Sky-high rents hit the aircraft market as Boeing jets top $300,000 a month

Date:

An Airbus A321 is assembled in the hangar of the final assembly line at the Airbus US Manufacturing Facility in Mobile, Alabama.

Michael Spooneybarger | Reuters

Passengers aren’t the only ones paying more to fly this year.

A tight supply of planes drives up the price airlines pay to rent planes, just as demand for travel returns.

Rents of a new Boeing 737 Max have increased by more than 20% to $316,000 a month between April 2020 and July, aviation consultancy IBA Group estimates. The competing Airbus A320neo climbed to $324,000 per month, more than 14% more than in April 2020 and the highest price since before the pandemic. The larger version, the A321neo, cost $375,000 per month in July.

The world’s largest aircraft leasing companies, such as Air Lease, Avolon and AerCap, which acquired GE’s aircraft leasing business last year, are reaping the benefits.

According to aviation consultancy Cirium, more than 51% of the world’s nearly 23,000 one- and two-aisle jet aircraft are owned or operated by leasing companies. While many airlines own their planes, some airlines choose to rent planes instead or combine the two.

Reasons for leasing vary and include weak credit that drives up borrowing costs, and the desire or need to save cash, rather than shelling out to buy new aircraft, which can run over $100 million each at list prices.

The higher costs come because airlines are already dealing with high inflation, resulting in costs that are usually passed on in fares. Aircraft rents are approaching or exceeding 2019 prices in some cases, and they will go even higher. The sharp rise in oil prices this year makes newer, more fuel-efficient aircraft more attractive than older ones, and higher interest rates could also drive up lease rates.

“You’ve got the rising interest rates and higher cost of capital,” said Mike Yeomans, director of valuations and advisory at IBA. “That will drive up lease rates for the rest of the year.”

Lease executives told CNBC that many of their customers are renewing their leases, with new aircraft being hard to find.

Steven Udvar-Hazy, executive chairman of Los Angeles-based Air Lease, said the company’s lease renewal rate is approaching an unprecedented 90%, and it usually stands at about 65% to 75%.

“We’re seeing a lot of lease renewals on planes that we predicted a year ago would have to resell,” says Udvar-Hazy. That means the company doesn’t have to worry about transition costs and it gives them a steady stream of income.

The trend is the result of a resurgence in airline bookings, while Boeing and Airbus – still recovering from a demand and production lull during the early days of the pandemic, along with supply chain problems – are unable to increase production as much. to step up if they would like .

Global passenger traffic rose 76% in June from a year earlier, but is still down about 29% compared to pre-pandemic, according to the most recent data available from the International Air Transport Association.

Hazy said interest rates would have to rise and remain high to significantly dent the demand for travel.

For now, airlines are “now looking at a world where they can actually deploy more planes,” said Andy Cronin, Avolon’s Dublin-based CEO. “We are definitely seeing a shortage of aircraft and increasing demand beyond what we expected at this stage.”

Cronin said lease rates for Boeing Maxes and Airbus A320neos have risen by 10-15% so far this year.

Supply chain problems and labor restrictions have challenged manufacturers to increase production. Part of the problem stems from sanctions against Russia, which has curtailed titanium stocks since its invasion of Ukraine in February.

“Now we’re not talking about dozens and dozens of planes, but you’re talking about five to ten planes that these non-engined customers will have because we don’t have the titanium forgings that we expected to get this year,” said Greg Hayes, CEO of Raytheon, on an earnings call last month, citing the conglomerate’s Pratt & Whitney engine unit.

“We’ll work through it, but it won’t be without a bit of pain for our customers.”

The Valley Voice
The Valley Voicehttp://thevalleyvoice.org
Christopher Brito is a social media producer and trending writer for The Valley Voice, with a focus on sports and stories related to race and culture.

LEAVE A REPLY

Please enter your comment!
Please enter your name here

Share post:

Popular

More like this
Related

Malcare WordPress Security