Remarketers confirm plummeting mid-life A330 lease rates

Mid-life A330s have become an increasingly challenging asset to sell and lease, according to aircraft lessors and remarketers speaking to Ishka. Ishka understands that up to 100 A330s are currently being remarketed and that lease rates for A330s on second and third leases have compressed. Widebody lessors and traders describe to Ishka a convergence of values across A330 vintages and types. In this Insight, Ishka analyses the mid-life performance of Airbus’ best-selling widebody.

According to remarketers, the premium for a young A330 in good maintenance condition is now, effectively, simply a better chance at finding a new lessee. This is often a second or third-tier credit requiring pricey cabin reconfigurations as lessors face increasing competition in placing the aircraft.

Some remarketers wonder if A330s will soon be candidates for early part-out and freighter feedstock.

Looking for a mid-life A330? You are in luck. According to the CAPA Fleets database, there are 39 A330s (28 A330-200s and 11 A330-300s) owned by lessors currently without an operator and another 21 (14 A330-200s and 7 A330-300s) on lease to airlines but currently stored. CAPA’s combined 60-tally is in the ballpark of “50” A330s parked without an operator, according to one industry source speaking to Ishka.

Click here to download CAPA's list of aircraft.

But overall availability, including A330s soon to come off lease, is higher. One lessor who recently extended an A330 lease puts the figure “closer to almost 100” while another lessor who is “actively” re-marketing mid-life A330s talks about an “eye-watering” 75 A330 aircraft currently up for grabs.

By the latter’s calculations, these 75 comprise 44 A330-200s and 31 A330-300s. The smaller A330-200s average 13 years of age and come in 16 different cabin configurations while the A330-300s average nine years and come in nine different configurations. The available A330s, which include several sisterships, are heavily Rolls-Royce-engined, with 70% and 87% of market share respectively.

Russell Hubbard, a director for aircraft remarketing at Air Partner, tells Ishka that a production ramp-up around a decade ago and short-term leases done “in more economically challenged times” has resulted in a significant rise in mid-life A330s on the market. “People were doing six-year leases on A330s and those aircraft are coming to market [now],” Hubbard tells Ishka.

The A330’s wide market penetration has, to some degree, made it a victim of its own success. According to Airbus’ June 2019 data, the OEM has delivered 1,456 A330s including, more recently, some 16 neo variants.

“There are so many aircraft out there that inevitably a large, reasonably big airline failure is going to include A330s these days because they are so ubiquitous,” highlights Hubbard. Some, like Air Berlin’s 18 aircraft found homes relatively quickly, with all but one remarketed to Virgin Atlantic, Wamos Air, Evelop, Malaysia Airlines, I-Fly and Aigle Azur.

Others, like the eight leaving Jet Airways earlier this year (see earlier Insight: “Lessors remarket 36% of Jet Airways’ leased aircraft”) appear to be still looking for new homes.

The consensus amongst Ishka’s sources appears to be that opportunities exist for short, often single-aircraft leases with second and third-tier credit airlines, but anything else is challenging.

“Not to be disrespectful, but unless you are comfortable with a… let’s just describe them as ‘down-market’ credit, there are very few operators where you’d want to place your airplane,” says a lessor currently re-marketing A330s. Another source confirms that mid-to-high $200k deals are common, but usually for an as-is aircraft on six-year leases.

One lessor estimates cabin reconfiguration costs to be between $5 million and $10 million, which is “a big investment” to then lease the aircraft to a “second or third-tier customer.” “It’s clear that reconfiguration costs are far more than investors in aircraft really contemplated,” says an asset manager’s remarketer.

Ishka understands that existing demand for mid-life A330s usually comes with a preference for an all-economy or dense two-class configurations. The youngest vintages have the best chances and the A330-300 is, according to some, slightly more in demand than its younger sibling.

Remarketers describe that there has been a downward convergence across all variants and ages for used A330s. “It is converging, so it easily below $300k [for all variants],” says one lessor.

Purchase prices are harder to gauge due to variables like maintenance condition and value of encumbered leases, but the same lessor does not see “anybody paying more than $50 million” for a 10-year-old A330-200 with a six-year lease attached and an attractive monthly lease rate of $350,000 to $370,000.

The freighter sweet spot

As values decline lessors state that 15-year old A330s are increasingly becoming candidates for either part-out or conversion.

Patrick Den Elzen, CEO of Arena Aviation Capital argues that with monthly leases between $250,000 and $350,000, pricing down to a parting out scenario for an A330 "becomes quite a viable alternative" because there is "so much value" left in the engines - at least, at "this moment in time, and excluding Trent engines."

But according to another aftermarket trader, things are not quite there yet. “We’ve never actually seen an A330 come to us that was 15 years or under," says Goutham Ramdas, a director for aircraft trading at Universal Asset Management, which recently purchased a 1999-vintage A330-200 (MSN 305) for part-out.

In a hypothetical part-out sale for $30 million of an A330 that is under 15 years old, "most of that value would need to be in the engines," says Ramdas. "That’s what everybody wants - you’ve got the [Rolls-Royce] Trent 700s on these things, which is the dominant engine type in this market. A lot of the value will stay there." Den Elzen sees part-out sale values for A330 "closer to $30 million" for aircraft with engines in full-life condition. According to one of the lessors, cargo airlines like DHL are hoping for the feedstock price of mid-life A330s to “fall well below” $30 million.

The Ishka View

Low A330 lease rates are likely to continue. One of the lessors contacted by Ishka sees lease expiries of 12 to 15-year-old aircraft increasing over the next few years to the point where available used A330s could easily match production rates of new aircraft. Remarketers state that Singapore Airlines is returning a number of six-year-old A330s later this year and in early 2020 and that lessors are struggling to find new homes for the aircraft. Singapore Airlines confirmed to Ishka it "has been returning A330s and will continue to do so upon expiry of their leases."

The saving grace for the A330 could be freighter conversion opportunities, but purchase prices will need to fall below $30 million. Investors state that for many A330 owners their returns may lie with their Trent 700 engines, especially those in good condition. Trent 700s, which are in high demand and will go out of production in 2020, is likely where the money will be going forward – both as leased engines and part-outs.