China's - Orient Aviation

By Tom Ballantyne• In the Middle East, cash-rich groupssuch as Dubai Aerospace Enterprise (DAE)are increasing investment in aircraft leasingbusinesses.While the statistics show 507 jet aircraftavailable for lease in October, including121 B737s and 28 A320s, the figures aremisleading.Nearly all the Boeing and Airbus aircraftare older, uneconomic models and are notwhat airlines want. Next Generation B737sand new A320 family types are virtuallyunobtainable.On the widebody side, there were noA330s or B777s and only two A300s and 22B747s (mostly again older models) available.Comparisons between October 2006 and lastmonth shows that even the number of olderplanes available has been declining. Year onyear, the number of B737s dropped from 131to 121, A300s from 18 to two, B767s from27 to 7 (many B767s are being converted tofreighters) and B747s from 33 to 22.The widebody crunch is the result ofthe delivery delays. Firstly, carriers suchas Singapore Airlines had to find capacityto fill the gap caused by the 18 month delayof the A380.Now, airlines awaiting B787 deliveries,scheduled to begin in May next year withJapan’s All Nippon Airways, will have tomake similar adjustments after Boeing’sannouncement last month that the firstaircraft will be six months late.Industry insiders said this B787 delaywill have a big impact on lessors because itwill increase widebody lease rates as carriersscramble to find seats.Operators that had timed the return ofleased aircraft to coincide with B787 arrivalswill have to negotiate extensions on leases,a costly process.There is another problem. Lessors don’tlike their planes “out of sequence”. They arenormally returned after a “C” check, but ifan airline wants a six-month lease extensionlessors are likely to insist the airline take an18 month extension, which would be whenthe next “C” check is due. If an airline isforced to do this it will have two choices:attempt to sub-lease the aircraft for the extra12 months, or go to Boeing and demand somesort of compensation for the extra money it iscosting to find aircraft because of the B787delivery delays.In the aircraft leasing market, it is allabout supply and demand. With fiercecompetition for every suitable jet that comeson the market, lessors can look forward tomore good times.ACG move to cash in on narrowbody boomThe money men at t heheadquarters of major aircraftlessor, Aviation CapitalGroup (ACG), in NewportBeach, California, have beenbusy signing cheques; down payments onUS$5.8 billion worth of new planes on orderfrom Boeing and Airbus to add to the 230jets it has out on lease or under managementworldwide.ACG will need them, according toexecutive vice-president global marketing,Richard Cherney. With demand for leasedaircraft – particularly single-aisle jets– currently far outstripping supply, hedoesn’t see any signs the situation is aboutto change.“We will not see any reduction in thedemand for aircraft from either us or otherlessors. We are at a point in the cycle where theavailability of aircraft and the backlog, bothfrom manufacturers and operating lessorspoints of view, is almost unprecedented.Since this is a cyclical industry at some pointthere will be a rebalancing of that supply anddemand, but at the moment I am not seeingany movement towards that whatsoever,”Cherney told Orient Aviation.The demand is also keeping lease rates ata healthy level. “Lease rates are influencedby two factors, the currentinterest rate environmentand the mismatch betweensupply and demand. There’sabsolutely no question thatwith demand exceedingsupply to the extent that itis, rates are robust,” saidCherney.ACG has been quickfootedin preparing to copewith the expected marketpressure to have aircraftavailable in the next fewyears.In April, it ordered 15Next Generation B737s andfive B787s worth some $1.6billion, as well as 20 A320family jets – 14 A320s, four‘We have sold outall our aircraftthrough 2008’Richard CherneyExecutive Vice-President,Global MarketingACG>>>>>>>>>>>>A319s and two A321s – worth around $1.5billion. In September, it signed on for 15more B737NGs valued at $934 million andan additional 25 from Airbus – 15 A320s,six A319s and four A321s – worth about$1.8 billion.“We now have around 230 planes in ourportfolio and under management and we haveanother 107 airplanes on order (this year’sorders plus others ordered earlier). It hasbeen a remarkable growth storyif you look at where we were fiveyears ago,” said Cherney.“We have sold out all ouraircraft through 2008 at thispoint and, in fact, even on neworders we are now into the thirdquarter of 2009.”A lot of the single aislegrowth is being driven by theemergence of budget airlinesin places like Eastern Europeand Asia, he said. ACG is thethird largest foreign lessor ofaircraft into China, after ILFCand GECAS.“In particular I wouldidentify China and India wherethere has been only a smallamount of the market tapped forflying. Now, you are seeing China growingwith the advent of non-state owned airlines,”said Cherney.“T hey a re keepi ng up w it h t heinfrastructure much more in China,compared with India, where there are certaininfrastructural challenges to growth. To us,China is a major growth area and we arehopeful of adding more aircraft there beforetoo long.”NOVEMBER 2007 ORIENT AVIATION 57