Boeing 737 MAX groundings 'benefitting' aircraft lessors

Executives from Dubai-based lessor Novus Aviation Capital say that airlines are being forced to extend the lives of older aircraft, leading to an uptick in lease rates
Boeing 737 MAX groundings 'benefitting' aircraft lessors
Novus managing director, Mounir Kuzbari said Novus is “very confident that Boeing will find solutions and fix the challenges they’ve had.”
By Bernd Debusmann Jr
Sun 26 May 2019 02:55 PM

The grounding of Boeing’s popular 737 MAX aircraft is benefitting aircraft leasing companies in the short-term as airlines are forced to extend the service lives of existing aircraft, leading to an uptick in lease rates and value, according to the managing directors of Dubai-based Novus Aviation Capital.

Airlines around the globe grounded their Boeing 737 Max 8 aircraft following the March crash of an Ethiopian Airlines aircraft, the second deadly crash involving the aircraft in less than a year.

In an interview with Arabian Business, Hani Kuzbari, one of Novus’ managing directors, said that from the perspective of aircraft lessors, the groundings also had a “positive” impact.

“The impact that it had…is that the existing technologies [aircraft] that were expected to be phased out by airlines are being extended,” he said.

“In a way, they’re extending their lives with existing operators.

Today, it’s very difficult to get a hold of an [Airbus] A320 current technology or Boeing 737 NG [an older version of the 737] because airlines need to fill up that gap following the grounding, at least on an interim basis,” he added.

Similarly, another Novus managing director, Mounir Kuzbari, said that many lessors’ are “benefitting from the situation.”

“Airlines that rely on the MAX 8, especially entering the summer peak season, will face a bit of disruption because it’s a bit short notice to be able to find capacity given market demands,” he said. “We’re probably going to see lease rate and value uptick on existing technologies in the short-term, whether it’s the 737 NG or A320 family.”

Work closely with Boeing

As an aircraft lessor, Novus has worked closely with Boeing. In September, it was announced that Novus would manage a new junior debt fund designed to provide airlines and lessors with higher loan-to-value financing for the acquisition of Boeing manufactured aircraft.

Additionally, at the Farnborough International Airshow in July, Novus announced its first direct agreement for four Boeing 777-300ERs, a $1.4 billion commitment.

The grounding of the 737 MAX, however, has had a limited impact on the firm, which currently does not have any of the aircraft in its portfolio.

“But, we have a number of aircraft in the pipeline in different stages of discussion,” Mounir Kuzbari added. “Some are actually mandated, so have been a bit delayed, naturally.”

Kuzbari added that Novus is “very confident that Boeing will find solutions and fix the challenges they’ve had.”

“The obviously concern is delays. Getting a number of civil aviation authorities on board is obviously going to take some time,” he said. “But long-term, this programme should get back on track."

Civil aviation regulators around the world have so far failed to make a determination on when the 737 MAX can return to the skies.

"The only timetable is to make sure the aircraft is safe to fly," Daniel Elwell, acting head of the US Federal Aviation Administration, said last week.

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