KBRA notes lease rate uptick on newer aircraft
Airlines continue to be proactive in preserving liquidity through accelerating the retirement of older aircraft as well as grounding certain mid-life aircraft, Kroll Bond Rating Agency (KBRA) has said.
The agency warned that aircraft values and lease rates could face further downward pressure as initial US government subsidy programmes expire at the end of September.
Aircraft lessors are expected to be challenged with remarketing numerous aircraft after airline defaults, which may drive lease rates downward.
However, KBRA noted that lease rates have improved on newer aircraft, as airline demand for sale and leaseback (SLB) transactions have increased significantly as carriers try to boost their liquidity and raise cash.
Nonetheless, the agency noted that “the concerted effort of OEMs to reduce production and delivery rates for newer aircraft could create some respite for the values of existing aircraft as the supply and demand dynamics adjust to the new reality of a smaller global fleet over the next few years”.
KBRA observed that aircraft trading remained very subdued given the lack of demand, “which is exacerbated by airspace restrictions in multiple jurisdictions, even if lessors and other aircraft financiers may have a need to repossess aircraft with defaulted leases attached”.
Next-generation narrowbody aircraft like the Airbus A320neo-family will experience the lowest current market value (CMV) volatility and achieve the strongest recoveries as “airlines will continue to structure their future fleets around tier 1 asset types as these aircraft generally burn less fuel, require less maintenance, and operate more efficiently”, said KBRA.
In-production narrowbody aircraft have lost 5-15% of their CMV due to Covid-19, KBRA said, while out-of-production narrowbody CMVs have plummeted 20-35% since the pandemic.
Widebody aircraft values, especially for older models, will continue to face pressure, mainly because airlines will likely operate fewer widebody aircraft due to their higher associated costs and prolonged recovery outlook for international travel, according to KBRA.
In-production widebody aircraft have lost 5-20% of their CMVs due to Covid-19, the report shows, while out-of-production narrowbody CMVs have slumped 20-45% since the start of the pandemic.
The rating agency expects next-generation widebody aircraft like the A350-900 to remain a critical feature of the global airline fleet going forward, “while out-of-production widebodies will be subject to early retirements, returns, or part-outs”.