We’ve been out in Dublin this week meeting up with colleagues from various aviation leasing and investment companies to share our predictions on the market. Stuart Hatcher, IBA’s Chief Intelligence Officer presented IBA’s forecasts on the future trading environment, traffic and yields. He also talked about lease ends and fleet estimates, EIS problems plus their impact on values.
One snippet I found interesting was concerning the A320-200 & 737-800s current lease ends and a potential collision of factors on the supply side that could impact on values and rentals…
We’re seeing a concentration of lease ends between the years 2019-2022, with a peak towards 2022. If oil remains low and EIS problems persist, backlogs could shift and push this beyond 2022 with extensions. This bunching effect may be magnified by the average lease terms falling from 12 to 8 years over the past decade as caused by many factors including; fleet planning flexibility, new technology, oil price volatility, backlog coverage, and lease rate volatility. With oil remaining low for a few years, the trend has been longer than expected and even new technology aircraft are receiving shorter terms as operators are torn between entry-into-service risk of new technology, and the tried and tested less efficient aircraft.
Behind this data is also the net change of A320neo and A320ceos expected between 2019 and 2022, which will result in a considerable gain to the fleet that will add more supply to the market.
A reducing lease term could potential lead to a supply bubble as more aircraft lease ends are focused on 2019-2022. The best case scenario could be a flood of remarketing and the worst case scenario could be lower revenues. However this could dissipate of course with an increase in lease extensions or demand continues to increase, in which case it becomes a non-issue… but certainly a possible scenario that needs to be reflected upon.
If you couldn’t make our Market Update in Dublin but would like to hear more of our market predictions we are pleased to be running it again as a webinar on the 10th October, the full details and registration can be found here.