Operating an airline is notoriously complicated and costly. External factors such as demand, seasonality, and weather can quickly alter route planning and operations. Internal elements, such as business model, company leadership, and cost structure, all contribute to an airline’s profitability.
Given the capital-intensive nature of running an airline, leasing rather than purchasing aircraft has become a popular option, especially for new airlines with limited financial resources. However, airlines and operators can lease aircraft parts other than the aircraft itself, such as engines. These types of equipment are essential but notoriously expensive to obtain.
But, if an airline decides to lease an engine, how much will it have to pay? And, in today’s economy, why are aviation engine leasing rates so high?
Advantages of leasing aircraft engines.
Leasing aircraft engines has become a more common and widespread option for aircraft operators. In 2023, rented engines will power over 50% of the world’s airline and cargo aircraft, according to Aeroreport. This represents a significant increase over the year 2000, when the figure was less than 25%.
One reason leasing engines is appealing is that lessors frequently have extensive experience with various engine types. Many lessors provide maintenance, repair, and overhaul services to customers, so they have personnel with the technical knowledge to diagnose problems safely, reliably, and promptly, as well as execute routine checks.
This is especially useful when older airplanes are in service. Many of the aircraft deployed by US carriers are aging. The Boeing 757 is still widely used by Delta Air Lines and United Airlines. Both airlines rely on reliable engine assistance for their 757s to run smoothly on domestic and international flights.
Lessors that offer maintenance services may have a larger inventory of secondhand parts designed for older and less popular engines. Offering used parts with a service life can be a significant selling factor for airlines concerned about having the necessary parts to repair engines on older aircraft.
This video examines how easyJet’s CEO comments on its aircraft and engine selections, which have resulted in less hassles for the company. Speaking with Bloomberg Television, easyJet CEO Johan Lundgren describes how his airline essentially ‘lucked out’ with its CFM LEAP-powered A320neo aircraft.
General trends in aviation engine leasing.
Leasing aircraft engines offers several obvious advantages, which explains their popularity among airlines today. However, leasing incurs significant expenditures for airlines that obtain engines from a lessor. While they vary depending on the supplier and engine type, this section will concentrate on leasing engines for narrowbody aircraft, such as the CFM 56 and LEAP 1A and 1B.
Before we get into expenses, it’s worth noting that lease rates for narrowbody aircraft have been increasing. The success of the Airbus A320neo has led to significant increases in lease rates for the LEAP-1A and PW1100G engines. The value of these models has steadily increased throughout the years.
IBA reports that the limited supply of the LEAP-1A has led to an increase in lease fees. Operators have had to deal with earlier-than-expected removal drivers.
As a result, there are fewer spare engines available for lease and purchase. These considerations have a broad impact on the airline sector, as the Airbus A320 family is one of the best-selling aircraft programs of all time and is widely used around the world.
Meanwhile, the rate of increase for the LEAP-1B engine model has not been as significant. This is partly owing to the model’s shorter service time when compared to the engines that power the A320.
The LEAP-1B engine powers the Boeing 737 Max family, a main competitor to the A320neo. Boeing’s aircraft production capacities have been severely limited, making both the aircraft and the LEAP-1B less popular and widely available than they could have been.
Engine models powering older mainline, narrowbody aircraft have had variable results, with certain rates continuing strong and others decreasing. The IAE V2500-A2, which powers the previous generation of Airbus A320 aircraft (A320ceo), has remained in great demand, resulting in higher rates.
Alternatively, the CFM56-5B, the other engine that powers the A320ceo, has seen rates drop. There has been decreased demand for the engine, resulting in flat pricing and fewer leases. Despite this, the CFM56-5B3, the type with the highest thrust rating, has continued to perform admirably. This engine power the bigger A321ceo.
Meanwhile, the CFM56-7B has remained a popular model in the market. The engine powers Boeing’s Next Generation 737 series, which includes the -600, -700, -800, and -900 models. Demand for this model remains strong due to its high utilization and the fact that it is the only engine model capable of powering the whole aircraft line.
