Engine Lessors Mull Portfolio Transitions

LONDON—A “correction” may be due for lease rates on certain engines following years of increases that are no longer sustainable, attendees at the Engine Leasing, Trading and Finance Europe conference in London heard.

Bobby Janagan, managing director of engine lessor Rolls-Royce & Partners Finance, says that cost increases—from items like leasing, maintenance and interest rates—could no longer be absorbed by airlines, which meant little room for further engine lease rate growth.

Dan Coulcher, chief commercial officer of Willis Lease Finance, agrees that lease rates are plateauing “at a high level,” but also says he has no concerns about demand for current-gen narrowbody engines like the V2500 over the next five years.

Magnetic Leasing CEO Alex Vella was more cautious, predicting that current-gen engines could experience discounting from 2028 if the market expected demand to drop off from 2030.

He also suggests that the first sign of a downturn could be when repair shop capacity and material supply reach equilibrium, with no significant demand-supply imbalance.

The lessors also discussed the merits of transitioning to new-gen technology like the CFM Leap and Pratt & Whitney geared turbofan (GTF).

Magnetic is a “long way off” investing in these engines, Vella says, citing a lack of visibility into costs, time-on-wing and material pricing and exchange policies.

Coulcher also says that pricing is a challenge on these engines as none of the OEMs yet understand what the cost of an overhaul will be. However, he says he has been reassured by recent pronouncements from CFM that the Leap’s new high-pressure turbine blade will mean a significant improvement in time-on-wing.

CFM was also praised by Laura Ivaskaite, VP commercial at new South Korean lessor Hanwha Aviation, for its progress in expanding Leap MRO capacity.

She says Hanwha plans to build a portfolio of a “few hundred” engines over the next five years, and that it may use direct orders with manufacturers to help achieve this.

Hanwha’s ultimate goal of 1,000 engines is needed for it to achieve the necessary scale in the engine leasing market, she adds. The lessor currently has 40 engines, primarily the CFM56 model.