If you’re interested in the direction of the overall aviation industry – aircraft values in particular – there’s no better “guru” to question than Paul Leighton, editor-in-chief of the widely followed and influential publication, Aircraft Value News.

I recently spoke with Paul Leighton and asked him a gamut of questions regarding the aviation industry. His newsletter is among the family of publications that is produced under the Aviation Today umbrella.

To subscribe to Aircraft Value News, click here:
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In the meantime, you can benefit from Paul Leighton’s insights right now, by reading the interview below.

John Persinos: You could argue that aviation has hit bottom and we’re now seeing a feeding frenzy among bargain hunters who have access to easier credit right now. Would you concur?

Paul Leighton: Yes, I would. Some new people are starting to enter the market, and that always demonstrates that people are thinking that we are near the bottom of the problem. There will be buying opportunities for aircraft over the next 12 months or so. I wouldn't quite say it's a feeding frenzy, but I think it's certainly an interesting time if you've got the money. Unfortunately, those who've got money aren't in the majority. Most people don't have any money and things are really dismal for the industry. I think certainly it's the worst time I've known in maybe 30 years in the industry. It is particularly severe and there's worse to come. It won’t be a straightforward recovery. I think it will take time to build up.

JP: When it comes to aircraft values and overall demand for aircraft, how important is the issue of replacing older aircraft?

PL: The replacement issue is crucial. There will be this emphasis on newer aircraft because the airlines have gotten rid of all their excess, surplus and costs over the last ten years or so. They've really got nothing else to target, except for lower fuel consumption and operational efficiency. There will be pressure on some of the early aircraft types and we're more likely to see that with the likes of the early Airbus A320s, where they don't have the avionics capable of meeting demands going forward.

Consequently, OEMs will be looking at multi-million dollar avionics upgrades and that won’t be practical for some aircraft that are already 20 years old. It definitely will be a replacement issue, especially for those aircraft that are decades old. Those are the aircraft types that will be particularly vulnerable to this replacement cycle.

JP: How will the concerted effort around the world to reduce aviation's carbon footprint affect aircraft valuations? Highlight how the emphasis on environmentalism will affect certain aircraft and decisions made by OEMS.

PL: Environmentalism will be a major issue over the next few years. There is a patchwork of restrictions that will be streamlined and operators will be looking to reduce their footprint either from an economic point of view, or for marketing concerns because customers will want to see that they are flying on “greener” aircraft. That will mean that OEMs will look at more efficient aircraft and that will put even more pressure on older aircraft. This all presents a problem for operators, as to how to finance the new aircraft. But I think they will have to do so. Otherwise, they'll find that they are paying a lot of money to various government enterprises without really getting the benefit. Older aircraft types will, again, be vulnerable, and this will present a difficult scenario for some of the airlines.

JP: It seems that regardless of the vicissitudes of the oil market, fuel guzzling older aircraft are a thing of the past and there will continue to be a huge premium placed on fuel-efficient aircraft such as the Dreamliner. Correct?

PL: Yes, certainly. Trends will favor newer aircraft types, which in turn will drive the OEMs to introduce new aircraft. I know that there are plans afoot for the OEMs to introduce a new narrowbody by 2020, or perhaps a few years after that. But I really wonder whether the world has got that sort of time. Once we've seen over the next few years that the polar ice caps are melting even further, and given that they've already melted a lot already, I doubt we can wait much longer for more efficient, less polluting aircraft.

What’s more, the economic penalties against existing operators with polluting aircraft will spur the development of new aircraft much sooner, because the engine manufacturers are saying that they’ll have much greener engines available by 2016. If a new, very “green” engine will be available by 2016 which offers such efficiency, why can't the airplane manufacturers put something together to meet that sort of timeline?

JP: GE, Pratt & Whitney, Rolls Royce and the other engine makers have stepped up to the plate and created quiet, fuel efficient, less polluting engines. Because the gestation period for new aircraft types tends to be protracted with the major OEMs like Airbus and Boeing, will we see an opportunity opening up for the smaller aircraft makers?

PL: Well, yes, certainly we've seen that with the Mitsubishi Regional Jet and its Pratt & Whitney GTF. And we’re seeing the Russians get into the act as well, with the SuperJet 100. That Russian aircraft sports a new engine as well. So yes, other players are waiting in the wings.

JP: Do you see big opportunities for Bombardier?

PL: Yes, but whether they will be effective game changers in terms of forcing Airbus and Boeing to produce new products, I rather doubt. I think that they really are going to be in a segment of their own. Nonetheless, their products will represent real improvements to existing equipment.

JP: Pinpoint one of the most salient trends right now in aircraft values.

PL: The bottom for widebody lease rentals is around the corner. The lease rentals of widebodies have gotten clobbered over the last 18 months by low interest rates and rising availability, at a time when the profitability of air carriers has nosedived. Rates for several widebodies have been beneath analysts’ expectations, despite the continued delay into service of Boeing’s Dreamliner 787. There’s now a danger that some exceptional deals will become the benchmark for others. The lessors are seeking to hold as firm and to date newer widebodies have been able to attract reasonable rates.

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John Persinos is publisher/editorial director of Aviation Today.

www.aviationtoday.com/john_persinos_bio.html