PARIS – Aircraft leasing company, Avolon, announced that it had signed a memorandum of understanding (MoU) to purchase 75 Boeing 737 MAX 8 jets Tuesday at the 2017 Paris Air Show. The order also includes purchase options for an additional 50 737 MAX 8 jets and is worth $8.4 billion at list prices. Deliveries will begin in 2021.
Avolon already had outstanding orders for 10 737 MAX 8s and 10 737 MAX 9s. So this MoU once confirmed will grow its MAX order book to 95 frames in all, making it the fifth largest lessor customer of the MAX jet (edging out Aviation Capital Group who claimed that spot earlier Tuesday morning). Avolon also has an outstanding order for 20 Airbus A320neos placed back in December 2012.
The order was announced at a press conference by Ihssane Mounir, Boeing’s SVP of Global Sales & Marketing, Boeing Commercial Airplanes CEO Kevin McAllister, and Avolon CEO Dómhnal Slattery.
“The relationship between Boeing and Avalon is very special,” said McAllister. “Today is a very special day, for an important reason. Today Avolon will announce a memorandum of understanding for 75 737 MAX-8 plus options for 50 more. We are proud to play an important role in Avolon’s future.”
Slattery added that “Avolon, today with this MOU, is at 925 aircraft, which is extraordinary considering we didn’t exist 8 years ago. This is a super airplane, an airplane that we’ve believed in for a long time…This order represents the single largest order that Avolon has placed with Boeing to date and underlines the scale of our ambition and the strength of our business.”
“Our strategy is to maintain an industry-leading portfolio of young, modern and fuel efficient aircraft. We were pleased to deliver the world’s first ever 737 MAX 8 this year and the addition of a further 75 Boeing 737 MAX aircraft reflects our commitment to our customers to have a product offering built around the most technically advanced and efficient aircraft available in the market.”
Slattery also said that “the [recently launched] 737 MAX-10 looks like a real winner and we [Avolon] will be taking a hard look at it.”
Avolon’s MoU once confirmed will take the 737 MAX family over 4,000 firm orders, along with other orders announced at PAS. By the same metric, Boeing now has won 909 orders from aircraft lessors for the 737 MAX against 1,136 for Airbus’ A320neo family including current MoUs. PAS 2017 has helped Boeing close that gap from a deficit of 718 versus 1,024 prior to the show.
Continuing to sell to aircraft lessors is important for the 737 MAX, as they are the only customers willing to commit to large volumes of planes all at once in the current market environment.
Individual airlines that are profitable in developed markets such as the U.S. or Japan) face investors that are skeptical of large capital expenditure outlays. Meanwhile, airlines in developing markets are facing down growth slowdowns and already have tons of Airbus and Boeing narrowbodies on order.
Exacerbating all of this is the post-2014 drop in fuel prices, which makes current generation aircraft more economical to operate and reduces the impetus for new purchases of the 737 MAX and A320neo whose cost savings mostly come from fuel burn reductions.
Small orders for 10-15 jets are still possible, but larger ones like SpiceJet’s 40 and Lion Air’s 50 are few and far in between. The one group of customers that can credibly order by large volumes of aircraft, however, is aircraft lessors, as they don’t need to sustain 75 MAX jets (as an example) with just one airline.
Instead, they can lease 10-15 aircraft to 5-6 different airlines, which makes them the likely primary source for big ticket MAX and neo orders over the next 12-18 months.