MIAMI – Avolon cancels its order of 75 Boeing 737 MAX aircraft to preserve cash flow as it hopes for a swift recovery of the commercial aviation industry.
The order was first announced in 2017 when the deal to purchase the 75 737 MAX 8 aircraft included 50 more for later delivery. As such, the order totaled 20 Boeing 737 MAX 10, 55 Boeing 737 MAX 8 and options for 20 MAX 8 jets to be delivered during 2020-2023.
the current cost-saving measures taken by airlines across the board are indispensable for them to face the COVID-19 crisis, and are the main reason for Avalon’s move, in additión to the Boeing 737 MAX debacle.
Currently, Avolon has 15 orders from 2012 and five from a 2014 order for the Boeing 737 MAX, three of which have been delivered while 14 are rescheduled for 2024.
Boeing commitment implications
On April 3, Avolon announced a commitment cancelation valued in a tag between US$8.4bn, or US$9.4bn, the first being the listing price when the order was signed in 2017 and the latter the current price, according to Seeking Alpha.
While the current crisis affects Boeing orders and deliveries, the move from Avolon could be also influenced by the MAX model infamous setbacks. Alongside the halt of operations at US Boeing sites, the demand of the aircraft is expected to decrease.
Additionally to the canceled MAX contract, 80% of Avolon’s owned and managed customer base asked the carrier for payment obligation relief due to their leases, which represents over 90% of annual rental cash flow.
As a response, the company was relieved from paying for canceling the deal, which would mean a dispensing of cash this year for deliveries to be scheduled for 2022 and 2023.
Airbus is also in the mix
The leasing company also suspended requests and deliveries with Airbus to have a strong financial position with both companies post-COVID-19. An order of nine A320neo aircraft to be delivered during 2020-2027 was previously delayed in 2019.
Now, the commitment is only for two A330-300, six A320neo, and 14 A321neo, for an estimated value of US$1.4bn, according to Seeking Alpha.
As the fast-changing situation still affects all levels of the commercial aviation industry, cancellations and deferment of orders are expected not only for an aircraft demand recovery but also for major liquidity, as the pre-payment commitments are still part of the deals.