ALC expects booming market for widebody aircraft

Not just AerCap is optimistic about the prospects of the widebody aircraft market, but so is Air Lease Corporation (ALC). The US lessor is reading a strong recovery of the long-haul market that will be supported by upcoming sales, which could cover two years of widebody production, ALC said on November 3 in its Q3 earnings call. ALC expects booming market for widebody aircraft. ‘’There are many current campaigns that are unfolding: United’s upcoming campaign for 100 widebodies, Air India for 40 to 60, Saudi Arabia for up to 50. These are very significant numbers and if they are true and these kinds of things are published, that really adds further momentum. We expect both Airbus and Boeing to seek rate increases, particularly on the 787 and A350’’, said CEO John Plueger. ALC Chairman Steven Udvar-Hazy added: “The pending campaigns Airbus and Boeing have is almost three years of production of the 787, 777X, A350, A330neo. Even if you take only a fifty to sixty percent success ratio, we are looking at two years of production.” Plueger noted that there has been “a snap back in international markets which has been particularly strong, benefitting from the relaxation of travel restrictions and previously significant constraints.” Quoting recent IATA figures, air travel is up by 60 percent year-on-year and international by even 116 percent year-on-year as volumes recover from the pandemic. The Asia Pacific region has seen the most dramatic recovery of international passenger revenue volumes, up by 449 percent. Global air travel is now within 30 percent of 2019 levels and domestic to within 10-15 percent, with Brazil already exceeding 2019 levels. This not just is pushing up demand for narrowbody aircraft, but lessors are seeing a recovery of the widebody segment too. AerCap said on Thursday that demand for new and used widebodies is strong. While deliveries have been more stable than narrowbodies, AerCap expects the supply chain issues at Airbus and Boeing to cause widebody delays as well. ALC is seeing the same, said Udvar-Hazy: “Widebody shortage is a very gradual process, it is not like an earthquake. We are seeing that the recovery in international travel is now beginning to gain momentum as more and more countries liberalize their travel restrictions. Things are crawling back to normalcy and we expect by the middle of next year that Korea, Taiwan, Japan, and Singapore will be pretty well caught up to their long-haul business. But remember, those airlines still have direct orders but we are seeing more demand for replacing some of the oldest widebody aircraft that are hitting 20-25 years of age.” Only seven widebodies available This is benefitting lessors with widebody portfolios. “The pace of our widebody lease placements has also accelerated”, said Plueger. “ALC has now placed all of its A330neo aircraft and A350-1000 orders profitably, with only seven remaining passenger widebodies left to place through 2025, consisting of 787-10s and A350-900s.” ALC expects to take delivery of fourteen widebodies in 2023, eleven in 2024, and ten in 2025. With the market recovering like this, “we expect Boeing and Airbus to increase production meaningfully of 787s and A350s although we don’t see this improving the delivery delays situation throughout 2023.” Demand for narrowbody in ALC’s portfolio remains very high, “with limited remaining delivery positions from our order book through 2025 and beyond. At OEMs, A320neo and MAX aircraft are more or less sold out through 2027, so airlines are only finding opportunities in our order book and those of other lessors. But those aircraft available are increasingly dwindling in number as placements accelerate, which is further benefitting the lease rate environment,” said John Plueger. Air Lease Corporation had placed 99 percent of the 78 aircraft deliveries through 2023, 75 percent of 2024 deliveries, and about 60 percent for 2025. “We see rapid placement pace ahead for our remaining single and twin-aisle deliveries for 2025. Although competition remains robust, we see diminishing aircraft supply from aircraft leasing sector combined with interest rates and inflation rate increases continuing to drive lease rate factors up.” ALC announced various placements recently, like three Boeing MAX 8s with Italian start-up Aeroitalia this week, five Airbus A321XLRs with LATAM, six MAX 8s with LOT Polish Airlines, two A321LRs with HiSky, four A321XLRs with Air Transat, or nineteen A321neo’s and A320neo’s with Condor, just to name a few. ALC has orders for 412 aircraft with Airbus and Boeing for delivery through 2028. (ALC) But the lessor is not immune to delivery delays, from which it suffered again in Q3 and Plueger expects to continue for the next couple of years. ALC received the first 787 in October since April 2021 caused by production quality problems. Other deliveries were delayed by supply chain issues at Airbus and Boeing, mainly the result of problems with engine makers. Plueger and Udvar-Hazy confirmed the view seen by AerCap that engine OEMs are directing more engines as spares to in-service aircraft, as new-technology engines need to get off wing earlier than anticipated. ALC said already before that the delivery delays slow down the rate at which older aircraft are sold from its portfolio. The lessor expects to sell around $150 million of its existing fleet this year, but Plueger announced that another $700 million of sales is in the pipeline in HY1 of 2023. ALC’s owned fleet grew to 405 in Q3, with another 412 aircraft on order through 2028. Air Lease Corporation reported Q3 revenues of $561.3 million compared to $524.5 million last year. The net income was flat at $100 million, slightly lower than in the second quarter. For January-September, revenues were $1.715 billion versus $1.491 billion but a net loss of $-273.6 million compared to $265.8 million. The loss has everything to do with the $802.4 million write-off on 26 owned and managed aircraft in Russia in Q1. In Q3, ALC repossessed one Boeing MAX 8 that had been in storage with S7 Siberia Airlines since the grounding of the type in 2019, but ALC is under no illusion to repossess other the other aircraft in Russia.

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