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Latin American Carriers Showcase New Pandemic Leverage for Airlines Shopping for Planes

Edward Russell

August 9th, 2021

Latam Airlines A320neo

One of the only benefits to emerge from the Covid-19 pandemic for airlines is something of a buyer’s market for aircraft from the world’s largest planemakers.

Latam Airlines Group is the latest to cash in on the downward pressure on aircraft values with a deal for 28 new Airbus A320neo family jets. The order, if approved by a U.S. bankruptcy court, would add to the 42 A320neo family — 23 A320neos and 19 A321neos — commitments that the Chilean carrier already has for a total narrowbody orderbook of 70 aircraft. The agreement also includes the cancellation of Latam’s two remaining A350 orders.

And it is not just new Airbus jets that Latam is acquiring. The airline also has deals in front of the court to lease five former Norwegian Air Boeing 787-9s from Avolon and Orix. The agreements come with “favorable economic terms” — undoubtedly taking advantage of the same softness in the widebody aircraft market that Delta Air Lines leveraged in its recent used A350s deal — according to court filings.

Latam is direct about the reason for its A320neo deal, which followed the rejection of some 42 aircraft leases through Chapter 11: saving money. In a court filing on August 5, it describes the agreement as allowing it to “purchase additional aircraft at a lower rate and obtain valuable services on favorable terms,” as compared to those of the aircraft it rejected.

Deals like this — rejecting older aircraft, or at least orders, in favor of new ones — are increasingly de rigueur for airlines. In Latin America alone, Aeromexico and Gol have swapped old orders for new through various restructuring processes. The former slashed its orderbook with Boeing to just 20 737 Maxes from 54 in April, and then signed for 12 more new Maxes from lessor Dubai Aerospace Enterprise in July. And the latter inked a deal with Boeing for 28 more 737-8s earlier in August, nearly a year-and-a-half after cancelling commitments for 34 Maxes.

Since the beginning of 2020, the value of a new A320neo has fallen by 3 percent to $48.6 million and a new 737-8 by 5.5 percent to $43.6 million, said Cirium Head of Valuations George Dimitroff. Those declines offer real dollar-and-cents savings for an airline looking at new aircraft.

Aeromexico, Gol and Latam all plan to use the aircraft primarily as replacement. This creates additional long-term cost savings from lower trip and maintenance costs as they move to newer models from older ones. But another reason touted by the carriers are the environmental benefits of the latest generation jets.

Per Latam, the A320neo family aircraft are 20 percent more fuel efficient than the older A320 family models they will replace. This lower fuel burn translates to lower emissions that will help the airline achieve its goal of carbon neutrality by 2050.

And Gol claims the 737 Maxes are 15 percent more fuel efficient and emit 16 percent less carbon than the 737 Next Generation jets they replace.

“With sustainability initiatives front and center, we believe operation of modern, fuel-efficient aircraft will continue to be the trend on a global scale,” Air Lease Corporation Executive Chairman Steven Udvar-Hazy said on August 5. He added that he expects more deals for new aircraft as airlines lean into environmental commitments.

Edward Russell

August 9th, 2021

Photo credit: Latam Airlines A320neo Flickr / Rafael Luiz Canossa

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