The CEO of Delta Air Lines Inc. made waves in the aviation industry shortly before Christmas when he said he had signed a letter of intent to buy a used Boeing 777 for just US$7.7 million — a 97 per cent discount from the list price of a new one.
No details were given on the condition of the aircraft or who the seller was, but the shockingly low price appeared to confirm CEO Richard Anderson’s earlier declaration that a glut of wide-body airplanes was creating bargain-bin prices and “huge buying opportunities” for airlines like his.
“We’re seeing a huge bubble in excess wide-body airplanes around the world,” Anderson said on an October conference call, adding that he expected the weakness to spread to smaller narrow-body aircraft as well.
The comment sent shares of Boeing Co. down four per cent, and the aircraft lessors that supply about 40 per cent of the world’s commercial fleet followed suit amid concerns that their portfolio of planes may be worth less than investors had thought.
But a top executive at one of the biggest publicly traded aircraft leasing companies dismissed the industry fears raised by Delta’s cut-rate purchase.
“Certainly we don’t see any glut or overcapacity generally speaking globally across any aircraft type,” John Plueger, president and chief operating officer of Air Lease Corp., said in a recent interview.
“Year to year, quarter to quarter, month to month, there can be pockets of over-supply and pockets of under-supply based on aircraft type,” he added.
“But it’s difficult to be too fussed about any of this stuff because in my view it’s just normal market conditions.”
Since Delta’s comments, Los Angeles-based Air Lease Corp. has become one of the staunchest defenders of the residual values of wide-body aircraft. The company, which has a market cap of US$3.4 billion, leases 235 aircraft to 89 airlines in 50 countries, including Air Canada and WestJet Airlines Ltd.
On a November earnings call, CEO Steven Udvar-Házy said there had been “a great deal of overreaction” in the media to Richardson’s comments.
“Aircraft values are strong and remain highly desirable cash-generating assets to own and manage,” he insisted, pointing out that global passenger traffic rose 6.7 per cent in the nine months through September and the average plane was more than 80 per cent full.
“These are overwhelmingly positive figures and indicate a very healthy picture for the core demand and supply of air travel,” he said.
But Air Lease Corp. is focused on leasing new aircraft, as opposed to the decade-old planes that Delta’s Anderson was referring to when he made his “bubble” comment.