While passenger traffic may no longer be reaching the giddy heights of a few years ago, it is sufficiently strong to see widespread sustained interest from many operator, and coupled with the issues emanating from the MAX, lease rates are remaining stable.
The lease rates for the A321ceo and neo may not be as high as some would wish but the type is gaining further ground with Airbus not able to keep up with demand. However, there needs to be a distinction between the early build A321s, particularly those with lower weights, and the 89 tonne plus variants more recently delivered either as ceos or neos. Lessors are particularly conscious of the structural change in the market in the medium to long term. The large number of orders for the A321 – something that Boeing has yet to fully deal with even with the launch of the B737-10 – clearly indicates that the market is moving towards larger aircraft with more seats not just for efficiency but also as a means of reducing the carbon emissions per seat. Ryanair has as major advertising campaign that promotes their carbon footprint by indicating that their aircraft are full most of the time and that they are investing in the latest technology (they have yet to receive their first MAX200).
Lease rental factors (LRFs) express the monthly lease rental as a percent of the current market value. The lease rental factor is dependent on interest rates and the relative strength of the market. Although the market is strong, the current low interest rates are keeping interest rates low. There is also strong competition among lessors even if there is an extensive backlog. The lease rental factors on new aircraft can therefore be as low as 0.6 percent. In years gone by a mid life aircraft may have viewed one percent as the norm but such LRFs reflect periods of higher interest rates.
The lease rentals are provided by The Aircraft Value Analysis Company Ltd (AVAC) www.aircraftvalues.net or www.aircraftvalues.com. Rates are quoted in thousands of US dollars per month and exclude maintenance reserves. They assume a medium credit, average return conditions and an average lease term. Lease rentals for actual transactions may differ. European specification (a factor which has lesser significance due to the spread of the low cost model where galley equipment is less important), weaker credits and short lease terms may warrant a higher rental. A long-term rental to a strong credit will justify a lower rate. AVAC can provide a matrix of adjustment factors to reflect differing lease terms on request.
|Narrowbody Lease Rates (Dry) US$ ‘000s pm – January 2020|
|A318-100||2003-12||60-120||The A318 remains part of the fleet if only just. The values remain unchanged having fallen to perhaps the minimum level. With a reasonable amount of green time remaining on the engines then the value of the aircraft may be higher than might be expected and make it more practical to actually sell the engines rather than continue with a lease. Lease rentals can be variable given the lack of commercial interest in the type but of course a large number are used by private operators.|
|A319-100||1996-981999-092010-19||60-9575-170150-270||The A319 may no longer be in production but the type still has more than a credible role to play in meeting the demands of operators who require a smaller mainline aircraft. The lease rentals of the aircraft at the older end of the spectrum are dependent on the term of the lease time remaining on the engines. Lease rentals of the youngest aircraft – not that there have been many deliveries in recent years – are also falling. The aircraft is facing considerable pressures from the A220 while the A319neo is essentially in production in name only. However, there is very much a role for the A319ceo going forward and lease rentals for mid life examples are remaining unchanged.|
|A220-300||2016-20||230-295||The lease rentals of the -300 are considered to have actually improved more recently as it has become more apparent that Airbus has the motivation to make it work rather than just remove a competitor from the market. The -300 may still have a few issues but there is notable enthusiasm from operators. The -300 is more favored because of its greater capacity. More seats means lower seat mile costs which means a greater competitive element. The aircraft has an excellent interior. Airbus is seemingly seeking to ensure that the range of the A220 can meet the demands of operators when considering longer sectors on thinner routes. The weight of the aircraft will therefore likely be increasing but this should not be an issue for units that have already been delivered.|
