A330 easier to re-lease than 777

This is the second of two Parts looking at the wide-body market

April 25, 2017, © Leeham Co.: When lessors face re-leasing wide-body airplanes as lease terms expire, they face a far narrower market than for single-aisle airplanes.

While there may be a thousand operators which can be targets for Airbus A320s and Boeing 737s, there may be only a hundred operators interested in the most popular wide-body aircraft. When you get to the Very Large Aircraft sector, the potential market declines to the figurative, and perhaps literal, handful.

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CDB Leasing aims for 500-600 aircraft portfolio

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Introduction

March 16, 2017, © Leeham Co.: China’s evolving commercial aerospace and aviation industry has high-profile companies such as AVIC and COMAC, and its expanding supplier based, combined with joint ventures with Western companies is well known.

Less well known is the growth in the aircraft leasing business. Increasingly, Chinese lessors are showing up on the order lists of the Big Four aircraft manufacturers. Still, there remains a bit of a mystery about the lessors and dynamics within China.

LNC spoke with the newly appointed CEO of CDB Leasing during the ISTAT conference last week in San Diego.

Peter Chang has been in the Western leasing business for decades, employed in key positions with Aviation Capital Group, ILFC and Aircastle—usually with responsibility for China.

He was named CEO of CDB in December, a move that was announced during the January Dublin conferences of Airlines Economics and Airfinance Journal. More key personnel announcements were made during ISTAT.

In an exclusive interview, LNC asked Chang about the origins of CDB, other Chinese lessors, the current policy of restricting flow of Chinese cash outside the country, the Boeing 737-10 and the Bombardier CSeries.

Here is this interview.

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Norwegian’s risky fleet expansion

By Bjorn Fehrm

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Introduction

February 15, 2017, © Leeham Co.: In our review of Norwegian Air Shuttle last week (Norwegian from now on), we pointed out the company’s relatively weak balance sheet. It’s considerably weaker than its direct competitors.

At the same time, Norwegians’ fleet expansion is the most aggressive outside of boom markets like India or Indonesia.

Norwegian ordered 200 narrow body aircraft in 2012. It ordered 100 Boeing 737 MAX 8s in January and 100 Airbus A320neos in June.  This compares to a narrow body fleet of 70 at the time and a fleet of 100 today (mainly 737-800s). In addition, Norwegian has 30 Boeing 787 long haul aircraft on order on top of the 12 it operates today.

How much risk do these 230 incoming aircraft pose to Norwegian?

Summary:
  • Presently, Norwegian absorbs 50% of incoming single aisle aircraft for own needs (Boeing 737-800 and later MAX 8).
  • The other 50% (deliveries of Airbus A320neo) are leased to external operators.
  • The financing need for incoming aircraft, be it for own or other’s use, is $15bn over the coming years.
  • With a balance sheet of of only twice that size and 10% own equity, the going can get rough if the market weakens.

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Market, other factors emerging, creating Boeing 787 concern

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Introduction

Jan. 4, 2017, © Leeham Co.: Despite a rosy picture painted by Boeing about the future of the 787 and the ability to recover more than $29bn in deferred production

Boeing photo.

and tooling costs, there are signs that cause concerns over the next 3-5 years.

Summary
  • Near-term production outlook solid, weakness begins in 2020, big gap in 2021.
  • Boeing doesn’t see wide-body sales recovery until next decade.
  • Company foregoes increasing 787 accounting block; sales won’t support it.
  • Market talks about deferring 787s.

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The fuel effect; or old is beautiful

By Bjorn Fehrm

19 January 2016, ©. Leeham Co: When Willie Walsh, the CEO of IAG, said that the Airbus A340-600 “is a fantastic aircraft at fuel below $60 a barrel but perhaps not at $120,” he put operational words to something the Growth Frontiers 2016 conference in Dublin had been grappling with since it opened on Monday morning.

A340-600

What is going to happen now? Crude is falling below $30 a barrel and Jet fuel is below $1 a gallon. This must have an effect on how people decide, whatever the lessors and aircraft OEMs say.

And it had to be a senior airline CEO that broke the mantra that everyone was repeating: “We don’t see fuel prices having any effect on fleet planning for airlines.”

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ISTAT Europe 2015 in Prague: LCCs and Turkish airways take over Europe

By Bjorn Fehrm

06 October 2015, ©. Leeham Co: The global airline industry is on a steady course as a whole, but there are dramatic changes within Europe as low cost carriers, plus Turkish Airlines, redraw the competitive landscape.

