Mumbai/New Delhi: Growing delays in deliveries of new Boeing and Airbus planes amid a rush by carriers to add long-distance and international routes, including from India, have pushed up lease rentals of the long-haul passenger aircraft by at least 15%.
Those lucky airlines holding a guaranteed near-term delivery slot for such type of planes could potentially sell or swap these guaranteed delivery slots for a profit to another airline that needs them more urgently even though soaring fuel prices makes newer planes that much more desirable for many carriers, including in the US and Europe where an economic slowdown is leading to a re-evaluation of aircraft needs.
A file photograph of the engine of an A380 on the plane's production line at the Airbus factory in Toulouse, France. Vijay Mallya-promoted Kingfisher Airlines is the sole Indian customer of A380, with a firm order for five super jumbos and five options (Photo by: Marc de Tienda / Bloomberg)
Airbus SAS last week informed its customers that there could be delays in the delivery schedule of the super jumbo A380 for 2009 and 2010.
Seattle-based aircraft maker Boeing Co. has already announced delays in the delivery schedule of the fuel-saving Boeing 787 Dreamliner.
Indian customers of these aircraft including the UB Group-owned Kingfisher Airlines Ltd and National Aviation Co. of India Ltd-run Air India are likely to be the ones most affected by the delays.
“With airlines increasingly eyeing at starting or beefing up international operations, there is a huge demand for wide-body aeroplanes. With bigger types of planes such as A380s and Boeing 777s delayed, airlines have no other option than leasing slightly smaller than that with high lease rentals,” said a senior executive working with a multinational insurance company on condition of anonymity. His company has secured several India airlines as insurance clients.
Vijay Mallya-promoted Kingfisher Airlines is the sole customer of A380, with a firm order for five super jumbos and five options, while Air India and Jet Airways (India) Ltd have ordered 27 and 10 Boeing 777s, respectively.
Mallya’s planes are scheduled for delivery around 2011-2012, according to the manufacturer, though airlines executive vice-president Hitesh Patel said there will be no impact on the airlines due to delay in A380 as there is no delay for production line meant for his company.
“The delays, in general, too, will not affect the rental much as the airlines in the US and Europe are reviewing their fleet renewal with the recession and jet fuel prices hitting the roof,” Patel added.
An Airbus spokesperson, however, said the delivery schedule for all A380 customers, including India’s Kingfisher, will get a pushback of two-three months on an average but, the delivery of other aircraft including the more popular A320 will not be affected.
“We are working to optimize the new delivery schedule with customers,” he said over phone from Toulouse, adding that the shuffle could mean that some A380 customers may seek new delivery slots to suit their peak season. For example, an airline supposed to get an A380 in summer 2009 may not want it to arrive in winter, choosing instead the next summer. That could potentially give other airlines in-waiting an advantage to fill up for them.
CEO of InterGlobe Aviation Pvt. Ltd-run IndiGo, which runs on an all Airbus fleet, does see some leasing companies gaining from the new equations.
“Some number of the aeroplanes will typically be sold by the manufacturer directly to leasing companies, who then in turn lease them out to airlines, and an airline trying to buy such an aeroplane from a leasing company should indeed expect to pay a premium if the aircraft is in short supply,” he said.
Agreeing there will be impact on the lease rentals, a Jet Airways executive, who did not want to be identified, said the high demand for alternative models would be neutralized by the recent slowdown in the US. Chennai-based Paramount Airways managing director M. Thiagarajan echoed similar sentiment.
“There is a slowdown in the US as well as Europe. Many airlines are now either selling off their delivery slots or rescheduling deliveries owing to high jet fuel cost and recession. This should offset the high demand for aircraft,” Thiagarajan said.
Thiagarajan is in the process of ordering bigger type of aircraft such as Boeing 777s and A330s to start international operations.
But the analysts have a different take. “With the delays in schedule of bigger planes such as A380s and Boeing 787s, the demand for comparatively smaller versions will shoot up. For instance, airlines will scout for more aircraft types of A330s and Boeing 777s,” said a Mumbai-based aviation analyst, who is not authorized to speak to the media.
He opined that the price of these models may not shoot up since it depends on the relationship of airlines and manufacturers. “But, the value of the delivery slots of aircraft types, especially A330s, will shoot up at least by 15%. Since there is possible delays in A350s types and tighter position of Boeing 777s, A330s are going to be the pricy asset,” he added.
Craig Jenks, president of Airline/Aircraft Projects Inc., a New York-based air transport consulting and advisory services firm, said rentals for Boeing 787s have been increasing and are now more than $1 million (Rs4.26 crore) per month for the first available units from operating lessors.
“Slowdown in the US and Europe will impact narrow-body values and availability,” he said. “But, at this point it is not likely that wide-body markets will move in that direction. In fact, the US and EU markets make most of their profits in long-haul where they do not have much of any budget carriers and new entrant competition.”