The price of leasing a narrowbody aircraft engine.
The cost of leasing an aircraft engine is determined by several factors, including the lessor, the conditions of the lease agreement, and the type of engine used in the transaction. Leasing rates can be a significant investment for an airline, even for a month.
The engines that power the A320neo family have among of the highest lease rates for narrowbody aircraft. On average, the LEAP-1A engine is leased for $145,000 to $155,000 per month, but the precise fee varies depending on parameters such as thrust rate. Meanwhile, the PW1100G typically costs 5% more than the LEAP-1A.
Meanwhile, engines that power prior generations of aircraft have lower rates than modern technology, but they still require significant airline expenditures. For example, the CFM56-7B, which powers the Boeing 737 NG, is typically leased for approximately $95,000 per month.
In contrast, the V2500-A5 generally leases for more than $80,000 per month. Meanwhile, the CFM56-5B is more widely available and typically sold for $60,000 per month.
The price of leasing a widebody airplane engine.
Given the equipment’s bigger size and enhanced capabilities, the market for widebody aircraft engines appears to be slightly different and more expensive. One of the most popular commercial widebody aircraft in operation today is the Boeing 777 family, which is powered by the GE90. The GE90-110/-115 type especially powers numerous 777 models:
- 777-200LR
- 777-300ER
- 777-F
IBA reports a recent increase in GE90-110/-115 rates. In early 2024, the engine’s normal rental rate was approximately $120,000 per month. This has recently climbed to $160,000, owing to increased use of the 777-300.
Meanwhile, the Trent 700 and CF6-80E1 have had good market performance. These engines, which power the previous generation of Airbus A330 aircraft (A330ceo), have performed well, thanks to new orders and a healthy aftermarket.
The Trent 700 rents for roughly $120,000 per month, whereas the CF6-80E1 costs about $100,000 per month. In comparison, the PW4000, which powers widebody aircraft such as the A330 and Boeing 767, offers lower leasing rates. The engine is typically acquired at a monthly charge of $70,000.
Why have leasing rates been so high?
According to Aviation Week, airplane engine leasing rates have increased dramatically. Demand is high, yet engine lessors work in a highly complex environment. Engine Lease Financial Corporation CEO, Darren Wormwald, explained:
“We’re witnessing a quite unusual collection of events. We have a high demand for our product, the engine piece, but we also face a challenging geopolitical situation. We’ve got interest rates at their greatest in recent history, and I believe that the investment plan that dictates is simply a matter of looking at your customer base and working back from there.”
Airlines and lessors alike are compelled to bear increasing costs, but the difficulties with engine leasing do not stop there.
Airlines have recently sought longer lease times in order to keep their engines running for extended periods of time. Prior to the COVID-19 outbreak, airlines typically searched for leases of four to six months. However, airlines have recently been searching for leases lasting up to three years.
To make matters worse, airlines have had engine issues with their latest planes. An fault with Pratt & Whitney’s engine for the A320neo family has forced airlines throughout the world to ground their fleets. Airlines, like Wizz Air, have had to forfeit a significant chunk of their fleet until the issue is being resolved.
As a result, the demand for replacement engines has increased, driving lease rates even higher. Jeff Lewis, CEO of Hanwha Aviation, succinctly stated the issue, outlining the difficult situation in which many airlines are currently stuck:
“You have to feel bad for the airlines right now.”[They’re] dealing with an untenable situation. If you have newer generation airplanes with engine troubles and need to keep them flying, you may consider leasing engines. When lessors notice that and the phone rings on Saturday night, the price rises compared to Tuesday. It’s extremely difficult for airlines, and it significantly skews the market.”
As the airline sector navigates its current issues, engine leasing will continue to play a critical role in keeping the industry flying. The industry’s ability to handle today’s difficulties promptly will have a significant impact on leasing rates in the years ahead.