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18/12/2019

Historical Lease Rate Performance - A320ceo v 737-800. December 2019

Historically, new delivery market lease rates have correlated well with 5-year swap rates, usually with a 6 to12-month lag. However, recent IBA research revealed that, despite rate increases since 2016, market lease rates have in contrast declined. We examined lease performances of the A320ceo and 737-800 both when new and at 10 years and summarise our key findings as follows:

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New Aircraft

 

Understandably, lease rates plummeted after the 2015 fuel price collapse, with the sudden uptake in lease extensions and in today's prevailing low fuel cost environment airlines' reluctance to pay premium rates for new aircraft continues. Other pressures resulting in depressed lease rates include speculative orders that create fierce lessor competition, an increase in direct orders with OEMs forcing a slowdown in sale leaseback activity and an influx of new investors buoyed by more affordable capital. Based on many lease terms we have witnessed, investor behaviour suggests the adoption of bolder, longer term strategies and the making of courageous assumptions about residual values and re-lease rates.

 

10-year Aircraft

Again, there has been a milder negative trend since 2015 caused by lease extensions, the impending arrival of replacement technology and lessors competing to place secondary leases. Declining traffic demand and a weakening GDP could all potentially exert further strong downwards pressure. The MAX grounding stabilised 737-800 lease rates such that increases were observable only on shorter terms. Nevertheless, a record ABS market in 2019 saw 17 aircraft, many of which were mid-life A320ceos and 737-800s, launched by the end of November, 6 more than in 2018. This evidences investors' solid conviction that these aircraft provide better opportunities for higher returns. An unprecedented number of aircraft and ABS assets were involved in airline failures this year. The speed with which many of the A320ceos and 737-800s were rehomed further demonstrates confidence in their potential to generate advantageous yields.

 

A copy of our full analysis with commentary is available to download here.

 

If you have any further questions, comments or feedback please contact: Stuart Hatcher

 

When it comes to fleet data, aircraft valuations and market trend analysis, our up-to-date, comprehensive and accurate data platform InsightIQ is essential for future transaction due diligence and risk evaluation.

 

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IBA's Webinar: Covid-19 - aircraft values and lease rates: What are my aviation assets worth?

Combining IBA's historical data and experience of several downturns over the past 33 years, IBA's senior ISTAT appraiser team review the impact from Covid-19 on future asset performance.   The webinar was chaired by Phil Seymour, an IBA ISTAT Senior Appraiser Fellow and former ISTAT International Appraisers' Program Chairman . Phil was joined by Stuart Hatcher and Mike Yeomans - two of IBA's Senior ISTAT Appraisers and David Archer, IBA's Senior Engine Analyst.   IBA present their approach to valuations and lease rates, share opinion on market performance in the near and long term and which assets types will be impacted most.Our panel of experts share their experience and views on values and lease rates.   This interactive session, What are my aviation assets worth, will among other things consider:   The approach taken by IBA's award winning appraisal team to valuing aircraft and engines in the near term Provide examples of the impact on widebody and narrowbody aircraft values in different scenarios including value in use, future base value, part out, distressed sales and lease encumbered valuations Why IBA is taking a shrewd approach and not cutting values without tangible evidence and market transactions, but taking into account evidence from previous downturns Your pain points and burning issues by allowing 30 mins for Q&A with our panel   The slide deck is available to download here. If you have further questions please contact: Mike Yeomans  

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