The grounding of Boeing 737 MAX jets across the world in the wake of the crash of an Ethiopian Airlines plane that killed over 150 passengers could lead to an increase in lease rentals of the aircraft’s earlier variant, 737NG (next generation), according to aviation consultants and executives from leasing firms.
Demand for the Boeing 737NG model remains firm, they said, adding that rates might rise by about 10 per cent.
Regulators around the world suspended flights of 737 MAX planes following the Ethiopian Airlines crash last Sunday. The 737 MAX aircraft, which comes with a fuel-efficient engine, entered into service in 2017, and globally there are over 350 such planes with airlines. The MAX’s earlier variant, known as the NG series, continues to be a mainstay for carriers around the world, including Air India Express, Jet Airways, and SpiceJet in India.
Demand for 737NG planes is expected to pick up due to the grounding of MAX planes. Typically, the new lease rate for 10-year old 737NGs would have been between $200,000 and $250,000 per month, which might go up by 10 per cent in current negotiations, said Phil Seymour, CEO of aviation consultancy IBA Aviation. He added many airlines might look at extending their existing 737 NG leases, but this might change if Boeing issued a fix in the short term. “The Boeing 737NG aircraft will remain in demand because of its ultra-reliable engine. The secondary market for the planes is firm and the rents of used NG planes will firm up by around $ 20,000. Once the MAX fix is reliably introduced, the NG lease rents will go back to normal,” said the CEO of an aircraft leasing firm.
“Airlines could also look at short-term 737NG leases to fill up the gap caused by the MAX grounding,” said aviation consultant Vishok Mansingh.
Jet Airways has 119 planes in its fleet, including 5 MAX aircraft, but nearly half of its fleet has been grounded because of non-payment of lease rentals and cash crunch.
Robert Martin, BOC Aviation Limited’s CEO, said on Thursday he saw “quite a lot of demand” for 737NG planes. He added that the company would look to redeploy planes leased to Jet Airways in case there is no resolution to its crisis.
SpiceJet has a fleet of 76 planes, including 13 737 MAX aircraft.
It has 47 737NG planes in its fleet and is inducting two more planes on short-term lease to cater to its capacity expansion in summer. These joined the fleet today and will start operations from Saturday. SpiceJet is also looking to lease more planes to fill the gap. Air India Express has 25 737NG planes and is not looking for an immediate fleet expansion.
Lease rates for an aircraft depends upon its age, lease term and creditworthiness of an airline, besides the demand. Globally passenger demand continues to be on rise and lessors have not encountered difficulty in placing the used NG aircraft with carriers. Boeing has a pending order book of less than 100 for 737 NG planes and over 4,700 unfilled MAX orders.
Delays in the introduction of Boeing 787 and the aircraft's global grounding due to problems with lithium-ion batteries one year into its service had led to an increase in lease rates of older 767 planes and 737 NG planes lease rates too could benefit from the uptick in demand.