BOC Aviation says lessors may have to take back planes later this year

SINGAPORE (Reuters) – Aircraft lessors may need to start taking back some planes in the second half of the year, the CEO of BOC Aviation Ltd (2588.HK) said, adding that the pandemic-hit aviation market could take until 2023 to fully rebound.

One the world’s biggest aircraft lessors, BOC Aviation said it still has 100{3c4481f38fc19dde56b7b1f4329b509c88239ba5565146922180ec5012de023f} of its fleet on lease after reaching three-month partial payment deferral deals with many customers.

“We are prepared to move planes around when we have to. We haven’t got to that point yet as of today,” Chief Executive Robert Martin told Reuters in an interview. “But we have to expect there will be some friction in the market, probably over the third and fourth quarter.”

In times of financial strain, lessors may agree with carriers to take back some of the planes leased out, though they may also seek to forcibly reclaim them in some cases.

Global airlines are facing a battle to survive, with most flights grounded since March due to travel restrictions to contain the novel coronavirus, although some countries have begun to ease curbs.

BOC Aviation expects airline traffic could rebound fairly quickly to 80{3c4481f38fc19dde56b7b1f4329b509c88239ba5565146922180ec5012de023f} of 2019 levels once travel restrictions are lifted, but the last 20{3c4481f38fc19dde56b7b1f4329b509c88239ba5565146922180ec5012de023f} might take until 2023, said Martin, an industry veteran of more than 30 years.

The pandemic has spurred the Singapore-headquartered lessor into a flurry of deals this year – an estimated $5.5 billion of purchase and lease-back agreements with major carriers such as Southwest Airlines Co (LUV.N) and United Airlines Holdings (UAL.O).

The deals were agreed on more favourable pricing terms for BOC Aviation than would have been achieved in a stronger aviation market, raising the credit quality of its client portfolio, Martin said. As of Dec. 31, the portfolio had a net book value of $16.8 billion.

Other airlines signing purchase and lease-back deals with BOC Aviation included American Airlines Group Inc (AAL.O), Cathay Pacific Airways Ltd (0293.HK) and European budget carrier Wizz Air Holdings PLC (WIZZ.L), he said but added he did not expect more such deals this year.

BOC Aviation remains confident in the future of Boeing Co’s (BA.N) grounded 737 MAX, noting that its deal with Southwest includes 10 of the aircraft, Martin said.

“On the 737 MAX, Boeing are telling us they will start production this month at a very low level, maybe two a month,” Martin said.

A Boeing spokeswoman declined to comment on the rate but noted Chief Financial Officer Greg Smith said on an earnings call last month that production would begin at a slow pace, rising to 31 a month in 2021.