Air Lease has taken steps to mitigate its exposure to the ongoing Boeing 737 Max crisis with an opportune deal to switch 15 of its orders to the 787.
Speaking during its second-quarter earnings call on 8 August, Air Lease chief executive John Plueger said that the lessor is working on the basis that it will receive no further 737 Max aircraft during 2019, although he emphasised that this was an independent view and did not reflect Boeing’s position.
“Frankly, I hope our assumption is wrong, as we do look forward to delivery recommencement of the Max as soon as possible,” says Plueger, adding that “much of our new lease placement activity has been somewhat muted pending return to service of the Max”.
As of 30 June 2019, Air Lease had outstanding orders for 150 737 Max aircraft, but it has signed a memorandum of understanding with Boeing to switch 15 of these to a deal for five 787-9s.
Plueger says ALC was “short in the second quarter of this year of 787-9s [on order]” with greater demand for 2020-2022 deliveries than available in its backlog. So Air Lease considered that “the wisest thing to do was to convert 15 of our Max 8s and 9s into five additional 787-9s”, he says.
The suspension of Max deliveries coincides with Airbus’s continuing production delays impacting A321neo shipments, which has resulted in Air Lease having to adjust its contracted delivery schedule, according to the lessor's chief financial officer Greg Willis.
Plueger says the combination of the Max grounding and the A321neo delays has resulted in a rise near-term demand for single-aisles, which has helped drive up certain lease rates. Air Lease has helped provide interim capacity for some Max customers either through dry lease or short-term wet leases from other operators.
“Truthfully, we really haven't had experience of this type of delay,” he says.
Cirium’s Fleets Analyzer shows that there are currently 15 Air Lease-managed 737 Max 8s in storage with six operators from which it continues to receive monthly rentals: Cayman Airways, Globus, LOT Polish Airlines, Oman Air, Smartwings and Sunwing Airlines.
“To the extent that, any of those customers will demand concessions, please understand that we will look to Boeing to cover every dollar of any deficiency that might arise,” says Plueger.