Armed with strong funding, Asian lessor BOC Aviation struck deals worth an estimated $5.5 billion with carriers including Southwest and United Airlines) to buy and lease back aircraft as the sector faces a major crisis.
BOC Aviation Chief Executive Robert Martin told Reuters the Singapore-headquartered lessor had 100% of its fleet on lease after reaching three-month partial payment deferral deals with customers.
“Our general approach is to talk a three-month deferral where we possibly defer half the rent and then have them pay back whenever their strong period is later,” Martin told Reuters in an interview.
Global airlines face a battle to survive, with flights grounded since March due to travel restrictions to contain coronavirus.
The pandemic spurred BOC Aviation into deals to purchase and lease back aircraft, with transactions agreed on more favourable pricing terms than would have been the case in a stronger market, Martin said.
“If you are brave enough to step out where others dare not venture then pricing is different,” he said, adding BOC Aviation mostly completed purchase and leaseback deals for the year.
As of December 31, the company’s portfolio had a net book value of $16.8 billion.
Martin said the firm, with a fleet of 567 aircraft, including on order, also for the first time in nine years tapped into a $2 billion funding line provided by majority shareholder Bank of China .
The global aircraft leasing industry expanded over the past few decades and won new players, attracted by long-term duration, global mobility and dollar based revenues.
Martin, an industry veteran of more than 30 years, said lessors need to start taking back aircraft in the second half of the year as the sector feels the impact of the virus outbreak.
“Like everyone else we will have customers who won’t make it through this. We are prepared to move aircraft when we have to,” he said.
“We haven’t got to that point yet. But we expect there will be some friction in the market, probably during the third and fourth quarters,” Martin said.
In times of financial strain, lessors may agree with carriers to take back some leased aircraft, though they may seek to forcibly reclaim them in some cases.
Martin said airline traffic could rebound fairly quickly to 80% of 2019 levels once travel restrictions are lifted, but the last 20% might take until 2023.
The lessor remains confident in the future of Boeing’s grounded 737 MAX, noting its deal with Southwest includes 10 MAXes, Martin said.
“On the 737 MAX, Boeing tell us they will start production this month at a low level, maybe two a month,” Martin said.
A Boeing spokeswoman declined to comment noting instead Chief Financial Officer Greg Smith said on an earnings call last month production would begin at a slow pace, rising to 31 a month in 2021.