The grounding of over 300 of Boeing 737 Max 8 planes across the globe, following two crashes, has sent aircraft lease rentals soaring, according to airline insiders
SpiceJet, which grounded 13 Boeing Max 737 planes, may have to shell out more for leasing aircraft as rentals have shot through the roof.
The grounding of over 300 of Boeing 737 Max 8 planes across the globe, following two crashes, has sent aircraft lease rentals soaring, according to airline insiders.
Two senior executives of different domestic airlines, who spoke to DNA Money anonymously, said post the decision by most carriers around the globe to not fly the Max 8 planes till the fault in its software was fixed has led to a scarcity of Boeing planes in the market.
One of them said this crunch in availability of Boeings has bloated aircraft rental costs.
Following two air crashes, which involved Boeing 737 Max 8, in less than five months aviation authorities of many countries – India, China, Australia, UK, Germany, Indonesia and others – have ordered grounding of the Max 8.
One of the airline executives DNA Money spoke to, said all the carriers, which have grounded Max 8 aircraft would be looking to lease planes to continue their flight services.
Even SpiceJet is reportedly considering hiring planes to operate the flights for which it has already sold tickets.
"SpiceJet will reach out to airlines and lessors for available capacity," he said.
Airlines mostly do not own aircraft. They order them from an aerospace company and then sell and lease back the planes from lessors like B&B Air Acquisition, BOC Aviation and others.
According to reports, SpiceJet may wet lease planes to continue its services. Acquiring planes on wet lease means getting the aircraft along with crew (both pilots and cabin crew) and is usually from an airline. Dry lease involves only aircraft.
According to the an executive, the rentals for aircraft aged five years or more were currently "roughly" starting from "$350,000-$400,000 per month". This, he said, was higher than the rentals for similarly aged planes before the grounding of Max 8s.
A second executive said last year the average rentals for planes above five years was around $200,000-$250,000 per month.
"Depending on the age of the aircraft, it (lease rentals) should not be more than $400,000 a month. Older aircraft of 5-6 years old would be $200,000-$250,000 per month. If it is starting from $350,000-$400,000 per month, it is on the higher side," he said.
"One thing is certain, aircraft leasing cost has increased due to the shortage of aircraft in the market after countries have stopped flying of Max 8s in their airspaces," said a senior official of local airline.
Executive of another airline echoed; "If you ask me, I would say there is a shortage for Boeing because around 350 Boeing 737 Max 8s have been grounded around the world. Obviously, there will be some shortage. There is no doubt about it".
He, however, could not confirm whether aircraft leases had gone northwards due to the shortage.
Budget carrier SpiceJet has grounded 13 Max 8. As of early this month, its fleet size was 78 aircraft. Jet Airways, which has grounded around 50 aircraft, had five Boeing 737 Max 8 in service.
Globally, the Seattle-based aerospace company had more than 300 Boeing 737 Max 8 in services and several of them were to be delivered in the current year.
According to an estimate of Wall Street firms Melius Research and Jefferies, if the Max 8 were to be grounded for three months, then the cost to the manufacturer of the Boeing planes would reportedly be between $1 billion and $5 billion.
The airline executive expects Boeing to put Max 8 back in the air in a few months after addressing its software issue. The US-based aerospace firm has orders for more than 5,000 of these planes.
In a similar incident that occurred in 2013, Boeing had grounded its entire fleet of 787 Dreamliner, which was in service, till it found a solution to the problem of batteries catching fire. However, the cost borne by it was not much then as only 50 Dreamliners were in service in 2013.
"Boeing will take months to fix the problem (of Max 8). Meanwhile, all its airline customers will also demand compensation for losses due to the grounding of the aircraft," said the airline executive.
MID-AIR SCARE
- $400,000 per month – rental for aircraft aged five years or more
- Over 300 – Number of grounded Boeing Max 737 planes globally
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