There is plenty of positivity in the engine leasing segment at present despite certain challenges such as excess liquidity and new market entrants. What is your view on the sector’s current health?
Presently, it is very healthy. Airlines and the leasing and financiers are enjoying the lower interest rates and fuel prices. This positivity is continuing with the entry into service of new engines such as the CFM LEAP and the GEnx. This new technology is boosting the industry. We are at an interesting stage with current and new technology proving strong. Excess liquidity and there are a lot of new entrants. The engine leasing side of the industry has become particularly attractive to new entrants because the aircraft side is so busy.
Have engine lease rates been stable over the past few years?
It’s cyclical. We [GECAS] look at each individual engine type and set our prices annually and revise them. Overall there’s good stability in the market with utilization proving very stable and healthy. Indications show this will continue over time – there’s good demand. Of course if fuel rises then it may slow down or change some types but stability is predicted.
You stated in Wednesday’s panel that GECAS reviewed its investment strategy for the CF6 engine. What was the reasoning for the change in strategy?
In the context of shop visits, intervals and investment strategy, the Boeing 767 and freighter market remain strong so this is generating a high and consistent demand. In this area, operators are typically looking for longer-term leases whereas perhaps a few years ago, there may have been some excess engines available in the market. We look at engines on a case-by-case basis and whether there is a good payback on our investment.
How are operators’ demands changing in the context of engine leasing? Is there a penchant for short-term or long-term leases?
There’s a lot of variety. It’s mostly dependent on the size of an operator’s fleet and where they are going with it. If an operator is phasing out some older aircraft for newer ones then they’ll typically look at shorter-term leases. If venturing into new technology aircraft and engines then they will commit to longer-term leases. A lot of planning is going into this from operators which is a good thing as they can determine exactly what their requirements are. Some will take more risks that they’ll take a short-term lease when approaching their engine shop visits but it’s important to plan and make sure they are left with no engine supply shortfall. Operators are definitely planning better. By looking at their fleet and schedules, they can plan their shop visits better with the reliability of engines.
Supply of in-demand engines has been one of the hot topics of this year’s Engine Leasing, Trading and Finance event. Has this issue been challenging for GECAS?
We look at the markets and what could be on the horizon so we can better balance our portfolio – to ensure we hold the right mix of engines for operating and short-term leases. Supply of the CFM56-5B is certainly very tight right now as are engine shops in terms of turnaround times so that’s causing more demand. Our aim is to balance our portfolio to ensure engines are available when needed while also planning with lessees to ensure they don’t take off an engine until we have one available to us.