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Projected Trends in Aviation Lease Rates and Base Values for 2024

Author: AVN Admin
December 20, 2023

I’m John Persinos, editor-in-chief of Aircraft Value News. Welcome to my latest video presentation. The accompanying article is a condensed transcript. For additional details and several charts, watch my video.

As the aviation industry continues to recover from the tumultuous impact of the COVID-19 pandemic, I’m closely monitoring various indicators to gauge aviation lease rates and base values for 2024.

These metrics play a pivotal role in shaping decisions for both lessors and lessees, influencing fleet management strategies and overall operational costs. In this video, I’ll delve into the trends and factors that are expected to shape the landscape for lease rates and base values in the coming year.

Before I convey future projections, it’s essential to understand the current state of the aviation leasing market. As of the latest available data, the industry has witnessed a gradual recovery in air travel demand. However, challenges such as supply chain disruptions, geopolitical uncertainties, and evolving regulatory frameworks continue to exert influence.

The leasing market, which plays a vital role in providing airlines with flexibility in managing their fleets, has experienced fluctuations in demand and supply. Despite uncertainties, there is an overall optimism that the aviation sector will regain its pre-pandemic strength (in fact it already has), driving a resurgence in leasing activities.

Lease rates are a critical metric for airlines and lessors alike, because they determine the cost of acquiring and operating aircraft.

I anticipate a measured increase in lease rates in 2024, aligning with the anticipated recovery in global air travel. Passenger aircraft leases are forecast to continue an upward trajectory, with rising deliveries to lease reliant operators. The robust rise of this metric has sustainable momentum (see my video for charts).

New narrowbody market values are poised to climb and lease rates grow, as escalation takes effect and supply remains constrained. The slow supply of new aircraft supports value and lease rate recovery of previous generation narrowbodies.

Airbus announced in late 2023 that it will expand its lead in narrowbody jet manufacturing, the biggest segment of the commercial aircraft market, over the next two decades. This development bodes well for the A320 family of narrowbodies, particularly the A320-200HGW.

As economies recover from the pandemic, air travel demand is expected to rebound. This resurgence in demand should lead to increased competition for available aircraft, driving lease rates higher. The aviation sector has become increasingly mindful of fostering a sustainable and competitive market, and lessors are likely to balance the need for profitability with the desire to support airline recovery.

Base Values and Aircraft Depreciation

Base values, representing the estimated current market value of an aircraft, are closely tied to lease rates. Aircraft values are subject to depreciation, influenced by factors such as age, maintenance history, technology, and market demand.

In 2024, base values are expected to reflect the ongoing technological advancements in the aviation industry. Newer aircraft with enhanced fuel efficiency, reduced emissions, and advanced avionics are likely to command higher base values. Airlines seeking to acquire or lease such modern aircraft may encounter higher upfront costs, but the long-term benefits in terms of operational efficiency and environmental sustainability could offset these expenses.

Conversely, older aircraft models may experience a more pronounced depreciation, especially if they do not meet the latest environmental standards or lack features that enhance operational efficiency. Lessors with aging fleets may need to carefully assess the residual value of their assets and consider fleet renewal strategies to remain competitive in the market.

Regional Disparities and Emerging Markets

The aviation industry is not uniform across the globe, and regional variations can significantly impact lease rates and base values. While mature markets in North America and Europe are expected to see a steady recovery, emerging markets in Asia, Latin America, and Africa present unique opportunities and challenges.

In regions where air travel demand is projected to surge, such as Asia, airlines may face increased competition for available aircraft, potentially driving lease rates higher. However, infrastructure limitations, regulatory hurdles, and economic uncertainties in some emerging markets may temper the overall growth in these regions.

Environmental Considerations

The aviation industry is under increasing pressure to reduce its environmental footprint. With global initiatives to combat climate change gaining momentum, airlines are prioritizing the adoption of greener technologies and sustainable practices. In response, lessors are adjusting their strategies to align with the industry’s commitment to environmental responsibility.

Lease rates for aircraft with lower carbon emissions and improved fuel efficiency may experience upward pressure as demand for environmentally friendly fleets rises. Governments and industry stakeholders are likely to incentivize the adoption of eco-friendly aircraft through regulatory measures and financial incentives.

Thanks for watching!