COVID-19: Oversupply of Aircraft

How do you look at the lessor’s positioning then, medium to long term, with the aircraft they have, with the fleet they have, the potential reduction in demand, as you mentioned, this new normal, do you they’ve got an over-supply of aircraft in the market and, therefore, their fleet size?

The question of over-supply or if there is too much capacity is, really, firstly, to be measured at the airline level. The question really is whether traffic is going to return to normal quickly, or whether it’s going to take several years. Many commentators are now expecting the crisis to last into 2023, in terms of returning to 2019 levels of traffic. So that would suggest that there would be excess capacity and that not all aircraft that are currently grounded, will be returned to service. It might accelerate, therefore, the retirement of certain older aircraft and it might, also, accelerate certain airlines fleet simplification, by reducing the number of aircraft types that they operate.

The overall impact, in the short term, could be negative for aircraft values, both in terms of lease rates and residual values. But for those lucky enough to have the most sought after, modern and efficient aircraft, I suspect that, in time, those aircraft will not only return to service, but will become essential tools again, for the world’s airlines. It really is a question of looking at fleets and which aircraft are likely to be retired and which aircraft are likely to return to service as soon as possible. In the long term, which are the most desirable aircraft for airlines to return to service? But it’s early days. At the moment, most airlines are more concentrated on survival than they are on looking at how their future fleet will be made up.

What’s going to happen to the retired aircraft?

Some could be converted to freighters, some would be broken up for spares and some will be parked in the desert and, eventually, become beer cans. What will normally happen to aircraft will continue to happen but, maybe, on an accelerated basis.

That’s where, as you said, it depends on the lessor’s fleet type, in terms of newer aircraft, versus older aircraft and how they’re going to come out of this disruption?

Firstly, it depends on what they airlines decide. You can see two sides to the argument. On the one hand, bringing in additional new aircraft means capital expenditure or additional commitments to new aircraft. On the other hand, new aircraft coming in are more fuel efficient and have much lower maintenance costs. Some airlines may decide that they want to defer taking any new aircraft, for as long as possible. Others may decide to ground whole fleets of older types and take the opportunity to reduce the average age and cost of maintaining their future fleet. Again, it’s difficult to predict how that is all going to pan out. Clearly, some aircraft might never fly again.