A lack of interest in used aircraft is forcing owners to park jets much sooner than anticipated, flooding the market with engines and depressing prices.
Three years ago,was leasing engines for and narrowbody jets for $120,000 a month. Today, those engines are commanding rates of just $50,000 a month. “There are too many aircraft being parked,” Bobby Janagan, general manger for engine leasing at Rolls-Royce, told an audience at Aviation Week’s Engine MRO Forum in Dallas. Yet Rolls has little choice but to accept the lower rates. “If an engine is on the ground for six months, we don’t make any money at all,” he lamented.
Janagan and other panelists at the forum reiterated a long-standing complaint of aircraft lessors that Boeing and Airbus are producing too many newand , respectively, depressing demand for used narrowbody jets and their powerplants. “Lease rates have gone dramatically lower,” noted Bob Matson, director for technical services at Willis Lease Finance Corp., a Novato, Calif. company that leases spare aircraft engines.
“The A320 market is totally upside down,” added another aircraft lessor, who spoke on the condition that his name not be used. “There are so many available that lease rates are probably half of what they should be.” The lessor said his company recently opted to dismantle four Airbuswhen it couldn’t find anyone to lease them and put their engines, which still had more than half of their life cycle remaining, back on the market. “We added used engines to the market,” he said.
Other industry veterans say that some of the fault lies with aircraft lessors basing their lease rates for new jets on the assumption they will have an economic life of 25 years, when 15 years might be more realistic. They believe lease rates for new aircraft are too low and fail to reflect the risk of shorter life cycles.
Lessors also took aim at government export banks, complaining that their loan guarantees enable Tier III buyers to finance new jets at Tier I rates instead of taking a used model.