に戻る 記事

次の記事

前の記事

23/06/2020

How have the dynamics of the leasing market changed since Covid-19?

Pre-Covid, aircraft operating leasing was a very competitive space, capital having been flooding into the market over several years. Low interest rates drove increased interest in aircraft on operating leases as an investment class and we saw new players entering the market from Korea and, in particular, China. Many entities arose through joint ventures with existing European and North American lessors and via portfolio acquisitions.

 

 

この記事を共有

LinkedInTwitter

Rising levels of competition amongst new and established lessors combined with other macroeconomic factors to squeeze leasing yields and drive lease rate factors for new aircraft to unprecedented lows.

 

Since Covid-19, the dynamics of the sale and leaseback market have changed dramatically. The balance of power in negotiations no longer rests with the airlines, the pandemic having devastated the global airline industry. With passenger traffic falling close to zero in many areas of the world, airlines' cash flow has been restricted to a combination of government support and whatever capital could be raised from existing assets.

 

Sale and leaseback deals have featured as a means of such capital generation in the post-Covid market. However, opportunities have primarily been available to airlines with stronger credit ratings traditionally. The number of bidders is now much lower and terms are more favourable to the lessor. Lease rate factors for the highest tier, global brand airlines exceed those that would have been unimaginable even for airlines with much weaker credit scores a year ago. The suggestion of a lease rate factor of above 0.8% for a young narrowbody aircraft to a Tier 1 carrier would have been inconceivable in 2019, yet we are seeing such deals in the current market.

 

The lease rates we have seen in sale and leaseback deals, however, are not indicative of operator demand and are inherently linked to the transaction price. In terms of new aircraft leases, most of the deliveries we have seen are based on pre-Covid terms. Given the uncertain climate and the need for operators to pull back capacity, we have seen few new lease placements other than those already under contract when Covid emerged.

 

Aircraft already on operating leases have been subject to a large number of rental deferrals, more than 80% of lessors' portfolios often affected by delays. In many cases, the outstanding amounts are due to be paid over the rest of the year. However, we are expecting a second round of deferrals since chances are diminishing that a significant bounce back will occur over the summer season.

 

We can also expect to see airlines attempting to renegotiate contracts. The wave of lease extensions we saw before Covid in response to new aircraft delivery delays and the MAX's grounding has, of course, ended. This means a large subset of the fleet is on relatively short remaining lease terms and that will allow operators to readjust capacity over the coming years. Lessors will be motivated to keep those aircraft with their current lessees, as opportunities to reposition them onto new leases will be scant.

 

In oversupplied market conditions, we often see lessors engaging in shorter term leases with lower rents or power-by-the-hour (PBH) style deals to keep aircraft in operation and to avoid inheriting parking and maintenance costs. We were already aware this was happening with some out of favour aircraft such as the Airbus A330 in 2019 and anticipate the trend will grow as we exit the Covid market.

 

Whilst PBH and shorter-term leases will offer lessors an opportunity to avoid fixed costs and premature handbacks in some cases, airlines will not take these decisions lightly and will need to be certain there is a need for the aircraft longer term.

 

Using data from IBA's intelligence platform IBA.iQ, we expect older aircraft to be those considered surplus to airlines' requirements over the next 18 months and some models and classes of aircraft will fare better than others. Widebodies over 12 years are vulnerable since more than 1,800 aircraft will need to exit the global airline system in the near term. IBA has identified four-engine types, such as the Boeing 747 and Airbus A380, in addition to older twins including Boeing 777-200/ER/LR models, Airbus A340s and mature A330s as those likely to suffer most.

 

Narrowbodies over 16 years old will face pressure, with around 3,400 excess single aisle aircraft forecast over the coming years. We have already seen an announced wave of fleet exits which includes older generation aircraft such as McDonnell Douglas MD80/90 family aircraft and older examples of Boeing's 737 NG series and Airbus' A320ceo family aircraft.

 

The push towards a more environmentally friendly fleet will continue, particularly in Europe, and this will not favour the older, less efficient aircraft types despite the current low fuel price. This has been evidenced by operators' near term fleet plans.

 

Planned fleet divestments and, inevitably, an increasing number of service exits due to airline failures will be offset by new deliveries. It appears manufacturers will continue to deliver at a much slower pace, particularly in the near term, with the Boeing 737 MAX still out of service and many operators seeking to defer deliveries due to insufficient demand.

 

We have recently witnessed Airbus threatening customers with legal action should they fail to fulfil their contractual obligations to accept delivery of orders. That said, opportunities to finance aircraft may become more limited for the weaker credits within the order book. It is also in the OEMs' interest to support their customers, to preserve both relationships and remaining order backlogs.

 

How the flying public reacts to the lifting of restrictions over the next few months will guide airline fleet behaviour. A subdued summer season will point to another round of fleet restructures, creating potential for order cancellations and a second wave of airline failures later this year and into 2021.

 

How the balance of supply and demand evolves over the coming years will have significant implications for the values and lease rates of both new and used aircraft. Pushing greater numbers of new aircraft into an already oversupplied secondary market will create stronger pressure on the values and lease rates of the existing fleet.

 

If you have any further questions, comments or feedback please contact: Mike Yeomans

に戻る 記事

次の記事

前の記事

 

Newsletter sign up