Lease rates on current-generation models that declined during the downturn are reversing course, with even some widebody values showing resilience, AerCap CEO Aengus Kelly said.
“I do think that we have seen a significant increase in asset values from the beginning of this year,” Kelly said on a Nov. 10 earnings call. “[Airbus] A320neo values—they never really got hit that hard to be fair, [but] the lease rates have ticked up on those. The [Boeing 737] MAX 8 is making a comeback, that’s important ... we see it on 787s at the moment as well.”
Kelly said the combined AerCap-GECAS order book is nearly sold out through 2022. The hottest segment remains large narrowbodies, with models like the A220 providing an interesting option to accent large fleets.
“The heart of the market is always going to be the bigger variant, which is the 160- to 220-seat markets,” Kelly said. “That’s where the heart of the narrowbody is, and the [A220] will be an airplane to supplement the existing choices that airlines make. It will not be the driver of an airline’s fleet decision, unlike the [A320neo or] the [737] MAX would be. But certainly, it seems to be gaining good traction at the moment.”
The growth prospects in the heavily traveled, short-haul market is promising enough to drive future aircraft development, Kelly suggested.
“We mentioned the A220 is a very good tail for that market. It’s got very good acceptance, particularly with the Airbus horsepower behind it now, as opposed to Bombardier’s horsepower,” Kelly said. “On the bigger end of the markets, Airbus definitely have a slight advantage there. Would Boeing want to do something there? They may. But the heart of that market, all you have to do is look at publicly available information. What do most airplanes fly? The vast majority of airplanes are flying 2-2.5-hr. missions, and that’s the short-haul market.”
Kelly emphasized that Boeing’s top priority should be “building what’s in their backlog today,” ensuring 787 deliveries restart and 737 MAX production ramps up, as Boeing is projecting.
Looking ahead, Boeing would be wise to focus on a versatile 737 successor, as opposed to offsetting Airbus’s advantage at the top end of the narrowbody market, Kelly suggested.
“Do I think that [Boeing] could do with something that could fly a little bit longer? Perhaps,” Kelly said. “But once again, the heart of the markets is in that 160 to 220 seats. Short-haul drives the global air traffic markets, and short-haul operations, you’re generally doing 2.5 hours.”
“People should never get carried away by these marquee routes,” Kelly continued. “Flying from the eastern U.S. to Western Europe—that’s fine, but its niche in the global market. That’s not the market for narrowbodies. The market for narrowbodies is still 2-2.5-hr. missions, carrying as many people as you can, as efficiently as you possibly can. That is the heart of the market and that isn’t going to change.”
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