Podcast: What's Happening In Engine Leasing?

James Pozzi (00:44): Welcome to the MRO podcast. I'm James Pozzi, MRO editor for the EMEA Region, and today we are assessing aviation week's recent event held in London Engine Leasing, Trading and Finance 2025 for the Europe region and that brought together the engine leasing community financiers and asset managers too, among others who spent a couple of days discussing the latest trends in that part of the market. So joining me today, two first timers on the podcast. First we've got Alex Derber, of course, the name you'll know, a longtime aviation week contributor who writes extensively about the aftermarket and has done so for many years and of course has written plenty about the leasing side of the market and the financing part of the business as well. Alex, welcome.

Alex Derber (01:31): Hello. It's nice to be here so I can assure everyone I'm not just a chat bot, but I'm a real person.

James Pozzi (01:36): Excellent, great to have you here. And of course joining as well. Also for the first time is Antoine Fafard, who is aerospace industry analyst fleets and MRO at Aviation Week. And Antoine did a few interesting presentations at ELTF and he'll be giving us some insights into those during this podcast. Antoine, welcome as well.

Antoine Fafard: Thank you James. Cheers guys, great to have you here.

James Pozzi: So yeah, let's get started. So Alex, you and I sat in a lot of conference sessions over two days, a lot of discussion points, quite a broad array of topics I thought. And what kind of really stood out to you? What were some of the key takeaways that you got from the event?

Alex Derber (02:15): A fair few things. Partly actually what wasn't said, it seems from the previous conferences I've attended, there was a bit less said about the supply chain than before. I don't know whether that's because there's the grim acceptance of it now or whether things have got slightly better. I know the engine manufacturers, they're starting to pump out a few more engines, so maybe people are a bit more optimistic, but obviously we're still during the supply chain crisis. And then so the big thing is always with managing that transition out of current gen engines and how long to stay for how long to invest for whether to go for the three year horizon or a six year horizon. And there's a range of views on that that possibly from the 2030s people will go with lighter shop visits and well people are doing that already, but using green time rule as a way of managing it.

(03:05): But yeah, so lease rates are still very, very high and they may stay that way for two or three years as seems to the general consensus, but there's not much room to go higher because airlines just don't have the leeway to absorb any more costs with higher interest rates, higher maintenance costs. So yeah, that seems to be where we are. It's a good period to the engine s, but there's a fair few concerns about the new gen engines from both the maintenance and the asset management perspective. I think some of the MROs are saying it's just not worth our while to get into it because essentially we're just going to be employed to swap our parts and so we're just being employed for our labor. We haven't got any value add on that new gen equipment. And then some of the asset managers that are saying just the, well that's the typical thing isn't it? Shop visits, time on wing, it makes things tricky.

James Pozzi (04:04): I agree with those points actually. Yeah, it is interesting about the new gen engines of course, I mean one of the panels there was and they cited a lack of visibility in terms of costs, time on wing and the materials as well, which have been quite problematic, those kind of engine materials for new programs as well around pricing supply and even the exchange policies too. So yeah, that was something that definitely resonated with me too. It seems though the investment intentions are still there for the new generation engines, though every less leasing leader or CEO who spoke said that's what they're fixed on eventually. But that's going to be a gradual thing with the fleet from what I can see. Interestingly, Darren Mol, who is the CCO of EFC, of course the Shannon based engine lessor, he did the keynote speech on the first day and he had some interesting projections.

(05:01): I mean as we know there's so few market entrants in engine sale and leasebacks compared to aircraft less where it seems like every other year there there's new entrant into the market, whereas in the engine leasing space he mapped it out over the last 15 years and there's kind of single figures, five or six from what I could see. So that really showed just what a small and niche space it is in terms of the number of companies operating in that area. So yeah, we know the future market will be comprised of new generation engines of course increasingly so over the next 10 years. But the numbers were interesting from ELFC, so Darren described it as a relatively long period of transition and that's certainly true up to, I think he cited the year 2042 and the need for 42,000 new aircraft deliveries.

(05:52): That's sort of projections by Boeing and Airbus last year I believe. So yeah, that transition really did sort of dominate things as well. So ELFC projects around 1,900 new technology spare engines are in the market and that's in the existing fleet and installed engines, they were in service at the end of 2024 and another 3,400 to be delivered by 2033. So that's around 85 billion worth of new equipment to be delivered into the spares markets. That's a huge number, roughly about 10 billion a year US dollars. But also that means there's a huge demand for liquidity in just the spare engine market and I mentioned the relative lack of new entrant into the market. So very few companies are going to be taking the bulk of that demand for the liquidity. So Mol expects around 800 of those engines I mentioned to be financed through sale and lease back.

