Airlines should expect lower profits and longer lease terms on sale and leaseback activity, several lessor sources have told Airfinance Journal.

“Purchase and leaseback deals with good credits can still be done for 10 years but the next tier will command 12-year leases now,” said a leasing representative.

“Some low-cost companies have been active in this market over the years with very aggressive terms. The days of booking a $5 million profit on a sale and leaseback will be difficult to replicate,” he adds.

Another leasing source agrees: “Enough was enough and this is going to be a challenge because the leasing community is going to say, ‘We are not doing that anymore. We have a pretty good idea about what you paid for .'”

A Latin American carrier is in the market with a request for proposals (RFP) for the sale and leaseback of 12 Airbus A320neo aircraft. The RFP also covers pre-delivery payment financings.

The deliveries are planned between September 2022 and October 2023, according to a source familiar with the terms of the RFP.

The 2022 purchase price for the A320neo model is $52.5 million, according to the terms of the RFP, and $54 million for a 2023 delivery.

The aircraft are subject to conversion rights to the A321neo model.

The 2022 purchase price for the A321neo model is $58 million, according to the terms of the RFP, and $60 million for a 2023 delivery.

Airfinance Journal is aware of another A320neo RFP in the marketplace where the asking price for a 2021 delivery is $48 million.

The RFP includes up to 10 deliveries that were initially scheduled for 2020. Purchase price is $51 million.
Lease terms are for 12 years, according to a leasing source.

The market has gradually drifted towards longer lease tenors this year as leasing companies have pushed for 12-year deals.

One source reckons lessors will finance the actual cost of the delivery and the airline’s benefit from that will be a lower lease rate for 12 years, not six or eight.

“The airlines have run out of runway now for making huge trading profits, which will encourage them to cut back on their orderbooks. It is no longer capital waiting to be relieved; it is now risk.”

Another leasing source points out that lessors are no longer accepting six- or eight-year leases, but rather a minimum of 10 or 12, because they don’t want aircraft to return early.

“I think lessors are worried about what Boeing and Airbus do in the six-, eight-year timeframe with new aircraft programmes, so they are cautious about residual values. I also think that the debt markets are skittish on balloon risk so the longer the term the better the chance that the debt markets will accept. This all still assumes that we have enough visibility on which airlines will survive over the next 10-12 years.”

“Leasing companies are acting more as financiers,” says a banking source, adding: “Appetite for the commercial debt market has dropped this year and lessors are increasing their share of the market.”

The short term leaseback strategy has also created a workload issue for airlines.

“Certain airlines realised the scale they were operating, they could not afford to keep recycling six-year leases because there was too much workload involved. Some of those airlines have many client lessors now and this creates issues in terms of workload and novations.”

One carrier representative tells Airfinance Journal that it is trying to postpone some A320-family deliveries due in 2022 to get better financing conditions.

“We have financing potentially in place but we are waiting throughout the end of the winter to decide. The cost of financing is still 1.5 times higher that pre-Covid-19,” the person comments.

Last week Airfinance Journal reported that Air France's recent sale and leaseback (SLB) request for proposals (RFP) has met with huge appetite from the leasing community.

In November the French carrier approached the market offering four Airbus A220 deliveries for sale and leaseback financing.

One source says Air France has received 37 bids.

The carrier expects to take delivery of the first A220-300 in September 2021 and according to chief executive officer Anne Rigail another five units will follow through December 2021.

The four A220-300s under the RFP are scheduled to arrive through June 2022.

Another RFP that is expected to be popular is Flydubai's latest tender. The Gulf-based carrier is in the market with Boeing Max deliveries starting next year.