Are lease rentals for aircraft headed north after the 737 MAX, Jet crises?

Ashwini Phadnis New Delhi | Updated on May 05, 2019

While lessors deny hardening of rates, analysts see prices going up by 10-15%

Are Indian airlines paying more for leasing aircraft due to the global grounding of the Boeing 737 MAX aircraft and Jet Airways’ entire fleet of aircraft not being operational?

While leasing companies are categorical that there has been no impact of these two events on the cost of leasing, analysts give a different perspective.

Timothy Ross, Head, Investors Relations, of leasing company BOC, said: “There is very little spot business done in the aircraft leasing market. I am not sure if it would be correct to say that there has been a massive increase in premium for aircraft due to the grounding of the MAX or due to Jet Airways temporarily ceasing operations. The reality is that leasing rates have not hardened.”

Ross said most good leasing companies identify the airlines to lease out their aircraft at least nine or ten months before taking delivery of the asset from the manufacturers and start looking for renewing lease agreements at least 12 months before they are to expire.

BOC is well represented in the Indian market with SpiceJet, IndiGo and Vistara operating its aircraft.

Priyanka Chimakurthi, Senior Research Analyst, Aerospace & Defense Practice, Frost & Sullivan, said the grounding of the B737 Max, overall pilot shortages and the de-registration of Jet Airways has put pressure on domestic capacity.

“We would expect lease prices to increase by 10-15 per cent on narrow-body aircraft, such as the A320, with lessors making the most of the situation. Excluding other developments, such as rise in jet fuel prices driven by higher oil prices, Indian carriers would need to raise airfares by 3-5 per cent to compensate against increasing operating costs,” said Chimakurthi. The Boeing 737 variety is also considered as a narrow body aircraft.

The average monthly lease rental for an Airbus 320 or Boeing 737 aircraft is around $3,00,000-3,20,000 a month.

Jet Airways, which had a fleet of over 110 aircraft, temporarily suspended operations on April 17 while the Boeing MAX aircraft was globally grounded on March 13. A number of aircraft operated by Jet Airways were repossessed by leasing companies which then released them to several Indian airlines, including SpiceJet which is looking to take at least 16 Boeing aircraft previously flown by Jet into its fleet.

Published on May 05, 2019

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