The U.S. economy expanded 2.5% in 2023 (3.4% in Q4). While growth slowed to 1.6% in 2024’s Q1[1] the International Monetary Fund expects U.S. GDP to expand 2.7% in 2024, up from their October forecast of 1.5%. Global economic output (in the face of geopolitical strife) is expected to expand by 3.2% in 2024 (up from an October 2.9% forecast). With air travel rebounding, Domestic Aviation’s Spring 2024 Air Travel forecast 167.1 million passengers between March 1 and April 30 (2.7 million per day)[2]. Delta expects strong summer demand. Overall IATA forecasts a 2024 record year of 4.7 billion passengers. Air carriers would like delivery of newer more fuel-efficient aircraft but both Boeing and Airbus deliveries are months late. The average age of airline-owned passenger aircraft was 16 years in 2024 (up from 14 in 2019). Planes typically are used for 25 years and many fly longer with proper maintenance. To keep up with the recovery of air travel air carriers are extending the service lives of existing mid-life equipment. Delta has not retired any aircraft in 2022 or 2023[3]. Lufthansa is bulk buying parts and developing their own in-house repair solutions. Delta’s maintenance and repair operations business (Delta TechOps) is currently focused on maintaining the in-service reliability of their existing Boeing 717s, 757s, and 767s. Industry-wide, a little under 200 Boeing 757s remained in service in 2023, and slightly over 200 767s are in service in 2024.
Newer aircraft are grounded due to the ongoing Pratt & Whitney engine issues. Cirium data shows 637 GTF-powered aircraft parked as of April 1. Repair capacity limitations and parts shortages are constraining supply. Manufacturers’ higher prices on new engines have reduced the incentive to switch to newer equipment. The resulting undersupply of aircraft and engines has led to increased values and increasing lease rates. Typical lease rates for a 10-year-old Boeing 737-800 (which preceded the MAX), were around $220K per month in January 2024, up from $183K in January 2023 and $156K in 2022. In a recent KPMG Aviation Industry Leaders Report, Avolon CEO Andy Cronin stated “2024 markets are positive and likely to drive lease rates and residual values higher”. Some carriers are buying aircraft they have been leasing rather than negotiating lease extensions. Per Cronin, the industry is some 3,000 planes short (15% of global capacity) of what was expected pre-Covid due to pandemic disruptions and OEM equipment delivery delays. With the added 737 MAX delivery slowdown existing mid-life aircraft equipment will remain in service.
Trinity Industries[4] reports improving railcar lease fundamentals (their future lease rate differential is +23.7% and fleet utilization is 97.5%. Full-year average renewal lease rates were approximately 30% higher than expiring rates with average lease renewal terms of 54 months. GATX[5] similarly reports 99.4% fleet utilization, lease renewal rates 33% higher, and average renewal terms of 64 months. High steel prices have elevated the pricing of new railcars and led to increased scrapping of idle equipment.
Even with economic, political, and trade uncertainties, higher lease rates and strong secondary markets are creating opportunities. Call RESIDCO.
Glenn Davis 312-635-3161
[1] U.S. Bureau of Economic Analytics, March 28, 2024.
[2] Airlines for America, Spring 2024 Air Travel Forecast.
[3] Aviation Week, April 22, 2024, Delta Eager to Grow Third-Party MRO Business.
[4] Trinity Industries, Q4 2023 Report, February 22, 2024.
[5] 1Q24 Demand ‘Solid,’ Railway Age, April 23, 2024.
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