EMEA 2020: 737 MAX feedstock issues to persist

FRANKFURT — The worldwide grounding of the 737 MAX continues to have a negative impact on 737NG feedstock that is expected to last for at least a few years, according to speakers in the sixth session of Cargo Facts EMEA 2020 this week.

“This is a longer-term problem and we believe this is going to have effects on feedstock for the next two to three years,” said Stefan Kageman, senior vice president and head of aircraft marketing at Vx Capital. “But the grounding has benefitted those of us who are owners of Classics, for example. It’s pushed out the availability of NGs that much further and kept values very strong. As a result, we’re seeing renewed interest in and demand for 737-400Fs, probably even more than two years ago. The values and lease rates have remained steady over the past five years.”

For ASL Airlines, which has more than forty 737-400Fs and operates two 737-800BCFs through its Belgian subsidiary, the prolonged grounding presents a challenge because some airlines are taking longer positions on lease extensions, according to Colin Grant, chief executive officer of ASL Airlines Europe.

“This means that the program is sometimes set back twenty-four months,” Grant said. “Aircraft that should have been going to conversion are now going to be operating for up to two years more. That will have implications for us in terms of getting feedstock and price.”

Grant added that ASL needs to move on to converting -800s because suitable -400 feedstock is becoming increasingly limited. The issue, however, is that acquisition costs for -800s remain high and it is unclear when they will drop to reasonable levels.

“It’s a difficult question,” Grant said. “But we’re looking at a number of airplanes and with a lump-sum deal, you’re able to look at better economics.”

According to Kageman, some operators of 737 Classics have even been willing to commit to five- or six-year leases.

“So, it might be that it’s not just to cover for the availability of the -800,” Kageman said. “We think the -400 is clearly a great value and has lease rates that are almost half of the -800. Of course, for certain missions the -800 is clearly the favored aircraft and the -400 just can’t compete with it.”

Titan Airways, which specializes in providing wet lease services to passenger carriers, also benefitted from the grounding but faces challenges as it looks to expand its presence in the freighter market by adding more narrowbody conversions.

“Last summer, we were wet leasing almost exclusively for carriers that had issues with the MAX grounding,” said Alex Harrington, Titan’s commercial director. “Most airlines are now just extending their leases by a couple of years and that is causing a feedstock problem, not just Boeing aircraft but across all narrowbodies, because you’ve also got delays with new deliveries of A321neos.”