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Sky-high rents hit the aircraft market as Boeing jets top $300,000 per month

An Airbus A321 has been assembled in the ultimate assembly line hangar at the Airbus U.S. MANUFACTURING UNIT in Mobile, Alabama.

Michael Spooneybarger | Reuters

Passengers aren’t the only real ones paying more to fly this season.

A tight supply of aircraft is driving up the purchase price airlines pay to rent planes, in the same way travel demand returns.

The rent on a fresh Boeing 737 Max rose a lot more than 20% between April 2020 which July to $316,000 per month, estimates aviation advisory firm IBA Group. The competing Airbus A320neo climbed to $324,000 per month, up a lot more than 14% from April 2020, and the best price since before the Covid pandemic. The bigger version, the A321neo, was choosing $375,000 monthly in July.

The world’s largest aircraft leasing firms, like Air Lease, Avolon and AerCap, which acquired GE‘s airplane leasing business this past year, are reaping the huge benefits.

A lot more than 51% of the world’s nearly 23,000 single- and double-aisle jetliners are owned or managed by leasing firms, in accordance with aviation consulting firm Cirium. Even though many airlines do own their aircraft, some carriers elect to rent planes instead, or combine both.

Known reasons for leasing vary you need to include weak credit scores that drive up borrowing costs, and the desire, or need, to save cash, instead of shelling out to get new planes, that may run a lot more than $100 million apiece at list prices.

The bigger costs come as airlines already are facing high inflation, leading to expenses that always get passed along in fares. Aircraft rents are approaching or in some instances surpassing 2019 prices, and they are set to go even higher. This year’s surge in oil prices make newer, fuel-efficient planes more appealing than older ones, and higher interest levels may possibly also drive up lease rates.

“You have the rising interest levels and more expensive of capital,” said Mike Yeomans, director of valuations and consulting at IBA. “Which will push lease rates higher through all of those other year.”

Leasing firm executives told CNBC that lots of of these customers are extending leases, with new planes difficult to find.

Steven Udvar-Hazy, executive chairman of Los Angeles-based Air Lease, said that the business’s lease extension rate is nearing a never-before-seen 90%, and that it usually runs about 65% to 75%.

“We’re seeing lots of lease extensions on planes a year ago we projected that people would need to remarket,” said Udvar-Hazy. Which means the business does not have to be worried about transition costs also it provides lessor a reliable blast of income.

The trend may be the consequence of a resurgence in airline bookings while Boeing and Airbus still dealing with a demand and production lull through the earlier days of the pandemic alongside supply chain issues cannot crank up production just as much as they wish to.

Global passenger traffic rose in 76% in June from the year earlier, but continues to be down about 29% weighed against prior to the pandemic, based on the International Air Transport Association’s latest available data.

Hazy said interest levels would need to climb higher and remain elevated to significantly dent travel demand.

For the present time, airlines are “now considering a global where they are able to actually deploy more aircraft,” said Andy Cronin, Dublin-based Avolon’s CEO designate. “We’re definitely seeing a shortage of aircraft and accelerating demand in addition to what we’d have expected at this time.”

Cronin said lease rates for Boeing Maxes and Airbus A320neos have risen by 10%-15% up to now this season.

Supply chain problems and labor constraints have challenged manufacturers from increasing production. Portion of the issue is due to sanctions on Russia which have crimped titanium supplies since that country’s invasion of Ukraine in February.

Raytheon‘s CEO, Greg Hayes, last month acknowledged that some customers would have the impact from supply shortages. “Now we’re not discussing tons of aircraft, but you’re talking five to 10 airplanes … that will be without engines because we don’t possess the titanium forgings that people had likely to understand this year,” Hayes said on an earnings call last month, discussing the conglomerate’s Pratt & Whitney engine unit.

“We’ll sort out it, but it will not be with out a little pain to your customers.”

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