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Covid-19 Forces easyJet Fleet Out Of The Skies, March 2020

The Covid-19 outbreak has imposed some of the most severe financial difficulties seen in over a decade on the aviation industry. The unprecedented travel restrictions imposed by governments globally to manage and alleviate the spread of the Covid-19 virus have resulted in airlines facing economic hardships, with many requiring government bail outs.

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Using IBA.iQ Values, the current market value of easyJet's fleet of 337 aircraft stands at around US$ 9,257 million


The number of Covid-19 airline casualties is increasing, from Flybe declaring bankruptcy to Norwegian's share price dropping still further having already lost around 80% of its value between 2016 and 2019. Many airlines are scaling back capital expenditure by deferring purchase of new aircraft as well as deliveries. IBA expects to see more airlines ground their fleet as easyJet, the latest victim, grounds its entire fleet of 337 aircraft comprising Airbus A319s, A320s and A321s. IBA anticipates the sharp drop in airline revenue to be hard hitting on airlines globally, with the likes of Qatar Airways and Virgin Atlantic already indicating they will seek government aid. Loganair, the Scottish regional carrier, and easyJet are expected to follow suit.


According to IBA.iQ, easyJet has an order book of 114 aircraft comprising the New Engine options (NEO) yet to be delivered. Delivery of these aircraft will of course be deferred to control expenditure and the situation appears to be escalating with the CEO of easyJet now threatening to sack members of the board if they do not cancel orders. easyJet and airlines such as Ryanair and Wizz Air are however likely to have a reasonable cash build up to survive this period of crisis.

The charts below illustrate the order book, makeup and size of easyJet's fleet.


Source: IBA.iQ


Source: IBA.iQ


Of the 337 aircraft grounded by easyJet, 86 are on operating leases. Of these, around 23% are leased from Aircastle Investment, with the remaining leased from lessors such as Willis Lease Finance Corp, GECAS, GTLK, ORIX Aviation, ICBC, Santander Lease, BBAM and AerCap to mention a few.


Using IBA.iQ Values, the current market value of the fleet of 337 aircraft stands at around

US$ 9,257million. The lease rental exposure for the 86 aircraft equipped with CFM international engines and on operating leases total around US$ 16million with a typical monthly lease rental of around US$ 240,000 for an Airbus A320-200, US$ 180,000 for a 2010 vintage A319-100 model and around US$ 140,000 for a 2006 vintage A319.


Source: IBA.iQ


IBA does not yet see a significant decline in market value for the type of aircraft owned and leased by easyJet. The fleet is made up of liquid assets like the Airbus A320 and A321. However, the market is highly volatile, with lease rates expected to be pressured as lessees seek a reprieve from rentals or to renegotiate lease terms. Due to the lack of clarity over how long-term this crisis may endure, IBA expects further pressure on lease rates and softening in market values should the current instability and shutdown of passenger travel persist.


Using Fleet data from IBA.iQ, the majority of parked aircraft are located in the United Kingdom with London Gatwick Airport having the majority share.


Source: IBA.iQ


During this crisis, IBA has observed airlines pursuing renegotiation of their lease terms and seeking more flexibility over payments. Apart from keeping these leases going, IBA questions how quickly affected airlines like easyJet can get back on track when travel restrictions are alleviated. To maintain the easyJet fleet values, adequate storage procedures and robust maintenance and recordkeeping is essential as ineffective measures can cost millions of dollars to rectify. Aircraft lessors and owners need to avoid unnecessary and costly recertification liabilities, especially during this crisis when certainty over recovery timescales remain unclear. Correct storage procedures are crucial.


Drawing on over 30 years' experience and our IBA.iQ aircraft and engine data platform, IBA provides aircraft market analysis, aircraft valuations, asset management and technical services and operator risk assessments to airlines, lessors, banks, investors and financiers. IBA is well poised during this difficult period to provide a plan of action to facilitate and enable the efficient and timely return to service of these aircraft.


IBA is equipped to examine the level of risk exposure to lessors in terms of rental stream. We can also assess the financial exposure associated with maintaining grounded aircraft until the travel restrictions are lifted and passenger and business confidence is restored. Over many years IBA has been involved in technical and operational inspections to provide greater understanding of asset and operational values, storage conditions, airworthiness and compliance with leases. This includes multiple assessments of management structures, maintenance, safety systems, staffing levels, quality assurance, processes, procedures, financial details, maintenance costs, spares and third-party agreements.


By Bassey Edet, Senior Analyst IBA Group


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