Airlines feel the pinch from aircraft rental costs
Airlines are feeling the pinch from soaring aircraft rental costs, as delays at Boeing and Airbus collide with resurgent demand for travel.
Rates to rent new aircraft, charged by leasing companies, are higher now than they have ever been, according to the aviation market intelligence group IBA.
Prices for the best-selling Airbus A320neo are floating at around $420,000 (£346,000), while the Boeing 737 Max 8 sits at approximately $375,000.
New delivery narrowbody aircrafts have seen double-digit annual increases of as much as 15.7 per cent, with further growth forecast into early 2024, the IBA’s figures show.
“Supply chain issues affecting new aircraft production, along with pilot and labour shortages and ongoing quality and durability issues with the latest generation of engines, are contributing to a capacity constrained environment in which lease rates are expected to grow further,” Mike Yeomans, director of valuations and consulting at IBA, told Morning Wire
Most aircraft leases are agreed at fixed rates, with standard terms ranging from 10 to 12 years for new aircraft. Yeomans warned airlines could be locked into the new, higher fees “well into the next decade”.
While the effect is more pronounced in the short-haul narrowbody market, which typically has higher levels of leasing, some widebody crafts have also seen double-digit per cent jumps.
Airbus has been working rapidly to ramp up production of its A320 family, with its backlog now stretching into the 2030s. Ryanair has been highly critical of delays at its rival Boeing, whose chief executive has warned that supply issues could drag out for half a decade.
Marion Geoffroy, Wizz Air’s UK chief executive, told Morning Wire in an interview that it was taking “more time to get the parts and materials”.
“There is shortage of labour everywhere in the world. We see the manufacturers Airbus says the same thing, Boeing says the same thing. So yeah, there are definitely constraints.”
The situation was worsened by a production snag at engine-maker Pratt and Whitney over summer, which forced the recall of 1,000 engines earlier in the year.
The record rental costs have come as airlines face a string of issues emerging from what was a record season of summer travel. Rising oil prices, worsened by the Israel-Gaza conflict, have sent shares at numerous airlines plunging in recent weeks amid concern over the price of jet fuel.
Stephen Furlong, transport and equity analyst at Davy, said: “I would agree that there is clear upward pressure on lease rates which can have a negative effect on airline earnings.”
But he said other variables including “labour, fuel and underlying unit revenue will have a more fundamental impact”.
Rob Morris, head of consultancy at Cirium Ascend told Morning Wire “while it isn’t helpful for airlines to see higher leasing costs, the additional cost pressures exerted by higher fuel prices, increasing staff costs, increasing maintenance costs and increasing service charges are all contributing to increased airline costs, which will inevitably lead to higher ticket prices.”