In its last quarterly result, Ryanair predicted that low oil prices would keep struggling carriers in business for a little while longer, keeping downward pressure on European fares at least through summer 2019.
Just a few days later, though, Germania filed for insolvency, citing the higher fuel prices that had already fed through, unexpectedly high maintenance costs and delays to new aircraft arrivals.
All of Germania’s fleet was leased and it and other airline bankruptcies are testing lessors’ ability to negotiate repossessions.
In Brazil, for example Aircastle has bemoaned a court decision to delay repossession of aircraft operated by Avianca Brazil.
Warning about a chilling effect this might have on other Brazilian carriers seeking to lease, Aircastle CEO Mike Inglese said: "A predictable judicial system and reliable framework for the recovery of aircraft is a principal factor in the cost and availability of capital to airlines.”
Inglese also highlighted Aircastle’s orders for 25 Embraer E2 aircraft, perhaps in an attempt to foster local goodwill or perhaps as a veiled threat. The E2 hasn’t sold well so losing one of its biggest customers would be a major setback, notwithstanding any boost from Boeing’s takeover of the program.
More generally, lessors are facing other challenges at present. While placing aircraft from bankrupt airlines with new customers shouldn’t be too difficult given ongoing traffic growth, repossessions and reconfigurations inevitably incur costs.
Furthermore, lease yields have been kept low by a big influx of capital into the sector and some airlines now demand zero maintenance reserves.
“Aircraft lessor credit fundamentals are solid, but Fitch is increasingly cautious given the growing prospect of a more challenging operating environment following a decade of low interest rates and largely benign economic conditions,” said Fitch Ratings in a recent research note.