Sky-high rents hit the plane market as Boeing planes hit $300,000 a month

Passengers are not the only ones paying than fly this year.

One tight supply of planes is increasing the prices airlines pay to charter planes, as well as the return to travel demand.

Rent on a new one Boeing Aviation consulting firm IBA Group estimates the 737 Max has grown by more than 20% between April 2020 and July to $316,000 a month. The competitive Airbus A320neo climbed to $324,000 a month, up more than 14% from April 2020 and the highest price since. Covid pandemic. The larger version, the A321neo, costs $375,000 per month in July.

The world’s largest aircraft leasing companies, such as Airline rentalAvlon and AeroCapwhich buying GELast year’s aircraft leasing business is reaping many successes.

According to aviation consulting firm Cirium, more than 51% of the nearly 23,000 single- and double-aisle jets in the world are owned or managed by leasing companies. While many airlines own their aircraft, some airlines choose to lease alternative aircraft or a combination of both.

Lease reasons vary and include a weak credit rating that increases borrowing costs and the desire or need to save cash, rather than fork out for a new aircraft, which could be worth more than $100 million. each at the listed price.

Higher costs occur because airlines are facing high inflation, resulting in costs that are often charged to fares. Airline rental prices are approaching or in some cases surpassing 2019 prices, and they are set to go even higher. Soaring oil prices this year make newer, more fuel-efficient planes more attractive than older ones, and higher interest rates could also boost rental prices.

“You have rising interest rates and a higher cost of capital,” said Mike Yeomans, director of valuation and consulting at IBA. “That should push rents higher for the rest of the year.”

Leasing company executives told CNBC that many of their customers are renewing leases, with new planes hard to find.

Steven Udvar-Hazy, executive chairman of Los Angeles-based Air Lease, says the company’s lease renewal rate is nearing a 90% never seen before, and it typically runs around 65% to 75%.

“We are seeing so many aircraft rental extensions that a year ago we predicted we would have to remarket,” said Mr. Udvar-Hazy. That means the company doesn’t have to worry about switching costs and it gives the lessor a steady source of income.

The trend is the result of a resurgence in flight bookings while Boeing and Airbus – still recovering from a lull in demand and production in the early days of the pandemic along with supply chain issues. response – cannot increase production as much as they would like. .

Global passenger traffic rose 76% in June from a year earlier, but is still down about 29% from pre-pandemic, according to the latest available data from the International Air Transport Association.

Hazy said interest rates would have to go higher and remain high to reduce travel demand significantly.

“At the moment, airlines are looking at a world where they can actually deploy more planes,” said Andy Cronin, CEO of Dublin-based Avolon. “We are certainly seeing aircraft shortages and demand grow faster and above what we expect at this stage.”

Cronin said rental rates for Boeing Maxes and Airbus A320neos have increased by 10%-15% this year.

Supply chain issues and labor constraints have challenged manufacturers to increase output. Part of the problem stems from sanctions against Russia that have limited titanium supplies since that country Invasion of Ukraine in February.

RaytheonCEO Greg Hayes admitted last month that some customers will feel the effects of the supply shortage. “Now we’re not talking about dozens and dozens of planes, you’re talking about five to 10 planes… that won’t have engines because we don’t have the titanium forgings we’ve come to expect. will be available this year,” Hayes said in an earnings call last month, referring to the group’s Pratt & Whitney engine unit.

“We’ll take care of that, but it won’t be the least bit difficult for our customers.”