Narrowbody lease rates under pressure: AFJ North America 2020
Older Boeing 737-800 lease rates are down by double digit figures as a result of the Covid-19 crisis, appraisers have agreed.
Speaking on the Airfinance Journal North America 2020 virtual conference, Mike Yeomans head of valuations at the IBA Group, says the lease rate of a 737-800 in the secondary market is down 15-20% on pre-Covid levels.
“We are seeing softness there, I think having the Max not delivering and out of service has helped balance supply and demand there, so I think as we start to see Max’s coming back into the market in larger numbers, that will certainly put pressure on the -800s and displace those out of the market,” he says.
Doug Kelly, senior vice president asset valuation at Avitas, also believes lease rates of the type have fallen about 15%.
He says the lease rates for a 2019-vintage 737-800, which would have been in the range of $320,000 or $310,000 per month before the crisis, are now in the $260,000 to $270,000 range.
For older production types, values are down 25%, he estimates.
Kelly notes that Amazon and GECAS have been involved in the conversion of older 737-800s.
“Those lease rates a little bit where we would expect them to fall out. These have neem $200,000 but should be more about $180,000 per month,” he says.
The oversupply caused by the Covid-19 crisis is likely to push these rates down to where Kelly expects them. That hits the conversion “sweet spot” he believes.
Simon Finn, director aviation research at MUFG, says that the demand for narrowbodies will be dependent on future traffic development.
He notes that there were 400 fewer aircraft deliveries in 2019 than planned due to the Max grounding. He believes half of this number of aircraft will be delivered this year.
Yeomans says the crisis means that transactions that are being contemplated in the freighter conversion market, involve younger narrowbody aircraft that would have otherwise been the case.
Olga Razzhivina, senior ISTAT appraiser at Oriel, says the appraiser has seen “a lot of movement” in value percentage terms in the older end of the 737-800s market.
“Aircraft that were everybody hoping for conversion but have quite a strong life as a passenger aircraft,” she comments.
Razzhivina says it will be “interesting” to see what price airlines pay for Boeing narrowbodies amid the crisis given previous prices are “not justified” by the price of fuel and the general market.
She believes the OEM also has challenges to find homes for aircraft that have been built but that operators have rejected.