MAX woes “silver lining” for region’s lessors

May 1st 2019

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Boeing’s 737 MAX has yet to become a large component of the region’s airline fleet, although Asia-Pacific airlines and China-funded lessors have ordered hundreds of the type. Read More »

Across the region, lessors generally viewed the grounding of the MAX as a welcome respite from the pressures of placing aircraft in a period of over-capacity in the industry. An “enforced delay may not be a bad thing”, a source told Nikkei Asian Review.

With so much uncertainty surrounding the date the MAX will re-enter service, lessors are revising their strategies to accommodate delivery delays of the MAX beyond the stated date of next September.

Approximately 350 MAXs were flying in the region when the type was grounded worldwide on March 13. Boeing had been struggling to ramp up production to meet delivery deadlines. Now, in the aftermath of the global regulatory decision, Boeing announced it would aim to produce 42 and not 52 MAXs a month.

In mid-April, China Aircraft Leasing Corp. (CALC), which has ordered 100 of the type plus 50 options, said the grounding would delay deliveries but it did not intend to change its MAX order or stop payments to Boeing. The lessor is 100% owned by Mainland conglomerate, the China Everbright Group.

CALC spokesman, Winnie Lo, told the Nikkei Asian Review “we have no plans to change our order. We also believe Boeing will deliver a resolution in the next three to five months given the manufacturer’s record”.

Singapore headquartered BOC Aviation, a 100% subsidiary of the Bank of China, also said it would not change its order for 87 of the type. It already has introduced seven MAXs into its portfolio.

Other major MAX lessors in the region are SMBC, which has five owned, three managed and 110 orders for the type, and HNA Group controlled Avolon and minority partner, Orix. The joint venture has nine MAXs on its books and orders for 132 of the aircraft.

Goshawk, controlled by Hong Kong’s New World group, is scheduled to receive 20 737s from 2023. CDB Aviation, a subsidiary of China Development Bank Financial Leasing Ltd, has ordered the MAX and is a launch customer for the -10.

In an April statement, Hong Kong listed ICBC Leasing Co. Ltd, said it had delivered “a small number” of MAX 8s to its clients and that “currently all the aircraft leasing contracts are implemented normally. We will follow the issue closely and keep timely communication with related parties”, it said. The lessor, wholly owned by the Mainland’s ICBC Financial Leasing Co. Ltd, opened for business in Hong Kong in March 2018.

In an April report, Fitch Ratings said that on the day the 737 MAX was grounded almost two months ago, between 10%-15% of the fleets of four privately-owned Asia-Pacific airlines were flying the type. They were Fiji Airways, Lion Air, SilkAir and Spicejet.

State-owned Air China, China Eastern Airlines and China Southern Airlines, privately held Hainan Airlines and some of the respective subsidiaries of the four Mainland groups also have had to remove their 737 MAxs from their fleets.

The 737 MAX has been critical to the expansion strategy of these carriers and others in the region, particularly VietJet, which has ordered 200 737 MAXs, including 80 -10s.