five in storage. Operators are of course anxious to make the best use of such new aircraft given the cost of financing. The aircraft provides considerable space for passengers seeking to social distance but operators of course are using these aircraft on the more popular routes to ensure the highest load factors.
A380 2006-21 200-700 To some extent the A380 is in a holding pattern. The operators of the type are not yet certain as to what to do with the aircraft in terms of whether to retire the aircraft thereby registering a substantive loss or to retain for a few more years until major engine overhauls fall due. The rates for the A380 have therefore fallen slightly again with the possibility that they will suffer a further decline. The issue is where the aircraft will go if they are not returned to service with existing operators. The charter sector is just as limited this year as last year and this makes it difficult to contemplate even ACMI activity. A major problem going forward is in supporting the aircraft in terms of crews, maintenance and training.
B747-400 1989-95

1996-02

40-70

60-90

The once ubiquitous leviathan is now something of a rarity. In five years, many will see a four engined passenger aircraft at an airport as something of a novelty, a throwback to a previous era. The market for the -400 is extremely weak as more examples are destined to be scrapped or face the “Museum Effect” whereby the only means of disposal is via a donation to a Museum.
B747-8I 2010-17 230-400 The B747-8I was always facing an uphill struggle even against the A380. The aircraft is not even in a holding pattern. The existing operators may seek some ACMI work to keep the aircraft in service and avoid having to introduce losses into already very weak accounts but this will be a stop gap measure. The conversion to freighter is very unlikely but VVIP work is an opportunity.
B767-200ER 1985-92 40-55 The B767-200ER may have spearheaded the twin engined revolution but like so many pathfinders, they can quickly become obscured as more versatile types enter service. Any aircraft languishing in desert storage will not likely see a return to service except possibly as a freighter.
B767-300 1986-90

1990-98

40-55

45-60

The -300 was already suffering prior to the Covid Event such that lease rentals continue to decline. There were few original customers for the type having been quickly eclipsed by the -300ER.
B767-300ER 1988-95

1996-03

55-90

70-125

The -300ER was once the most sought after widebody for the operating lease but today there are only some 75 listed as being operating lease with 21 operators. A total of 18 -300ERs that are on operating lease are in storage. The demand for freighters is ensuring that unwanted passenger -300ERs can be moved on. The lease rentals of the -300ER are a shadow of previous levels and there is no expectation of any improvement.
B767-400 2000-02 75-100 The -400 operates in the wings of the market given that few were built. The lease rentals have inevitably been impacted.
B777-200 1995-00 60-100 The -200 is facing considerable adverse pressures as the market moves on to newer types. The lease rentals were already falling before the Covid Event.
B777-200ER 1996-01

2002-12

60-120

100-200

The rates for the -200ER have fallen further as the market continues to deteriorate. Of the 388 active/inactive -200ERs 54 are on an operating lease of which 25 are in storage. The lessors have found the -200ER market difficult even before the pandemic and lease rentals can be expected t continue to fall. The issue for such older types is that even as the international market opens up again in two to three years, it will be too late for such inefficient models.
B777-300 1998-06 80-160 The market for the aircraft is facing tough times as has been the case for nearly a decade. There are only eight on operating lease mainly with VTD Leasing and operated buy Rossiya.
B777-300ER 2004-10

2011-21

170-340

270-790

The market for the -300ER is not improving as might be expected but is actually deteriorating. Etihad has announced that it will retire its entire fleet of 19 -300ERs by the end of the year and Singapore Airlines has accelerated the retirement of some of its -300ERs as it contracts the fleet. There are 229 -300ERs that are on an operating lease and which are active with 49 inactive on operating leases. Another 143 are on a financial lease. Consequently, the B777-300ER is a major leasing market and lessors have been facing considerable downward pressure for some years with the Covid Event exacerbating the situation.
B787-8 2010-21 280-570 There is no respite for the -8 lease rentals as the type is not the most favored of B787 variants. Some 25 percent of the B787-8 fleet is on an operating lease with 19 operators. Of these 30 are in storage. Being the first variant to be produced was always likely to see some deterioration as the more versatile -9 became the dominant type.
B787-9 2014-21 510-830 The -9 will be able to enjoy the benefits of a recovery – when it comes. There are a number that are parked not because of the Covid Event but because of the need to modify engines. This is causing some operators to lease in capacity to cover the shortfall. The lease rentals are rising slightly. Boeing continues to have difficulties in actually delivering new B787s but once this is resolved there will be more new -9s entering the market which will not aid the used market.
B787-10 2018-21 770-930 The B787-10 may not have the range that is considered to be the most desirable but most are being used even if not in the optimum role. New aircraft are also not being delivered at the rate that Boeing would wish with none being delivered in the first five months of this year. There are currently 14 on operating lease of which only one is in storage. While the -9 is seen as the more attractive vehicle for the operating lease because of the greater operator base, there is some attraction in the -10 market. The larger widebodies are always a risk for the operating lessor because of the limited operator base which means that placement after the first lease, or if the aircraft, is prematurely returned, is that much more difficult.
Commentary reflects change from the last update to Widebody Rentals of March 2021.

 

 

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