The scramble for leased jets will show up in air fares soon

Passenger aircraft for Air India Ltd., IndiGo, and British Airways Plc at the Airbus SE delivery center at Toulouse-Blagnac Airport in Toulouse, France. (Matthieu Rondel/Bloomberg)
Passenger aircraft for Air India Ltd., IndiGo, and British Airways Plc at the Airbus SE delivery center at Toulouse-Blagnac Airport in Toulouse, France. (Matthieu Rondel/Bloomberg)

Summary

  • Every available plane has demand from four to five carriers, outlining the lack of fit aircraft right now

New Delhi: Aircraft rentals have leapt in the last year as airlines scramble to service soaring demand, with every available plane witnessing demand from four to five carriers.

In the popular narrow-body, single-aisle category, the increase has been steeper for older aircraft, portending higher fares as they come with higher operating costs. The rise in lease rates comes at a time the airline industry is struggling with a shortage of aircraft worldwide.

The average market lease rate for a 10-year-old Airbus A320 surged 14% to $177,000 per month in January from $155,000 per month a year earlier, showed data from UK-based aviation research firm Ishka. For a used Boeing B737-800, it was around $194,000 per month, 13% up from last year's $171,000.

Even though newer aircraft cost more than twice as much, the rate of increase has been more muted. The monthly rate for a new aircraft such as an A320neo (new engine option) was up 8% to around $375,000, and that of a Boeing 737-MAX8 was up 7% to $365,000.

The increase in rentals is set to impact Indian airlines like IndiGo, Air India Express and SpiceJet, which mainly operate fleets of Airbus 320s and Boeing 737s. Among the three, IndiGo and AI Express have large domestic expansion plans.

India’s largest airline IndiGo grounded 30 more aircraft in January due to problems with Pratt & Whitney engines. The airline has decided to retain 14 of its older Airbus A320ceos (current engine option) and extended leases on 36 other aircraft, and is in the process of inducting 11 more on lease. It also plans to lease 12 more A320ceos from the secondary market. Air India and SpiceJet are also leasing long-haul aircraft from the secondary market.

“Not many A320s and B737-800s are available when one looks at the market for aircraft available on lease in January. We are seeing a lot of lease extensions because airlines are not getting new aircraft on time; they are extending leases of aircraft that they were probably thinking of rolling over at some stage," Eddie Pieniazek, head of advisory, Ishka said.

Meanwhile, airlines have deployed top executives to hunt for aircraft.

“Global airlines as well as airlines in India have deputed a bunch of key executives to find out aircraft from anywhere in the globe. Indian airlines are more aggressive than their global counterparts since the market is growing," the top India executive of a foreign airline said.

The crunch comes at a time of rising demand.

Data from the International Air Transport Association (IATA) showed that in 2023, full-year traffic worldwide stood at 94.1% of pre-pandemic (2019) levels. In December, air traffic rose 25.3% compared to December 2022, and reached 97.5% of the December 2019 level.

In India, however, traffic has already crossed pre-pandemic levels. Indian airlines carried a record 152 million passengers in 2023, data from the Directorate General of Civil Aviation showed. The air traffic recorded last year is 23% higher than the 2022 levels and more than 5% more than the pre-covid year of 2019.

The aviation ecosystem is witnessing a huge backlog of deliveries and repairs due to a lack of skilled labour, absence of specific production lines making engine parts, and challenges in availability of raw material such as titanium since the covid pandemic, which was worsened by the Russia-Ukraine war.

In addition, the engine recall by Pratt & Whitney to assess a powder metal defect which could lead to the cracking of some engine components in Airbus A320neo jets will need lengthy quality inspections between 2023 and 2026 of around 600 to 700 engines. The repair work, which was initially expected to take 60 days, is now projected to last up to 300 days per engine.

An average of 350 jets could remain grounded per year worldwide through 2026, with as many as 650 aircraft sitting idle in the first half of 2024. Over 40 airlines and lessors globally, including IndiGo, have been impacted by Pratt & Whitney’s engine issues. This has led to a situation where the total number of flights declined in January by 2.3%, as per data from Airports Authority of India.

The capacity crunch has already sparked higher fares in India, with domestic air fares for the upcoming summer season higher by up to 30%.

The unpredictable leasing market and persistent supply chain issues are also destabilizing network planning.

“It is incredible that major airlines across Europe do not have a clear picture of what they are going to fly, what aircraft are going to be delivered, what assets will be available, nearly eight weeks before summer season...and that ripples with all planning, rostering, staff recruit," John Grant, chief analyst, aviation consultancy firm OAG said.

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