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09/09/2020

Depressed Outlook for 737 MAX Lease Rates

Whilst 737 MAX sale and leaseback rates look set to strengthen in the near term, the future looks bleak for direct lease rates.

 

As far back as the mid 2018s, lessors were experiencing difficulty placing the MAX, resorting to placements with weaker credit airlines at increasingly softer rates. By the end of the 2018s, rates had dipped as low as $270,000 - $280,000 and, as 2019 dawned, even before its grounding many lessors and operators were questioning the MAX's value against the comparative attraction of its 737-800 sibling.

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Boeing has indicated it will achieve a monthly production rate of around 31 aircraft; IBA expects the level to more realistically be half that. This takes into account the 700-800 aircraft the OEM's already built but not yet delivered and the primary focus will be on getting these into service. During this period, likely to be 10-12 months, a production rate of even 15 new aircraft a month seems overly ambitious.

 

Considering the MAX's backlog further cancellations are inevitable as contractual agreements lapse, irrespective of the efforts the OEM will undoubtedly concentrate on supporting contracting parties to complete. The substantial lease rate spread witnessed pre-grounding will continue following re-entry into service and forecasting definite numbers will be extremely challenging.

 

Using other new generation aircraft as a guide, we can expect Lease Rate Factors (LRF) spread between 0.6% and 0.7% for good credit carriers. The pre-Covid sale-leaseback pricing seen for the MAX 8 in the range of $46M - $52M is likely to soften, especially at the higher end. Anticipating higher LRFs for less attractive credits, the lease rate range will be wide with direct rates in the region of the mid to high $200,000s envisaged and stronger sale and leaseback rates expected in the mid $300,000s.

 

If you have any further questions or comments please get in touch: Stuart Hatcher, Chief Revenue Officer.

 

The data used within this analysis was derived from InsightIQ, our leading online data intelligence platform. The intuitive system gives you an instant connection to your portfolio values, historical data, utilisation of aircraft, fleet data and visibility into trends, risk and the impact of macro-economic variables.

 

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