(06:48): That's still around 20 billion US dollars over that next eight years or so. So that's a significant liquidity demand placed on them. So yeah, quite wary about the task ahead. Some of the lessors, there's a big demand on relatively few companies to finance and meet the demands of the market and that's certainly there's not, so there's not a lack of the demand and I think that is in that case, outstripping supply. And also I agreed about the aftermarket again, there's still a bit of a lack of capacity for engines and that certainly we all know the OEMs and their partners are ramping that up and need to do so more over the next decade or so to meet the shop visit projections, which are big. So plenty there really to stew over and I thought was very interesting on that side of the market as well. Antoine, you did a couple of interesting presentations, the LTF, you made some comparisons of course to the pre COVID year, amazingly six years ago, 2019. What can you share with us and maybe some of the interesting numbers?

Antoine Fafard (07:57): So there are two data angles I'd like to take on this. The first one is excerpts from our own forecast. So Aviation Week produces a fleet and MRO demand forecast on an annual basis, which is released every year around September. So there is one coming up this September. And what surprised me is if we look at our forecast from 2019, back then MRO at large in Europe represented 21 billion for 2019 alone. Now if we now look at the figures for 2025, that number's jumped to 28.9, so maybe 29 billion for Europe. But what surprises me the most is how engine MRO has increased in terms of share if we compare the two periods. So it's an increase of 10% up to now 42% of MRO is engine related in 2025. The other point I'd like to mention is about MRO expenses. So if we analyze annual reports for all the airlines, a lot of airlines actually break down their expenses.

(09:13): And if we look at MRO alone, what I find the highlight of those figures for me is how much the large increase in MRO expenses that happened for pretty much every single carrier I've looked at. So last year was actually a record year in terms of operating revenue. We've seen some amazing historical figures. Delta for instance, reported 61 billion in operating revenue, just never an airline has reported over $60 billion in a year and that 61 billion is 31% increase against 2019. Now if we just zero in on expenses, MRO expenses actually increased by 66% if you compare it to the same years. So it's the same pattern for literally all the carriers. United, for instance, operating revenue increased by 32%, their MRO expenses have increased by 71%. So whether you look at North America, Europe, the numbers are, the trend is exactly the same. Another point I can mention also is when we analyze the cost per available seat mile against revenue per available seat mile and the trend is, and of course the cost, we're not talking about just MRO, we talk about everything that an airline has to go through. And the trend there as well is that while revenue increased by a certain percentage, the cost has increased by a larger percentage. So you can just extrapolate that trend in the future and for an airline it will become virtually or very difficult to actually make a profit.

James Pozzi (11:06): Thank you for those Antoine. It's really interesting numbers there actually, and especially the comparison to 2019 to where we are now. Any other points anyone else wanted to add? Anything we haven't touched on that you wanted to share? Alex?

Alex Derber (11:20): Just a small point on predictive maintenance, I don't know whether we get into a bit as journalists, we get into a bit of a bubble with it. It's sort of an exciting thing to write about and we pump out a lot of stuff about it. But then we are listening to, there was a panel on it and everyone was very obviously predictive maintenance, but EasyJet who were probably at the forefront of maintenance technology in terms of how open they're, they were saying it took four or five years for them to just be able to measure the impact, like a positive impact from it. So if that's someone who's very open to technology, then I was wondering how much traction predictive maintenance is really getting amongst other airlines. If it's so hard to measure an impact then what your impression has been talking to people about that.

James Pozzi (12:06): Yeah, I think so. I mean obviously it's a big investment, it takes a large outlay and yeah, the expectation is though that it won't necessarily wield instant or quick quicker returns. And I thought that was also interesting what EasyJet said about, because I think it was back in 2017, 2018, we were reporting on predictive maintenance projects and some of the stuff they were doing with analytics and bigger data. But yeah, I found that very interesting that it's only wielding results after a longer extended period of time. But certainly that's probably a topic actually for a podcast in itself about predictive maintenance. I think we could have a good discussion about that as well and how that's really impacting things. Yeah, it seemed to be something that people are backed to sort of be really important in the industry. I know we often hear technology that's become almost buzzwords for a year or two, but predictive analytics seems to be something that people are investing a lot in, have a lot of faith in. But yeah, the results it's getting for airlines, I think that'd be really interesting discussion at some point. Definitely. And Antoine final word, please.

Antoine Fafard (13:30): Yes, James, to make a link with the recent event in London, the question of new generation engine and legacy engine was mentioned. Just want to mention that our latest version of our forecast suggests that the fleet inflection point should be 2029 for Europe, while the overhaul inflection point should be a few years later, 2033. So this is our latest forecast, but the forecast gets readjusted every year and the new one will come out in the fourth quarter of this year.

James Pozzi (14:07): Excellent plug at the end there. Thank you Alex and Antoine. Sadly, that's all we've got time for, and there's so many things we obviously didn't mention, although I think we did pack a lot in, but there's obviously so much more that we could cover. And no doubt, over the next week or so, you'll be seeing articles from myself and Alex on aviationweek.com related to the ELTF. There'll be more analysis to come. No doubt. Alex and Antoine, thank you very much for joining me and hopefully we'll have you both back soon. Don't miss the next episode by subscribing to the MRO podcast wherever you listen to podcasts. And one last request. If you're listening in Apple Podcasts or Spotify and want to support this podcast, please leave us a star rating or write a review. Thanks.