Over the coming year, leasing companies could suffer massively from the Coronavirus crisis. A forecast expects more disputes with airlines.
Already in February, the British aviation consultancy firm IBA warned of imminent turbulence in the leasing market. As reasons it cited the expected return of the Boeing 737 Max, which would cause the demand for replacement aircraft to collapse, and a decline in leasing rates for long-haul aircraft such as the Airbus A330.
Then the Covid-19 pandemic sent the aviation market into turmoil around the world. «The buoyancy in the commercial aircraft leasing market of the last few years is being brought to an abrupt end by Covid», says IBA President Phil Seymour. His company predicts that by 2021, more than 1,000 aircraft will be returned to leasing companies without a clear option for rapid repositioning of these aircraft.
Are there more disputes?
According to the data before the Coronavirus crisis, it was expected that leasing contracts for around 1300 aircraft would expire next year, including 200 wide-body aircraft. IBA believes that the majority would have been renewed under normal conditions. However, as the pandemic is severely depressing demand, the company no longer expects this to happen.
As worldwide are shrinking, new customers for the returned aircraft are likely to be difficult to find. The model of extending leasing contracts or placing a returned aircraft directly with the next customer will therefore often no longer work out for the leasing companies, forecasts IBA. It expects «a higher level of disputes between airlines and lessors around lease returns and redeliveries».
Lufthansa considers additional leasing
So far, the external relationship seems to be intact. Air Lease Corporation (ALC), for example, has already granted customers deferrals for leasing payments totalling around 190 million dollars. The leasing company Avolon also stated that it had enabled many of its 145 airline customers to make later payments during the crisis.
There are also airlines that are interested in leasing aircraft even during the crisis. This is because financially stricken airlines can get away with more flexible leasing for less money in the short term than with a full purchase of aircraft. Lufthansa, for example, is considering acquiring additional Airbus A350 – leased rather than purchased.