PRESS RELEASE, September 2017: IBA predicts a potential supply bubble due to a surfeit of lease ends in 2019-2022
September 2017, London: As the International Society of Transport Aircraft Trading (ISTAT) meets in Edinburgh for its annual European Conference, independent aviation consultancy firm IBA releases its bi-annual market update. Dr Stuart Hatcher, Chief Intelligence Officer, reflects on lease ends, fleet estimates, EIS problems and their impact on value to form a picture of the current situation and what the market can expect moving into 2018.
Key indicators that IBA has kept under watch since the beginning of the year concern the A320-200 & 737-800s lease ends and a potential collision of factors on the supply side that could impact on values and rentals. Dr Hatcher comments: “We are 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.”
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As illustrated in the data from IBA.iQ, IBA forecasts a 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. However, a reducing lease term could potentially lead to a supply bubble as more aircraft lease ends are focused on 2019-2022. Dr Hatcher says, “The best case scenario could be a flood of remarketing and the worst case scenario could be lower revenues. However, this could dissipate with an increase in lease extensions or if demand continues to increase, in which case it becomes a non-issue, but it is a possible scenario that needs to be reflected upon.”
“There is a busy cycle ahead for operators and lessors” adds Dr Hatcher. “According to our data, there are over 10,000 Airbus & Boeing lease ends coming up over next 15 years – and that’s without considering the new leases in between – or any other aircraft OEMs. This is based on the current global fleet deliveries of around 1,200-1,400 per year and a steady flow of around 1,000 narrowbodies.”
IBA’s Market Update webinar is being held on the 10th October 2017 8.30- 9.30 BST & again at 16:30 – 17:30 BST, to hear more on Stuart Hatcher’s predictions for the year, register for this free event at www.iba.aero.