Sky-high rents hit aircraft market as Boeing jets top $300,000 per month

An Airbus A321 is being assembled in the hangar on the final assembly line at the Airbus US manufacturing facility in Mobile, Alabama.

Michael Spooneybarger | Reuters

Passengers are not the only ones who pay plus to fly this year.

A tight supply of planes is increasing the price that airlines pay to rent planes, just when the demand for travel returns.

renting a new boeing The 737 Max is up more than 20% between April 2020 and July of this year to $316,000 per month, estimates aviation advisory firm IBA Group. The competing Airbus A320neo jumped to $324,000 per month, up more than 14% from April 2020, and the highest price since before the pandemic. The largest version, the A321neo, cost $375,000 per month in July.

The world’s largest aircraft leasing firms, such as Air LeasingAvlon and AerCapwhich acquired GELast year’s aircraft leasing business is reaping the benefits.

According to aviation consultancy Cirium, more than 51% of the world’s nearly 23,000 single- and double-aisle passenger planes are owned or operated by leasing companies. While many airlines own their planes, some carriers choose to charter planes instead or combine the two.

Reasons for leasing vary and include weak credit ratings that drive up borrowing costs and the desire, or need, to conserve cash, rather than shell out to buy new planes, which can cost more than $100 million each at market prices. of catalog.

The higher costs come when airlines are already facing high inflation, creating expenses that are typically passed through to fares. Aircraft rentals are approaching or, in some cases, exceeding 2019 prices, and are expected to rise even higher. Rising oil prices this year make newer, more fuel-efficient planes more attractive than older ones, and higher interest rates could also push up leasing rates.

“You have rising interest rates and higher cost of capital,” said Mike Yeomans, IBA’s director of valuations and consulting. “That will drive rental rates higher for the rest of the year.”

Leasing company executives told CNBC that many of their customers are extending leases, and new planes are hard to come by.

Steven Udvar-Hazy, chief executive of Los Angeles-based Air Lease, said the company’s lease extension rate is approaching a 90% never before seen and typically ranges from 65% to 75%.

“We’re seeing a lot of lease extensions on aircraft that we projected a year ago that we would have to remarket,” Udvar-Hazy said. That means the company doesn’t have to worry about transition costs and provides them with a steady stream of income.

The trend is the result of a resurgence in airline bookings, while Boeing and Airbus, which are still reeling from a lull in demand and production during the early days of the pandemic coupled with supply chain issues, they cannot increase production as much as they would like. .

Global passenger traffic rose 76% in June from a year earlier, but is still 29% lower than before the pandemic, according to the latest available data from the International Air Transport Association.

Hazy said interest rates would have to go higher and stay higher to significantly reduce travel demand.

For now, airlines “are now looking for a world where they can actually field more aircraft,” said Andy Cronin, Dublin-based Avolon’s chief executive designee. “We are definitely seeing a shortage of aircraft and accelerating demand above what we would have expected at this stage.”

Cronin said lease rates on Boeing Maxes and Airbus A320neos have increased 10% to 15% so far this year.

Supply chain issues and labor constraints have prevented manufacturers from ramping up production. Part of the problem stems from sanctions on Russia that have reduced titanium supplies since that country’s invasion of Ukraine in February.

“Now we’re not talking about dozens and dozens of planes, but we’re talking about five to 10 planes from these customers that are going to be left without engines because we don’t have the titanium forgings that we were hoping to get this year,” Raytheon Chief Executive Officer Greg Hayes said on an earnings call last month, referring to the conglomerate’s Pratt & Whitney motor unit.

“We will get through this, but it won’t be without some pain for our customers.”

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