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Plane rentals, an increasingly luring option for airliners

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(Globalpost/GlobalPost)

Companies that rent out planes placed nearly half of the orders announced so far at the Paris Air Show as airlines look to them to increase and modernise their fleets with minimal risk.

From air show to air show, Gecas, ILFC, ALC and others have multiplied their plane purchases, focusing their attention on the pricier, newer generation airliners that consume less fuel and therefore reduce operating costs.

On Wednesday, for instance, US leasing firm CIT Aerospace announced it would acquire 30 Boeing 737 MAX planes, a modernised version of the US firm's popular medium-haul 737. The deal is worth $3 billion at catalogue prices.

"Between 2007 and 2012, the share of planes belonging to these companies has increased by 20 percent," said Alain Guillot, an expert in aerospace and defence at consultants AlixPartners.

"Planes being rented out represented 35 percent of the worldwide fleet in service in 2012 (bar private planes)."

He estimates that nearly half of Airbus and Boeing order books are down to these leasing companies.

The European plane maker says the figure is lower, "around 28 to 30 percent." But it recognises that the share of orders placed by leasing firms has increased in recent years.

"Leasing companies are increasingly important clients," said David Vargas, spokesman for plane maker ATR, a joint venture between European aerospace and defence group EADS and Italy's Finmeccanica.

"Nearly one ATR out of four was sold to these firms between 2010 and today."

-- 'Minimising risks' --

Leasing companies allow airlines to "minimise the risks linked to taking orders and owning planes," said Guillot.

The double-decker A380 superjumbo, for instance, costs a whopping $403.9 million a piece.

By renting it from a leasing firm, airlines can test it and ensure that its mammoth 500-seat configuration is what they need without forking out the money, said Christophe Menard, an aerospace and defence analyst based in Paris.

"This plane is in demand from passengers and companies... but buying it remains a difficult choice to make," he said. "Because you need to be sure you can fill it up."

This is no doubt why leasing firm Doric agreed to buy 20 of the superjumbos on Monday in a deal worth $8 billion at list prices, as this week's air show -- the world's biggest -- continues to generate multi-billion-dollar contracts.

Nick Cunningham, aviation analyst at the London-based Agency Partners, said the companies that rent out planes now appear to be focusing more on wide-body planes.

"Customers for narrow bodies, particularly in emerging markets, have got good access to capital at low interest rates and to export bank guarantees - so why do they need a leasing company?" he said.

But more traditional carriers that cannot raise the money for new planes or need more flexibility in their fleet are becoming prime targets for leasing firms. And these often operate long-haul routes that need wide-body aircraft.

Leasing companies are becoming more and more powerful and are able to put some pressure on plane manufacturers to get better prices.

Two US companies in particular have burst onto the scene -- Gecas, part of GE Capital, and ILFC -- which have "nearly two thirds of the rental market", Guillot estimates.

"Gecas has a fleet of 1,700 aircraft and ILFC around 1,000," he said, adding the "net results of these firms... should however go down in the next few years" due to intensifying competition.

A fleet of older planes will also be a hindrance as they are becoming less attractive to airlines as their lower fuel efficiency makes them more costly to operate, reducing the rental price they can command.

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http://www.globalpost.com/dispatch/news/afp/130619/plane-rentals-increasingly-luring-option-airliners