ANALYSIS: Narrowbody lease rates show continued improvement

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The values review board at Flightglobal consultancy Ascend provides this update on narrowbody lease rates

Ascend has observed a continuing improvement in single-aisle lease rates for the most liquid family types, especially for five- to 12-year-old aircraft.

Airbus A320 and A319 rates already slightly increased earlier in the year, but data on more recent lease renewals and new leases signed by lessors show further significant improvements for the A320 and A321. Also benefitting are some mid-vintage (2000s-era) Boeing 737-800s, although the earliest and newest vintages generally remain unchanged. In the case of the 737-800, lease rates of new builds have slowly but steadily improved over the last five years ,and we believe they are plateauing now, if they haven’t already peaked.

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Lease rates of the oldest vintage 737-800s (pre-2000) are not improving either and remain below $200,000 a month. Boeing 737-900ER lease rates have also shown some improvements, albeit not as much as that of mid-vintage A321s, which have benefitted from reduced availability. The 737-900ER continues to be priced higher than the -800, but by a very small margin. The A321, meanwhile, with sharklets and increased capability, is continuing to gain traction as a 757 replacement, and recent absorption of lessor speculative order backlogs by American Airlines has helped this trend.

A319s continue to be placed at relatively low rates compared to their pre-2008 highs, and although lease rates have seen small improvements of $10,000-20,000 per month since the start of the year, and some improvement in lessee credit quality, the recovery is not as pronounced as on the A320. It is, however, better than the 737-700, on which Ascend has not observed any notable improvements to lease rentals, although aircraft do get placed within reasonable marketing periods.

For the A320 in particular, there is continued evidence of transactions (new leases and renewals) happening at slightly higher rates for mid-vintage aircraft. Although the 737-800 still holds the overall advantage in lease rates (up to 25% higher for the oldest aircraft), for new 2014-build aircraft the difference is now just 8% compared with a high-specification A320 with sharklets. This has really closed the gap since the start of this year, considering that new A320s had lease rates as much as 20% lower than the -800 at one point during the downturn.

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