Six year turnover in sale/leasebacks put supply-demand balance at risk

Subscription Required Introduction August 24, 2015, © Leeham Co. When airlines like Indigo of India, Air Asia, Norwegian Air Shuttle (NAS) and Lion Air have outstanding orders for Airbus A320s and Boeing 737s that number in the hundreds, far more than operations and growth appears ready to support, the deals raises the natural  question: What are they thinking? As LNC's Bjorn Fehrm explained Friday, one aspect of these big orders is to "flip" the aircraft every six or seven years, a time that roughly coincides with the maintenance holiday/warranty period. Sale/leasebacks are used to finance these huge purchases. The practice is hardly new. The USA's JetBlue Airlines, Ryanair and others practiced this flip for years. Carriers like the new LCCs mentioned above not only plan to do so to avoid major maintenance costs, but also to fuel their growth. In the case of Lion Air and NAS, these companies also plan to lease out aircraft to other airlines. But there remain risks involved for the companies and for the industry. Summary
  • The growing practice of flipping aircraft every six or seven years presents risks to lessors.
  • Indigo Airlines has 96 aircraft in service, 430 on order.
  • Select LCCs in Asia, Europe, India have 1,000 A320s, 737s on order.

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