Delays to New Aircraft Keeps Pressure on Rentals

The delay in the service entry of the B787 has ensured that those operators needing an extension to current leases will have to pay a premium. While there may be trouble ahead in terms of the uncertainty over the U.S. and therefore global economy, the expansion of international markets is being maintained...

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The delay in the service entry of the B787 has ensured that those operators needing an extension to current leases will have to pay a premium.

While there may be trouble ahead in terms of the uncertainty over the U.S. and therefore global economy, the expansion of international markets is being maintained. The combination of the delay in the service entry of the B787 and the limited delivery rate of the A380 means that operators are unable to release existing equipment as planned. This is keeping lease rentals at high rates. The fall in interest rates and the difficulties being faced by the financial markets have yet to have a discernible impact on rentals.

The relative strength of lease rentals is often measured against the one-percent rule where the monthly rental is expressed as a percentage of the current value. With the lease rental factor often below one percent this can be viewed as demonstrating that the market is particularly weak. However, by adjusting the lease rental factor to take account of the change in interest rates from previous much higher levels, this suggests that the one-percent measure is often being exceeded. With lease rentals moving more quickly than most increases in values, the one-percent barrier is often being exceeded, even for new aircraft.

Lease rentals are provided by The Aircraft Value Analysis Company http://www.aircraftvalues.net.

Widebody Lease Rates (Dry) US$ '000s pm - February 2008
Aircraft	Age	Rental	Trend Analysis
A300-600R	1987-90 1991-97	150-245 215-290	Rates for the A300-600R have remained largely unchanged but there can be wide variation depending on the specific aircraft and lessee. The type is of course no longer in production but it continues to have considerable validity in a market still seeking widebody capacity.
A310-300H	1985-89 1990-97	150-205 185-250	Rates have edged slightly higher at the lower end because of the absence of alternatives. The acquisition of surplus units by FedEx continues to keep supply tight.
A330-200	1998-02 2003-08	570-780 730-870	The demand for the A330-200 remains unabated. The substantive backlog underlines the popularity of the aircraft and helps to illustrate why lease rentals remain strong. For three years it was difficult to find lessees but today they are knocking at the door.
A330-300	1994-97 1998-08	420-530 495-830	There continues to be a variation in lease rentals. This is due to the length of time that the A330-300 has been in production and the variation in specification. The upward pressure remains, much to the joy of lessors!
A340-300H	1993-97 1998-07	460-660 610-890	Fresh orders for the A340-300 may be a rarity but with four engines and no ETOPs the type continues to see demand. Due to high fuel prices perhaps lease rates may have edged down slightly.
A340-500	2002-08	770-940	While values may continue to decline lease rentals are fortunately slightly more stable though the market remains largely untested.
A340-600	2002-08	800-1025	Again the market for the A340-600 is limited but with the potential loss of an Iberia example placement is possible. The fortunes of the -600 continue to contrast markedly with those of the B777-300ER.
A380	2006-08	1400-1900	The lease rates for the A380 are beginning to emerge and seem sufficiently consistent with expectations and values as to offer the promise of reasonable returns for lessors. The pursuit of a full pay-out lease is desirable!
B747-400	1989-95 1996-02	440-540 505-900	The plodding pace of A380 deliveries means that there continues to be strong demand for the B747-400. Lease rentals remain resilient not least because there is now a question mark over whether the B747-8 will be delivered on schedule.
B767-200ER	1985-92	150-250	Two of the Maxjet aircraft appear to have been placed already. Lease rentals are expected to suffer only a modest fall at worst.
B767-300	1986-90 1990-98	150-195 210-270	The market for the B767-300 seems destined to remain the freighter sector. Rentals have not moved.
B767-300ER	1988-95 1996-03	330-460 445-620	The rentals for the -300ER remain strong not least because of the delay in the service entry of the B787. There may yet be a need to pay a premium for short-term lease extensions.
B767-400	2000-02	360-490	The fate of the -400 is largely unknown in view of the limited operator base and restricted appeal. Not the best decision of Boeing.
B777-200	1995-00	410-570	The potential range of lease rentals has improved as a consequence of limited -200ER availability. The prospects for the type remain limited partly because of the limited number in service and expectation of greater -200ER availability.
B777-200ER	1996-01 2002-08	610-890 840-960	Rates for the -200ER remain unchanged even with the British Airways incident. The type is very much in demand though orders may be elusive. The backlog is firmly in favor of the larger variant and indeed the -200LR.
B777-300	1998-06	560-950	The -300 remains a problem aircraft in view of the preference for the -300ER and the non-existent backlog. The limited order book for the -300 demonstrates the lack of appeal though as a short term "filler" perhaps there exists some utility.
B777-300ER	2004-08	955-1190	Still a great aircraft though operators are beginning to be mindful of the existence of the A350-1000 in the long term. With Boeing also considering replacing the B777 there is cause for concern. In the interim, the B777-300ER is beating the A340-600 into submission. Lease rentals continue to enjoy strength.
Commentary reflects change from the last update to Widebody Rentals of September 2007.