Middle East overcapacity a risk: SMBC CEO | News | Airfinance Journal

Middle East overcapacity a risk: SMBC CEO

It is worth monitoring airlines in the Middle East for risk of overcapacity, Peter Barrett, the chief executive officer of SMBC Aviation Capital, tells Airfinance Journal in an interview.

“It is still too early to say but we do need to monitor demand and the risk of over-capacity in this region.  The trend of weaker yields over the past two to three years is also continuing with no signs yet of abating.”

Barrett adds that he has seen some weakness on the routes between the Middle East and North America on the back of the laptop ban and travel restrictions which came into effect in March 2017. Despite this, he believes that a continued growth in traffic through the Middle East as a hub for European travellers to Asia still provides growth opportunities for local carriers.

“The political situation and lower oil prices are also a potential threat, with the latter potentially having the knock on effect of reducing support for state owned airlines,” he adds. “As a company we are constantly monitoring these types of risks.” 

Barrett thinks it is too early to say if the Middle Eastern carriers have over ordered despite market speculation of more aircraft deferrals to come in the region, following delivery pushbacks from Turkish Airlines and Emirates. If there are going to be more deferrals in the Middle East, Barrett thinks such aircraft could be re-routed in other markets where there is widebody demand, such as Asia.

Although the increase in availability of older widebody aircraft can provide opportunities for smaller airlines to open up longer routes and grow in size, there is a risk that some widebodies will remain in storage for longer periods and in greater numbers. Barrett says it is up to the owners of these aircraft to respond to these challenges.

Some of the recent deals in the Middle East for widebodies have involved 15-year lease terms: longer that the typical lease term of 12 years. Saudi Arabian Airlines and Gulf Air have both signed 15-year deals for A330s and 787s during the last 12 months.

Commenting on this, Barrett says: “Longer lease terms in the widebody market are driven by a number of factors. At the moment, financiers are using longer lease terms to offer more attractive day one rentals and operators are also hoping to lock in longer leases in an era of lower oil prices and low interest rates.” 

Peter will be joining Airfinance Journal’s Laura Mueller on-stage at the 15th Annual Middle East & Africa Airfinance Conference for an in-depth exploration of the future of the Middle Eastern leasing market. To secure your place, click here to register online.

Airlines can register for a complimentary delegate pass here.

Transaction SnapshotAeroflot | Operating lease | 12-12 | 1xA320

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Transaction SnapshotSMBC | 10-13 | Operating lease | 1x737(2)

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