For anyone involved in the leasing, trading and financing of commercial jet aircraft engines, this is a very interesting time as we run up to the very aptly named ELTF conference. Investment decisions and asset management strategies are becoming much more difficult with the introduction of new engine types on both narrowbody and widebody aircraft.
We have to ask ourselves: which engines will be the market leader? Which engines will have the better opportunities for trading in the aftermarket? Will OEM strategies close out the aftermarket for third party lessors, MRO agencies and traders in certain types? Will the new technologies, e.g. the extensive use of ceramics, mean an end to the feasibility of independent MRO and part-out businesses for those engines? Has the introduction of the NEO and the Max shortened the lives of the V2500 and the CFM56-7B and -5B? Are the NEO and the Max themselves interim aircraft and what then are the residual value prospects for their respective LEAP and GTF powerplants? Accordingly, what are the right depreciation policies to apply to engines? Is increasingly stringent aircraft age legislation killing the tertiary market? What should financiers lend against (asset type, loan-term, advance ratio, balloon, etc.)? Are Japanese banks and lessors going to flood this market? Should lessors take the risk of gaining a lead by investing now in the new technologies and take the risk of of significant design changes as launch problems are sorted?
Wow! I am not sure that we will get the answers to these compelling issues at this week’s conference, but we are guaranteed some interesting debate. I look forward to it.
See you there, Jon.