Pontifications: Aircraft values, lease rates plummet

By Scott Hamilton

May 25, 2020, © Leeham News: Aircraft lease rates continue to plummet as the virus crisis infects the airline industry.

In an update of its periodic look at rates, the UK advisory firm ISHKA last week looked at 5-year old aircraft. Monthly Rates plunged as much at 26%. Aircraft values dropped as much as 15% (22% for an ATR-72).

Since Jan. 1, the Boeing 777-200F lost only 2% of its value but lease rates dropped 11%, despite high demand for cargo airplanes now. The Airbus A350-900 lost 5% of its value but lease rates were off 17%.

A five year old Boeing 787-8, on which pricing was under pressure before COVID decimated the airline industry beginning in March, now can be leased for $575,000/mo, ISHKA says.

The Airbus A320/321ceo and Boeing 737-800 also show sharp value and lease rate declines.

Setting values and rates

These values and rates are based on what’s called half-life aircraft. This means these are half way through their maintenance cycles to heavy MRO. Aircraft with more time to MRO have higher values and rates. Aircraft with less time to MRO are worth less.

ISHKA said values and lease rates are on a ledge.

“The next round of fleet rationalizations and lease restructurings will guide the intensity of the markets next steps,” the advisory firm said.

ISHKA will publish more values and rates in the coming weeks.

12 Comments on “Pontifications: Aircraft values, lease rates plummet

  1. Would be interesting To have a look of the Dash 8 – 400 value.
    There approx 600+ of them produced and since the beginning of Covid approx 100+ had been phase out / return To lessor

  2. not easy to sell new frames under these circumstances….
    especially with ultra cheap oïl!
    huge tendency to cancell MAX orders…

  3. South West comments were they wanted the MAX so they could retire older aircraft and avoid heavy maint visits.

    As there is a 5 year warranty on new aircraft and no serious maint, that is a factor in the whole equation.

    Embraer looks to do better with no competition with MHI pulling out. Oddly there is room for slightly out of scope as the E175 is for American airlines in 76 seats.

  4. I don’t think MHI is pulling out. Just pausing & regrouping.

    • Agree. Look at Boeings ‘pausing and re grouping’, its just what companies are doing – mainly for the share analysts who want to see concrete evidence of numbers sacked, budgets cut and futures onto the bonfires of short term share price.
      People often dont get the size and scope of MHI and their long term involvement in their business sectors

      It covers the gamut from stage machinery to The Patriot Missile system(licensed manufacture)

  5. Hi Scott,
    Happy Memorial Day!
    Are these lease rates for dry or wet?
    Thank you.

  6. Would be interesting to have a look of the A380 value.

    • Or how rapidly their parts are tanking in value. Either there will be so many frames and few operators that Emirates has cheap parts through lifecycle, or it gets prohibitively expensive for them as the largest operator.

  7. I find the CMV/MLR deltas on the A320/321 the most interesting, getting at least some gauge on near term downsizing vs expected rebound. Were there any other model family comparisons available Scott?

  8. Not sure how it works, but when a car is leased, the rest value after a certain useage (km/ yrs) determines some of the lease rate.

    A car with a lower expected rest value, has a higher lease rate. The leasing company has to make money on the car faster.

  9. It is unquestionable that lease rates have fallen precipitously of late, and that from the lessors’ point of view same are correlated with the current value of the craft in question. But it is likewise undisputed that lessees will be able to pay these values depending on the revenue that said planes can provide.

    You also make a very interesting analysis of the latter point in your articles “Restoring Capacity with the A330CEO or A330NEO, Parts 1-4”. There you compare A330-200, 300, 800 & 900.

    It happens that A330-800 is very similar in geometry to 787-8, with all COC components being roughly the same, except fuel consumption that is 5% lower for Boeing. In the Comments section I took the liberty to calculate revenue for a given example GRU-CDG with 60% cabin capacity with $300 per pax for the mission and the balance cargo 18 tons at 6 $/kg, resulting in an estimated revenue of $153,000 for Airbus. In said article, lease for A330-800 was put at $550k per month. Here you quote 787-8’s monthly lease rate at $575k per month, or a difference of less than $1,000 per day. Since both airplanes are very much alike we could say that both COCs are similar, with the big difference being that being 787-8 of a lighter fuselage that it can carry an additional 5 tons extra cargo, which in our example would yield $30,000 extra revenue per mission or per day. All these figures cannot simultaneously be correct. If so, airlines would be dumping their A330-800’s (if they were in service, otherwise their very similar A330-200’s with a lease of $300k per month, still a difference under $10k per day or mission), and grabbing all 787’s in sight, and in the process one lease would drop and the other one rise until equilibrium is reestablished.

    The same would happen between the other pair of competitors, A330-900 & 787-9, again almost identical in geometry and COC costs, only that the lighter Boeing will take an extra 10 tons, that can generate today $60,000 per trip or per day per the above example, with lease rates for both being rather similar at $600k.

    How can this be explained?

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