ANALYSIS: Why lessors led the Farnborough spending

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Airbus unveiling extra orders from Hong Kong Aviation Capital as it finalised an earlier commitment Airbus A320neo family jets further underlined the extent to which aircraft lessors have been at the heart of Farnborough air show orders this year.

The lessor followed its Paris air show memorandum of understanding by this morning firming a deal for 70 Airbus A320neo-family jets, including 10 additional A321neos than originally envisaged.

It was latest in the string of aircraft lessor order commitment announcements that began on the eve of the show with Falko signing a letter of intent for up 24 Bombardier CSeries aircraft.

During the course of the air show the airframers have announced 576 order and option commitments from a dozen aircraft lessors, representing just under half the total order. While, as with airlines, some of these confirm earlier commitments and others are still be finalised, it is clear the aircraft lessors continue to have an appetite for ordering aircraft.

Getting on for half of these commitments, 261, were for the Airbus A320neo. Another 20 were for Boeing's 737 Max and Airbus picked up 55 order MoUs from lessors for the re-engined A330 it launched at start of the show.

Asked why the leasing community continues to place orders, one lessor’s representative says: “I could return this question by asking why airlines are not ordering”. He points out the industry gets its annual “regular lessor orders” while others opt for larger commitments on a less regular basis as a “natural progression”.

SMBC Aviation Capital was one of them. The Dublin-based lessor took 110 A320neos at the show, which Airbus heralded as the largest firm order by a lessor for single-aisle aircraft. It came four years after the last order from its predecessor, RBS Aviation Capital, for 50 Airbus A320 family aircraft along with 45 Boeing 737 next generation models.

The lessor said it needed to order narrowbodies again, as they are “core" of the business. “SMBC Aviation Capital is re-loading for the first time since the Japanese acquisition in 2012 and they are doing it in style,” says a leasing source.

Another lessor points out that the market is in transition in terms of technology and leasing companies are “filling that void”.

The 110 aircraft order from SMBC was matched by AerCap and Air Lease, ordering 50 and 60 units respectively, and helping Airbus pass the 3,000 firm order mark for its A320neo family. But lessors still say market demand supports their latest orders for the current-generation A320 products.

During the show BOC Aviation and SMBC Aviation Capital placed orders for both the Neo and current generation models with a view to bridging the delivery gap between both programmes. CIT Group, a Neo customer, ordered more current generation models.

In the narrowbody and widebody market, most airlines’ announcements were “pick and mix”, with small volumes commitments.

Prior to the show, Emirates placed a massive 777X order but as one lessor points out other airlines that normally announce at air shows are fully loaded.
Qatar Airways was the only one of the big three Gulf carriers to order at the show, albeit one of the largest commitments by signing for up to 100 Boeing 777X.

“If you look at the capacity of the three Middle East carriers, it is full up," says the lessor. “Airlines that tend to place orders already have a subsequent backlog. Those who haven’t ordered are being told ‘sorry but there is no capacity over the next five to six years'. They are going to have to use the lessor channel,” he adds.

Fundamentally operating lessors can make decisions in a different way than airlines.

“When leasing companies decide to buy aircraft, it is reflective of the customer base they can lease to,” says one lessor. “For airlines it is different, if you are making a narrowbody fleet decision, it is a 10 to 15-year product decision. Those decisions are never timed at air shows, they are timed around fleet requirements. So it may appear that lessors are dominating the week, but it is more a coincidence than anything else.”

The timing factor was evidenced in the A330neo launch at Farnborough. Air Lease, Avolon and CIT Aerospace all committed to the Rolls-Royce Trent 7000-powered aircraft. “The fundamental difference is the speed in which lessors can process the information that was presented in a very short time. Airlines cannot make that decision process over the line in a matter of a small number of weeks,” says one lessor.

“There was an airline crying [out] for this aircraft for quite sometime but other airlines will need time to analyse that aircraft,” he adds.

Another lessor reveals that Airbus did not offer this aircraft to “anybody more than within a 10-day period.”

“Not even the Airbus sale force has been briefed on the Neo," he says. He expects orders announced at Farnborough to come to fruition in parallel to those that have been agreed but were unannounced.

“There is a 100% probability that these letters of intent and conditional purchase agreements will convert into firm orders. Then the big focus will be on airlines orders over the next four months.”

He brushes away the assumption that lessors are racing for early A330neo slots. “Eventually Airbus would not like the lessor community to control more than a quarter of an order book in any year. At the end of the day Airbus wants to control where the aircraft goes to and at what price. Both Airbus and Boeing are usually very smart about that.”

“Fast forward to September, I think everybody will be impressed with the acceptance of the A330neo,” he says.