737 MAX Grounding Impacts Leasing Market and Fleet Plans

News Industry sources indicate that aircraft lessors are looking at 12 month lease extensions for Boeing 737-800s from the September-October timeframe, when many extended lease for six months due to the 737 MAX grounding to maintain interim lift for airline customers expire. This compounds both the decision processes for airline fleet planners as well as potential impacts the Boeing 737 MAX delivery skyline once deliveries resume. Analysis If you are an airline and your MAX is grounded, you need interim lift to maintain your schedule. While in many cases MAX arrivals were for growth, in others they were to replace older aircraft. Keeping those older aircraft on the flight line could require a lease extension, and most lessors provided six month extension to their customers. Of course, with high demand, lease rates for the 737-800 have risen significantly in the last few months, up $50,000 per month from earlier this year. But lessors don’t like the uncertainty of short-term leases, and like to re-market their aircraft on a schedule, over time, as leases terminate. Extending a number of leases that end at the same time will likely produce a market glut when the MAX re-enters service, and lessors want to maximize their revenues and minimize the impacts of re-marketing in a market with a supply imbalance. Insight There could be an impact on Boeing’s skyline as it sets to re-deliver the MAX. Airlines who have committed to leases that run until August or September 2020 may not be ready to take their airplanes quickly, having made interim arrangements. How will Boeing deal with interim leases and re-juggle their skyline as airlines change their plans? Deferring a MAX delivery until an interim lease is up could further push out revenues for Boeing, prolonging the cash flow hit the company faces. The complexity of the situation is not only related to the airplane, but to markets, customers, lessors, and particularly timing of transactions. The MAX crisis will not be a simple one to solve, either technically nor with airline customers, whose needs are continuing to change with further delays. Decisions on re-leasing could have cash flow implications for Boeing that need to be considered when assessing the overall impact on the company.

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