|A320-200||1988-921993-971998-032004-102011-20||40-9060-9590-170135-230190-320||With the problems of the MAX, this means that operators have continued to seek out older aircraft. Yet, despite the demand there are still a good many in storage – and have been for some time so are not merely transitioning between operators. Overall any change in A320 lease rentals is relatively modest particularly in the context of A320neo deliveries. With a higher MTOW, Sharklets and the latest iteration of the engines, then the range of the aircraft is significant. The majority of A320s delivered in the final years of the program feature sharklets and others have modified. The longer the sector length the greater the fuel saving provided by the sharklets. Of course, the shorter the range the lesser advantage that the A320neo holds over the A320ceo in terms of relative operating efficiency and capital cost. There has been a significant increase in the number of aircraft fitted with sharklets and SpaceFlex which facilitates a 186 seat configuration. A comparatively low rental needs to be seen in the context of maintenance reserves or end of lease payments. With an end of lease compensation arrangement equating to full life, this can mean that the lessor receives some $8 million at the end of a 10 year lease for half to full life. This equates to another $50,000+ per month over the term of the lease.|
|A320neo||2015-20||280-410||The delivery of the A320neo continues apace but even so they cannot be expected to be make up the shortfall of MAX deliveries. Issues still affect the engines of the A320neo which is a major disappointment given that the aircraft has been in service for five years. After five years the engine should be mature and be the subject of an upgrade. Nonetheless lease rentals are relatively stable and are falling by less than the annual average rate. There will be ever more customers who will select SpaceFlex which warrants a $5,000 per month premium for the 186 seat version. The differential in rentals between the ceo and neo are perhaps not what was desired but they may now be diverging such that $25-35,000 is likely in a low interest environment.|
|A321-100L||1994-971998-02||45-7560-105||The -100LGW has little to commend it but lease rentals have remained stable because they cannot go any lower. The -100LGW was always a problem aircraft being delivered in very few numbers and to too few customers. The age of the aircraft means that the type is likely to find remarketing difficult with parting out potentially being more probable every time a major check is required on the airframe and engines.|
|A321-200H||1999-042004-102011-20||100-175150-275240-400||The production of the -200 is coming to an end but this does not mean that the values are suffering to any great extent. The type is very much in demand as operators seek to reduce seat mile costs by operating larger aircraft. The aircraft is very much the more preferred option when compared to the B737-900ER and for far too long Boeing perhaps were in denial as to the success of the A321 or perhaps Boeing knew that they had little potential for a response in the short term. Lease rentals could be higher but then the number of lessors leasing the aircraft is increasing. There are still two Thomas Cook aircraft listed as being in storage but these are probably transitioning to new operators.|
|A321neo||2016-20||365-480||The proportion of A321neos being delivered in comparison to the total number of A320neo family members is forever rising. The aircraft type is proving itself to be particularly suited to a range operators. Operators are preferring to operate larger aircraft than add frequency – assuming that additional A320s can even be obtained. The new door configuration offers the opportunity to accommodate 240 passengers and more but there seem to be few that have taken this option. The A321neo though is opening up new routes that were previously the domain of either the B757 or widebodies. Boeing is clearly struggling to compete otherwise they would list orders for the B737-9 and B737-10. The LR is particularly favored though any thoughts of allowing a $5+ million premium over the 93.5 tonne version will not be well received in the wider market. The aircraft will be in greater demand in the coming years unless Boeing launches an all new B737 using the design details for the B797. The XLR will essentially replace the LR in 2023 as the XLR does not need to use the extra tanks installed in the cargo hold.|
|B717-200||1999-04||70-105||The B717 is a good aircraft that offers efficiency for a few operators. And that is the issue; there are too few operators. Therefore, a number of aircraft will likely remain with existing operators until being parted out. Airbus will likely succeed in making the A220 an Airbus product, something that Boeing had no wish to do.|
|B737-600||1998-03||55-110||There have been too many variants launched on the basis of seeking to replace an earlier model but the market structure is not a constant – it is changing all the time. The lease rentals may not be as low as might be imagined as any lessor will be anxious for a full payout. Those DAC powered aircraft that have been upgraded to -7/3s or -7E however, warrant a sizeable premium. The type straddles two market segments and fails to meet the needs of either.|
