Hard Talk – Airline Economics speaks with Joe O’Brien
The aero engine community is a small one and the key characters often share conference stages to discuss current trends and issues. Here, Airline Economics speaks with Joe O’Brien, Chief Commercial Officer, Engine Lease Finance
How would you characterise the past 12 months in the engine leasing market?
Demand has been focused on the “old” Tier One engines as we call them; the -5B, -7B and V2500. As the LEAP and GTF have had significant entry-into- service (EIS) problems, airlines are focused on supporting their current base fleets to make sure they have enough seats flying in a time of high demand overall. On the widebody side there has been a bit of demand for GEnx sale-leasebacks but not anything particularly unusual.
How are lease rates holding up for certain engine types? Which are softening/tightening?
For the beginning of the year, lease rates for the three main types – the -5B, -7B and V2500 – have all been strong. The V2500 is softening a bit as the panic over material for SVs has started to ease.
What options are available in the market for spare engine management and how is this service developing and maturing?
There are certainly more options as companies promote a “service”, although we find that airlines have become quite good at engine management on their own. As the airlines have chased cost management the past five to ten years they have had a fair bit of success and they have become very efficient at using the growing short-term market that has developed as more companies have entered the engine space, particularly the mid-life lessors that did not exist too long ago.
How is the fuel price impacting demand requirements for spare engines?
Not much; the orders are in already. The LEAP and GTF have fuel savings projected at 15- 23% but they just cannot make enough of them fast enough right now.
Are there any considerations or preferences for long term compared to short term leases?
Long term sale-leasebacks are thin as production levels are too low right now. Short- term leasing is boosted by this dynamic as already noted.
How is the proliferation of flight hour agreements (FHA) impacting the engine leasing market?
We had a big problem with this issue ten years ago but have found our peace with it. We have to take more risk on reserves than we would like and we fight the battle over unrealistically low rates on quotes but it is a manageable issue.
What are your views on the moves by engine OEMs to transform aftermarket agreements to be more palatable/attractive for leasing companies – are they working?
This is a bit of a mixed bag. There is a real acknowledgement of the lessor community in the programs although we believe it is too early to conclude anything.
How is the engine leasing market being impacted by the current issues with the GTF and the CFM LeapX causing delivery delays? Do you have confidence the issues will be rectified soon?
The main issue is that we are not renewing the portfolio with newer kit as fast as we would like. It is starting to free up now but it is two to three years behind plan in our view. We are confident the issues will be solved.
Are the issues surrounding the CFM56-7B and the Trent 1000/900 impacting your business and if so how? Do you have confidence the issues will be rectified soon? In your opinion, are these issues having an impact on engine orders/decisions?
For the 7B – no; for the Trent – it is tough to say. Rolls-Royce has had big problems before and found their way through them although it would be difficult to order a 787 today with that engine.