As ANA looks to invest in Vietnam Airlines, AirAsia Bhd continues to press the flesh to see if a management-led buyout can be worked out as the share price continues to weaken, having fallen by over 40% since June 2015 to prices last seen a decade ago when the airline originally listed. Tony Fernandes and Kamarudin Meranun are working with banks to secure financing to launch the US$800m buyout before year end.
AirAsia, as we have reported here over the past year, is under pressure; affiliates including AirAsia X have a great deal to prove over the coming months to alleviate investor concern.
So can AirAsia weather the storm of competition or should it contract further to protect core services? If the airline contracts further it will need to lease aircraft that are being delivered or indeed it will need to defer the same. It can be argued that AirAsia is being squeezed out of the Indonesian market by Lion Air and a very strong and impressively-managed Citilink to the extent that it could be argued that the battle has already been lost. Then there is the Thai market. Thai Lion is all set to pummel AirAsia in that market with significant routes connecting large Chinese population centres with Thai destinations.
On the matter of airlines leasing aircraft it remains to be seen if any Boeing aircraft can be leased by any airline in the globe other than Lion Air at this time and one wonders if Norwegian is bluffing when it mentions that it can lease Boeing-built aircraft in the future? Is that a public row waiting to happen? Airbus aircraft can be leased by Norwegian and others under the contracts that they have in place.
It is also worth mentioning the A380 given that it remains a topic of conversation at ISTAT Europe. Yes, we are entering an aircraft transition period with SIA, Emirates, MAS and other airlines all coming towards the final years of the lease term/or simply looking to sell aircraft, and any renewed SIA lease will no doubt be at the very least agreed at far more competitive lease rates, but there is no doubt that a company like Dr Peters could make that work well for them with enough leeway for a decent margin remaining. Remarketing the aircraft is going to be very hard indeed make no mistake, but Airbus is in a position to assist the market. The recent breaking-up of the Skymark A380 whitetail was a bold move to turn a liability into an asset at speed and at the same time provide inventory options to customers and assist A380 values. It is conceivable that Airbus could always take on aircraft from operators and flip them out on lease if need be. So what I am getting at is that there are a number of inventive options out there in play and if required it is likely that Airbus will assist clients with solutions. So do not despair just yet as the A380 has made a fair number of companies a significant profit over the years and you can bet that with the right engines on wing and the right assistance from Airbus in reconfiguration, this aircraft will give many operators pause for thought at secondary market values and lease rates.
DVB’s Bertrand Grabowski commented at ISTAT Europe 2015 that lease rates for the 544-seat plane could come under pressure if Singapore Airlines either returns the jet or renews the lease, but at lower rates.
Lease rates serve as a barometer for the value of assets in the jet market and can influence the price of brand-new planes.
"I think we know well that the A380 market is untested when it comes to second-hand aircraft," Grabowski said. "What we do know is that the order book of the A380 is weak and … some current users wish to sell their existing planes. On top of that situation, where everyone knows that in 2017 or the year after some aircraft are coming back to the market, you have the recipe for a correction in terms of lease pricing."
Singapore Airlines has not said whether it will keep the jet, leased from German asset manager Dr Peters Group.
Neighbouring Malaysia Airlines is meanwhile trying to sell two A380s and some 777s as it restructures.
Industry sources say Airbus is keen to support second-hand sentiment towards the A380, giving potential buyers a potential exit for their investments. But with no transactions so far, dealers are unsure how much a used superjumbo would be worth.
Concerns are also being voiced for second-hand values for 777-200s, including some likely to be released by Transero.