The Aircraft Fleet and Aircraft Market
The Aircraft Market In 2007
The trend of the last few years continued in 2007 and through the beginning of 2008, with demand for quality narrow-body and wide-body far exceeding supply. Both major manufacturers, Boeing and Airbus, had record order books with Boeing recording 1,413 net orders and Airbus having 1,341 net orders. The consequence of this is that neither manufacturer has any order positions available until at least 2011 for any type of aircraft, and in the case of the B787 Boeing, is sold out until 2014/15. Icelandair Group has five B787s on order, delivering between 2010 and 2013. As airlines cannot acquire new aircraft, the demand for used aircraft is strong. However most major lessors are sold out for 2008 and 2009 and anything that is available is expensive.
However a number of concerns are beginning to surface. The problems in the banking sector are starting to make themselves felt in the aircraft market and it will come as no surprise if some deliveries in 2008 run into difficulties raising the necessary finance. However for 2008/9 both manufacturers are reported to be over-ordered and would welcome a small level of cancellations. Airlines in the US continued to have difficulties, mainly with high fuel prices and it is probable that there will be some airline mergers in 2008, which may also free up some aircraft capacity.
On the other hand, Chinese banks’ credit is tightly controlled and this is limiting the number of aircraft Chinese airlines can buy – they are seeking more leased aircraft to compensate. The Russian market continues to open up, with tax reductions being proposed on the 120-150 seat capacity aircraft. The main effect of this is to keep demand high on older aircraft.
The Group is seeking investment opportunities in good quality aircraft but will continue to be patient until the correct deals come along.
The B757 Market
The B757 aircraft suffered large devaluations subsequent to September 11, 2001. However in the last two years the aircraft type has made a strong recovery with values for older models (1993) increasing by nearly 30% in this period. The youngest B757s are fetching good lease rates again. The revival in the market valuations has stemmed from a general strengthening in the market for all types and has been aided by the strong cargo conversion programme for this aircraft. FedEx is looking to acquire 87 aircraft over 8 years to replace its 727 aircraft. The aircraft has also begun to be used by a number of carriers on direct transatlantic routes. Winglets have made this aircraft more cost-efficient. There are very few quality B757s on the market at this time for lease or rent. The aircraft has a high concentration of US operators and with mergers likely in this market some B757 aircraft may become available in the next year or two. However such aircraft will be older models and will require an investment of time and money to bring them under European regulations. These aircraft will be more likely to end up in the cargo conversion programme than operating as passenger aircraft.
During the financial year Icelandair sold and leased back two of its B757-200 aircraft and in the coming months will consider further sale and leaseback opportunities.
Boeing and Airbus are both working on a narrow-body replacement aircraft at the moment. Both are concentrating on replacing their most popular narrow-bodies (B737 and A320 models) but are also looking to see if they can design an aircraft which could also satisfy B757-type demand. However Airbus does not foresee an entry into service date for such an aircraft until 2017.