Single-aisle values, lease rates stable; smaller mainline jets struggle

Special to Leeham News and Comment

By Gueric Dechavanne
Collateral Verifications

Feb. 8, 2015: Apart from a few unfortunate events, the industry has been moving along quite nicely so far in 2015. Used single-aisle aircraft values and lease rates have remained somewhat stable for the most part whilst new aircraft continue to be in demand which means a competitive landscape for those looking to invest in the types. On the in-production front, Airbus A319s, A330-200s, and Boeing 737-700s continue to struggle to find homes as many operators look to their larger siblings for lift. Airbus A320s, 321s, 330-300s, A350-900, Boeing 737-800s, 777-300ERs, and 787s continue to be the aircraft of choice, which in turn has stabilized and even strengthened values and lease rates for most. We are starting to see some softening in 777 values, which we believe is due to the competitive nature of some of the Boeing campaigns to fill the order book until the 777X enters service.

For most out-of-production aircraft, such as Airbus A340s, Boeing 767s, Boeing 747s, McDonnell Douglas and Fokker aircraft, a declining value and lease rate trend continues, as the demand for these types remains low making it difficult to place these aircraft, sometimes at any price. We are seeing demand for some 737-300/400s and 757s, that are in good condition and don’t require heavy maintenance in the near term. This has helped to stabilize values and lease rates for the types, which some investors are taking advantage of.

For regional aircraft, 50 seat regional jets continue to struggle as demand for these aircraft remains limited. There is a market for some aircraft, such as the CRJ-200LR and ERJ-145LR, but many operators are shifting their focus on the larger variants for future lift. E170s and CRJ-700s markets are soft for used aircraft due to the lack of a diversified secondary operator base. In the long term, we feel this will change but the near term market for these aircraft will remain soft. The E190 continues to be the aircraft of choice for this market segment, which brings further stability for values and lease rates. The jury is still out for the new aircraft (SSJ100, MRJ90, CSeries) that have or will enter service in the near term. The Embraer E2 family of aircraft has gained quite a bit of traction in the market, which should bode well for the type as it enters service in the next few years.

12 Comments on “Single-aisle values, lease rates stable; smaller mainline jets struggle

  1. In anticipation of Bombardier’s 2014 financial report, could you briefly discuss the lease rate of a 12-15 year old Airbus A319 or Boeing 737-700 relative to the list price of a Bombardier CS300? Is one significantly cheaper than the other? Thank you!

    • Great question. Knowing the actual lease rate for the CSeries would be even better.

      • Interesting numbers, thank you.
        Airberlin stated the lease values are overall lower for Airbus single ailes.

      • If we assume a 30% discount from SRP, the CS300 would then be around $200K per month. Would the savings in fuel and maintenance costs make up the $100K or so difference to the A319?

        Also, I presume a 12-15yo A319 or 737-700 would need an interior refresh so that would also need to be factored into the costs.

        • What plays against the CSeries right now are the low fuel prices. It looks like they will stay there for a while. This means we should not expect any new orderers for the CSeries for a while as well. It is now going to be harder than ever for Bombardier to reach its goal of 300 aircraft sold before EIS.

          • One or two years of low fuel prices is pretty irrelevant when planning a 15-year fleet strategy with deliveries from 2017 or something like that, though. But I do agree they don’t help — the question all airlines will be asking is where do the oil prices go in the longer term?

          • I never understood why low fuel prices would be a factor. A 15 – 20% decrease in fuel burn is desirable whether oil is $50 or $100.

          • Because there are other factors as well that play against the CSeries, like for example acquisition costs or lease rates. The main advantage the CSeries has, and the reason one would want to acquire it, is the new technology which makes the aircraft burn considerably less fuel. But the cheaper the fuel is the less difference it makes when the other factors are added like financing, parts availability, commonality and the above mentioned acquisitions costs ands lease rates. And besides, we have to face the fact that the competition is now offering the same engines, which nullify a substantial part of the technical lead the CSeries had.

  2. If the expected service life of an aircraft and expected rest value go down, the lease rate goes up, because a lessor has to recoup more of his investment in a shorter period. Is that correct?

    • Yes. Same principle regardless of whether you are leasing an aircraft, a car, a computer or an office building.

  3. maintenance and other necessities would affect, of course, price. But what about a new A330 – 200, what would we expect a lessee to pay for something like that? Assuming, IFE and all else standard.

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