|B737-700||1997-012002-092010-18||70-10090-160150-260||The production of the -700 may have ceased with deliveries in recent years being negligible, but the type remains in demand with a variety of operators. The concentration with Southwest is a concern in the coming years. The size of the aircraft is suited to the needs of a number of operators which is likely to remain constant thus providing the rationale for few orders in this category. There are a number of lessors of the type but most will be seeking to extend existing leases rather than looking for a new lessee. There will be little appetite among lessees to pay a premium lease rental for a young aircraft not that there are that many.|
|B737-800||1998-022003-082008-20||95-140135-240200-350||The stability in -800 rentals has been due to the problems surrounding the MAX but a fall for the youngest may be in evidence once deliveries start again in earnest. The aircraft is very much in demand with relatively few in storage despite its own technical issues. The production of the -800 is coming to a close. The later built -800s have better engines and reliability. The move to freighter conversion will keep availability to manageable levels..|
|B737-8||2017-20||335-480||The lease rentals of the MAX are holding steady despite the continued grounding. Rentals may be impacted should some 20 percent of the orderbook be cancelled and as the media are likely to raise the profile of the MAX’s return to service, then there will be some anxiety as to whether there will be passenger aversion or whether ticket price will be the most important consideration. The aircraft is very much offering the efficiency improvements hoped for by operators. The lease rentals of the type may not enjoy a premium over the A320neo going forward but will rather achieve parity.|
|B737-900||2000-04||70-105||The marginalization of the -900 has been a constant and rentals have inevitably been at a low ebb. There are only 52 in service. The variant was never favored and lease rentals have tumbled such that they have long been lower than the smaller -800. While Airbus has launched some aircraft variants that have failed to gain traction, Boeing has also had its fair share with the -900 being a prime example. A significant number of -900s are now fitted with winglets which does something to improve remarketing opportunities.|
|B737-900ER||2006-112012-19||110-185170-340||The rentals of the -900ER are fading more slowly but the adverse long term trend is all too evident. The lack of an expansive operator base is a concern when remarketing falls due. Against the A321 it has failed. The aircraft is facing pressures going forward if some of the main existing operators opt for the A320 family. The lease rentals are still reasonable but are perhaps below those seen for the -800. There are a dismal 21 operators of the type operating only 450 aircraft. Lion Air is a major operator as is Alaska and Delta. These three operators have over 50 percent of the fleet.|
|B757-200||1982-881989-951996-02||50-8065-8575-110||The B757 keeps on giving. With production having ended some 15 years ago and the oldest being nearly 40 years, the type has had one of the longest service lives with primary carriers. Lease rentals have been reasonably constant in the last few years. The aircraft is of course in the process of being replaced but there are still some years to go before this is complete. The Pratt & Whitney engine is not so disadvantaged as longer on wing life offered by the RB211 is not so relevant given the product life cycle of the type. Going forward the placement of the aircraft will become more difficult as ever more A321s are delivered particularly in terms of the A321neo and the extension in range albeit with the need for additional fuel tanks.|
|B757-200ER||1987-951996-02||60-8580-120||The -200ER still plies the longer sectors which is testament to the reliability of the engines – and the absence of alternatives. The aircraft is inevitably losing ground to the A321 but lease rentals can be expected to remain reasonable for a few more years yet although a rise in availability may be an issue. The B797 is progressing but for the time being operators will have to settle for the B737-10.|
|B757-300||1998-03||80-135||The aircraft is suited to a few and very few operators and efficiency is in the eye of the operator rather than the wider community. There have a very few instances of when the aircraft has been successfully traded but it is to be noted that the type is not seen as suitable for asset based financing due to the lack of wider appeal. The -300 is not a niche aircraft, it is a marginalized aircraft. All -300s are fitted with winglets which at least provides better efficiency but not sufficiently as to allow lease rentals any measure of improvement.|
|Commentary reflects change from the last update to Narrowbody Rentals of October 2019.|