Kroll Bond Rating Agency (KBRA) believes that aircraft values and lease rate declines will be contingent on two factors, namely, the speed of economic recovery and the path that surviving airlines take in deciding the composition of their fleets post-coronavirus.
Roughly half of the total global passenger fleet was parked as a result of severe travel restrictions said Kroll in its report on aircraft and lease values in the face of COVID-19. Further, the ratings agency said that many aircraft may be removed from service through early retirement and or be returned to lessors at lease end, in anticipation of significant passenger traffic reduction.
“Aircraft lessors will be tested as more aircraft would need to be re-marketed as a result of lease expiry and airline bankruptcies, resulting in more downward pressure on lease rates,” the agency said in its report.
According to Kroll, widebody aircraft prices are expected to come under pressure due to their smaller user base and higher operating costs. Additionally the ratings agency said that the decline in long-haul passenger load factors as a result of the pandemic may result in weaker demand for widebody aircraft types.
According to Kroll, however, age is the most important factor, with the ratings agency saying that vintage will play a crucial role in how much aircraft values decline with older aircraft likely to experience bigger declines than younger planes, even in the current low oil environment.
“Low jet fuel prices were instrumental in the strong demand for middle and older aged aircraft from more opportunistic investors during the past few years. However the new reality of a market saturated with older aged aircraft even if fuel prices remain low will most likely not be viewed positively by investors.”