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The chief executive of aircraft leasing company Aircastle says lessors are increasingly exposed to rising overhaul costs due to the evolution of lease contract terms.
The Stamford, Connecticut-based lessor had four Pratt & Whitney PW1000G-powered Airbus A320neo-family aircraft with U.S. ULCC Spirit Airlines. The slow collapse of Spirit is likely to leave several lessors on the hook for GTF maintenance costs.
“Lessors don’t think we’re paying for [maintenance] but in the case of Spirit when you get stuff back from someone who was on a return comp lease, that’s going to affect us and our peers who are going to have to fund the costs of getting those engines through the shop and back out on lease,” CEO Michael Inglese said during Aircastle’s recent earnings call.
“The risk profile has changed from the lease terms that have evolved in the market over the last decade, with more return comp structures than maintenance payers,” Inglese added.
He noted that “a number” of the GTF engines returned from Spirit have green time remaining—Aircastle is in the process of leasing them out as spares to use that up, while also agreeing on an overhaul schedule with the engine OEM. Getting these Neos back in the air “will clearly take some time,” he added.
Asked about the likely impacts of ever-rising engine maintenance and life-limited parts costs, Inglese said much would depend on the ability of airlines to recoup these costs from passengers. “The obvious question is how much of the escalating costs can get passed on in ticket prices and baggage charges, and when does that start to actually affect demand for air travel?” Inglese responded.
However, he has seen little evidence of airlines avoiding newer engines in favor of more reliable types like the CFM56 and V2500, and points to steady demand dynamics for both vintages.
“The new technology is coming [but] the existing tech is going to fly for some time. There’s a lot out there and it’s going to take some time, well into the next decade, before it gets replaced,” he said.
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