Bloomberg News

Dreamliner Customers Turn to 30-Year-Old Planes for Fleet

February 12, 2013

Dreamliner Customers Lean on 30-Year-Old Planes to Fill Network

A Boeing Co. 767 airplane painted with the new Japan Airlines Corp. logo is pulled out of a hangar at Haneda Airport in Tokyo. “There is no doubt the 787 situation has caused strong interest in the A330 and 767,” Colm Barrington said. “People are now talking about renewing leases that were set to expire.” Photographer: Kimimasa Mayama/Bloomberg

Airlines waiting for the state-of- the-art Boeing Co. 787 Dreamliner to return to the skies are relying on 30 year-old planes to fill gaps in their routes.

LOT Polish Airlines SA, the only European carrier so far with Dreamliners in service, said it is using Boeing 767s to work around its two grounded models, one of which is stuck in Chicago following its maiden trans-Atlantic traverse. U.K. tour operator Thomson Airways and Norwegian Air Shuttle AS, the next two European airlines due to receive 787s, said they will use other planes to avoid the risk of stranded passengers.

Reverting to older aircraft bears the danger of a marketing backlash, and airlines who typically plan network coverage months in advance risk an open flank if an aircraft doesn’t get delivered. Uncertainty over the duration of the grounding is further complicating planning, said Colm Barrington, chief executive officer of Dublin-based Fly Leasing Ltd (FLY:US).

“There is no doubt the 787 situation has caused strong interest in the A330 and 767,” Barrington said. “People are now talking about renewing leases that were set to expire.”

Boeing last week told airlines that are about to receive Dreamliners that handovers will be delayed after a Jan. 16 decision by U.S. regulators to ground the jet. The aircraft maker has not give airlines new delivery dates as it tries to identify a fix to electrical flaws that caused a fire on a Japan Airlines Co. jet.

Wet Lease

Lease extensions would require an airline to operate the asset for at least one additional year, Barrington said. Airlines can also rent jets from other carriers for shorter periods, including crews, in what is called a wet lease in aviation parlance. LOT said it would consider leasing another aircraft for the summer season.

The Jan. 16 decision by U.S. regulators to ground 787s has stranded 50 airliners after a fire on a plane that originated in a lithium-ion battery. The root cause of the short-circuit has still not been determined, making impossible predictions of when the plane may again be operational.

“If the market perception forms that it is a long-term issue, then that will give lessors the opportunity to push for stronger terms and longer leases on used 767 and A330 equipment,” said John Higgins, chief commercial officer at Avolon, which owns six A330s. For now, such renegotiations are still “isolated incidents,” he said.

Airbus Demand

The aircraft leasing business, created and championed by Steven Udvar-Hazy at International Lease Finance Corp. almost four decades ago before he set up Air Lease Corp (AL:US)., has expanded in recent years as airlines seek to avoid big outlays of cash and build in flexibility so they can adjust their fleets to boom or bust times.

Lessors today own about 35 percent of the installed airliner base, compared with less than 20 percent at the beginning of the century. Single-aisle aircraft such as Boeing 737s and Airbus SAS A320s tend to comprise the bulk of lessors’ portfolios, because the smaller planes are the workhorses of the industry and always in higher demand.

Still, larger models such as 787s, 777s, and A330s command premium lease rates and are required for long-haul routes, securing them a slot in many lessors’ portfolios.

Lease rates for the A330 were already strong even before the 787 woes. The Airbus wide-body “is liked by nearly every airline, from U.S. majors to Chinese carriers,” said Aengus Kelly, the CEO of Aercap Holdings (AER:US). Aercap, with a portfolio of 333 owned and managed aircraft, has eight A330-200s, 22 A330-300s and three Boeing 767s.

Boeing Woes

Airbus had benefited from Boeing’s troubles with the Dreamliner even before the aircraft was grounded. The three-year delay of the 787 into service boosted demand for the 330 as a suitable substitute, even as Airbus works to introduce a new competitor, the A350, which is set for first flight this year and introduction to service in 2014.

The 787 capacity bottleneck risks to become more critical if it drags into the summer season for airlines when demand for jets peaks, said Barrington, whose leasing business manages five 767s and one A330.

Boeing will need to change the battery system on the 787 which may take months to complete, International Consolidated Airlines Group SA CEO Willie Walsh said on Feb. 10 in Dublin. IAG’s British Airways unit, which currently operates 14 767s in long-haul, expects to start taking delivery of 787s in May.

Delays in delivering the 787 have already eaten into spare aircraft capacity, John Strickland, director of airline advisory JLS Consulting, said in an interview. Airlines such as Norwegian, which is introducing a new product, also have find crew to operate the replacement aircraft.

“We are heading into a peak period for key parts of the aviation world so this is going to become a bigger issue in the coming months,” Strickland said.

To contact the reporters on this story: Robert Wall in London at rwall6@bloomberg.net; Andrea Rothman in Toulouse at aerothman@bloomberg.net

To contact the editor responsible for this story: Benedikt Kammel at bkammel@bloomberg.net


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Companies Mentioned

  • FLY
    (Fly Leasing Ltd)
    • $14.99 USD
    • 0.43
    • 2.87%
  • AL
    (Air Lease Corp)
    • $34.81 USD
    • -0.65
    • -1.87%
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