China’s current economic softness raises concerns, with an independent analysis concluding that economic growth here is 2%-3% instead of the announced rate of 7%-8%.

Still, the mixed messages given at the annual ISTAT meeting in Europe this week didn’t put a damper on the mood of 1,200 delegates here in Prague.

  • The airlines are fine for 2015 as the fuel price is low but what about 2016? China is braking to a halt and Asia is getting infected? Will the infection spread? Will the airlines return to bad results?
  • What about the European airline industry? Can the low costs units of IAG, Lufthansa and Air France-KLM compete with the up-and-coming LCCs? Who is king of long haul travel out of Europe?
  • What about the order glut? When Asia slows, will the order bubble break?

 

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Evaluating airliner performance, Part 4

By Bjorn Fehrm

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Introduction

Oct. 05 2015, ©. Leeham Co: In the final part of our series about comparing and evaluating economic and operational performance of airliners, we will combine the different Cash Operating Costs (COC) with the capital and insurance costs to form the Direct Operating Costs (DOC).

We will also look at typical values for the different costs that make up the DOC for a single aisle Boeing 737 or Airbus A320 aircraft and a typical dual aisle Boeing 787 or Airbus A330neo aircraft.

Summary:

  • We describe the cost that form an aircraft’s capital costs and how these differ between an ownership or a lease model.
  • When forming the Direct Operating Cost (DOC). The low fuel price of $1.50 per US Gallon has lowered the fuel’s part of DOC to around 20% for single aircraft and 30% for dual aisle aircraft on their typical mission types.
  • This means that other costs types in the DOC gets a more dominant role. We show which are the costs to look out for.
  • Finally we give the typical CASM (Cost per Available Seat Mile) values for single and dual aircraft in the market.

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ISTAT Asia day two: home for the elderly

Introduction

May 12, 2015, c. Leeham Co: As you would have guessed we are talking Asian civil airliners, where planning in the region for the fast growing older generations is inadequate. This was the subject of several sessions during day two of the ISTAT Asia (International Society of Transport Aircraft Trading) conference in Singapore.

The problem is new, as up to now a newly established airline fleet in Asia has not had any numbers of older aircraft. But the expansion over the last 20 years is now producing the first transition waves of aircraft and the planning around the problems this generates is inadequate.

The result will be surprising write-downs of airline assets as aircraft being replaced cannot be transitioned out at booked residual values. The scale of the problem was highlighted by a survey of the 500 gathered ISTAT industry experts. The question posed to them was “There are 4700 aircraft coming up for replacement until 2033, has Asian airlines planned adequately for this?”:

  • 49% of the delegates responded a few airlines have.
  • 45% answered there are only some that do it.
  • 5% of the delegates answered most airlines does it.
  • 2% thought all Asian airlines have done it.

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ISTAT Asia: Asian airline market update

Introduction

May 11, 2015, c. Leeham Co: We are participating this week in the ISTAT Asia conference in Singapore where IATA and different panels gave an interesting update on the Asian airline market. This is the fifth year that an ISTAT (International Society of Transport Aircraft Trading) conference is held in Asia and participation has virtually doubled from last year to 500 delegates.

IATA’s Conrad Clifford opened the event with the following overview about the Asian market for airline passenger travel:

  • The IATA 20 year forecast growth for the region is 4.9 % annual growth, making it the largest world-wide passenger market by 2030.
  • The domestic markets of China and India grew with 11% and 20% respectively in 1Q2015. The US market in comparison grew 3%.
  • The growth in the region makes China the world-wide largest domestic passenger market by 2030, surpassing the US with India in third place.
  • The highest growth markets are China, India and Indonesia. Countries like Thailand and Malaysia are struggling with low demand at present.

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Airliner retirement age in the wake of low fuel prices

By Bjorn Fehrm

Introduction

March 31, 2015: We have received an update for Avolon’s “Aircraft retirement and storage trends” whitepaper from September 2012. In the age of changing fuel prices it makes for interesting reading as the author, Avolon’s Head of Strategy Dick Forsberg, includes the effects of fuel price changes in his analysis.

The analysis uses data from Ascends database up until 31 Dec 2014 to make its conclusions:

– Retirement age for jets remain stable with 60% of mainline aircraft still active after 25 years.

– Regional jets retire earlier, the 60% active age is 20 years.

– Behind early retirements of certain aircraft is first of type versions which have limitations in airframe or engines.

– Old aircraft and those who are stored more than two years don’t make it back from the desert.

– With continued low fuel prices deferred retirements would increase but still constitute less than 10% of new aircraft production. Read more