Falling oil prices will have a favourable impact on certain older aircraft lease renewals but are unlikely to sway airlines and lessors to part with their new-technology orders, aircraft appraisers predict.
"Anyone with lease-rate expiries in the next six months… it is a great time to get those lease-rate extensions in as airlines will still be in that short-term mindset," said George Dimitroff, head of valuations with Flightglobal consultancy Ascend, at the Growth Frontires conference in Dublin on 20 January.
"But even before it [oil] dropped below that psychological $50 barrier, we were seeing continued improvements in lease rates of narrowbodies generally... You pretty much can't get a 15-year-old 737 or A320 below a $200,000 lease rate... It may be a short-term thing until the next generation starts delivering, but demand is there."
He adds: "If people extend leases that mean less availability of aircraft for remarketing, so tighter supply should be good for lease rates."
Phil Seymour, head of valuations and risk at IBA Group, points out that some lease extensions signed up recently "were not a knee-jerk reaction to fuel price – there was probably demand, in any case, for those aircraft".
Cheaper oil prices mean more people have more expendable income "so hopefully this means more holidays", he says.
Les Weal, an aircraft appraiser at Oriel, believes that most of the fleet plans and lease rates for 2015 are in place, "so if there are changes, it will be at the margin".
He adds: "Maybe there will be one or two, but I think the bigger impact is if fuel stays down here for the rest of year – what happens in 2016? I don't see a real change in lease rates this year."
Weal notes that historically low fuel prices have been a "leading indicator" of a global slowdown. "I don't think it is something we can ignore. I accept some of the arguments about supply, but I don't think you can dismiss totally that demand could be weakening out there as well.
"I suspect airlines would rather have 4% global GDP and $80 fuel than $40 fuel and pretty low growth rate, so that's a concern."
Stuart Rubin, a principal at ICF International, agrees that any fleet changes "would be at the margin" with opportunities available for certain older aircraft up for lease extension.
The freefall in oil prices is being met by a strong US dollar, a move IBA's Seymour says demonstrates that "there is a balance to all things”.
Ascend's Dimitroff points out how the strong dollar and low cost of oil is not universally favouring all airlines, particularly those in the eurozone.
"Air France's cost of fuel is in euros so, versus a year ago, the cost probably has not gone down as drastically as [for] others who pay in dollars," he says.
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With the market entering an unprecedented era, with various new-generation aircraft types about to deliver, and during a period of low oil costs, certain observers have suggested there will be a wave of order deferrals or cancellations.
However, appraisers disagree.
"If fuel went down to $20, we still wouldn't have a single new-generation aircraft cancelled... There are things you can do with the new-generation carbon aircraft that you can't do with the current generation. I think those orders are safe, and I don't see any reason why they would be cancelled due to fuel."
There is more to consider with new-generation aircraft other than improved fuel efficiency, says Rubin.
"While fuel is what everyone is talking about, there are other things that these new aircraft bring to the table in terms of efficiency improvements... such as environmental benefits and maintenance costs."
Dimitroff sees little fleet reshuffling due to current fuel prices. "What has been ordered has been ordered; what has been paid for has been contracted and agreed," he says.
However, he believes the lessors could feel some pressure. "I think the guys that have some exposure are the lessors that have placed large speculative orders as they paid a premium on their aircraft purchase prices and now they have to translate that to lease rates."
He adds that it could be "a bit harder" to get a lease rate premium now because lessors would have otherwise justified that premium through fuel savings.
"The early Neos that were placed had a huge premium over the current generation – way more than the fuel savings. I don't know if that was the novelty of being the first to operate a new Neo or Max," he says, adding: "There is room for that premium to be squeezed and for the lessors to still place these aircraft profitably."
The manufacturers can breathe easily. With the order backlogs "so far out", Airbus and Boeing "do not have to worry about selling at heavily discounted prices" in today's environment of falling fuel prices, he adds.
Source: Cirium Dashboard
