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The acute shortage of spare new-technology engines in the market could reverse in the next five years and lead to oversupply and pressure on lease rates and asset values, an engine leasing leader has cautioned.
Roger Welaratne, MD and CEO of Amsterdam-headquartered SMBC Aero Engine Lease (SAEL), warned that current high spare-engine ratios on platforms such as CFM International Leap engines reflect temporary technical and supply chain disruptions rather than long-term demand.
“Spare ratios are high right now because of the issues,” Welaratne said at Aviation Week’s Engine Leasing, Trading & Finance Americas on Monday [Feb. 9]. “We must be very careful that when those issues are fixed, we don’t end up with too many spare engines in the market. If that happens, rents will collapse.”
Welaratne further cautioned that the market may be extrapolating today’s conditions too far into the future. “Spare engines have very limited alternative uses,” he said. “If the supply-demand balance flips, there’s nowhere for that metal to go.”
Welaratne says that some leasing investors have explored large bulk orders of new-generation engines amid persistent spare-engine shortages, but this comes with significant risk. “If you order spare engines today, you won’t get them today but years from now instead,” he says. “By the time they arrive, the technical issues may be resolved, and spare ratios could normalize very quickly.”
He adds that in this scenario, the industry could move from scarcity to surplus, undermining lease rates and eroding engine asset values. “The danger is assuming today’s abnormal spare demand is permanent,” he said. “History shows that engine markets can overshoot in both directions.”
SAEL’s engine portfolio covers both narrowbody and widebody models. Narrowbodies include CFM56-5B and -7B, CF34-10, Leap-1A and -1B, V2500-A5, PW1100G, and PW1500. In the widebody segment, SAEL’s portfolio comprises GE90-115B, GEnx-1B, and Trent XWB-84 engines.
To date, Welaratne says that SAEL has adopted a cautious investment strategy toward engine assets, actively avoiding aggressive bulk-spare acquisitions and instead focusing on long-term leasing rather than short-term strategies.
“We take risks, but it has to be measured,” Welaratne says of SAEL’s approach. “The worst outcome for an engine investor is buying at the top of the cycle and discovering that the demand you have relied on no longer exists.”
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