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Opportunity knocks

The regional aircraft leasing scene continues to provide some opportunities amid a very tight marketplace. Alan Dron speaks to the lessors to uncover the trends
 

It is widely believed by the leasing community that there is optimism over future prospects, as airlines look to find cost-effective ways of riding out the increasingly competitive and expensive environments in which they find themselves operating in.


One of the biggest attractions for lessors in the sector is the fact that they have relatively few rivals: “The regional aircraft leasing space is very much underserved compared to mainline sector, where there are at least 50 competitors,” says Steven Ridolfi, President of Canada’s Chorus Aviation Capital. “There are perhaps five to 10 competitors in the regional sector, most of them are small, with just a few years’ experience. There’s a lot of business to go around.”


Many lessors are also keen to stay in the centre of the marketplace when it comes to the size of aircraft they offer. Several said they liked the look of the Airbus A220 – formerly the Bombardier C Series – and the Embraer E195 E2, but were having a watchful eye to see how they were perceived by the market, and whether they would be regarded as too large for some of their customers.


Similarly, aircraft such as the first-generation Embraer 170 are regarded as somewhat too specialised for some customers. “It’s a good aircraft for airlines with turboprops hopping up from turboprops to a jet, but there were never that many around,” says Jim Murphy, CCO at Nordic Aviation Capital (NAC). “It’s a good, capable aircraft, but it’s a bit of a niche aircraft. Airlines that have them like their size and tend to keep them. We prefer to concentrate on aircraft that have more popularity and volume, like the E190. The E195 is quite a big aircraft, which tends to limit it.”


“It will be interesting to see how the E2 and A220 affect the regional market in coming years,” comments Juliet Hewitt, Marketing Director at Skyworld Aviation. “There are a lot of first-generation E-Jets coming on to the secondary market, in favour of new orders for E2s/A220s (Air Canada being an example). The US market seems to be continuing with the traditional E-Jets, and in 2018 we’ve seen firm orders from Europe and the Middle East, with no new lessor orders. With the E2 we’re seeing orders mainly from Europe and haven’t seen any lessor orders this year.” 

 

Skyworld is primarily a regional aircraft remarketer, but also provides lease management services, such as managing lease rental and maintenance reserve payments throughout a lease.


“From a lessor point of view, we are helping a lot of niche leases. We’re very much looking for these opportunities for smaller aircraft deals in areas where larger lessors may not be operating. Our bread and butter are turboprops and 50 to 70-seat regional jets such as the Embraer ERJ-145/E-Jet. It’s about finding the niche opportunities, especially for older turboprops.


“It’s a tricky market, as the regional sector is very sensitive to fuel prices and it’s difficult for the regional carriers to survive. Smaller operators have got it tough. Where do they get their financing from for new, fuel-efficient aircraft?  Maybe they do have to start looking at turboprops again, to keep their costs down,” Hewitt suggests.


The regional leasing market is seeing considerable dynamism, in both the turboprop and jet categories, says NAC’s Murphy.


“The market is extremely active now; we’ve placed a lot of aircraft and had a really busy summer. I think it’s driven by people taking opportunities for aircraft that are the right price or the right size for them now.


Murphy says there has been a huge amount of transactions of E190s since May, with quite a lot of new operators of the type, too. He adds that the ATR 72 market, which is the other main one for NAC, has been very solid as well.


“We’ve placed all the aircraft we have from our order book with Embraer. We don’t have a lot of aircraft coming back off lease in 2019, and no new aircraft that we’re taking [from OEMs], so we’re looking at a tightening market, which is probably timely. I think there has been over-capacity in aircraft and airlines have taken advantage of that, certainly on the regional side.


“We’re still buying aircraft. We bought 25 E190s from Air Canada recently that were coming off lease.  Those will be placed quite quickly. They’re from 2007-8. You get a 100-seat aircraft for a good price. We’ll be looking for that kind of deal.” >>

 


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