What's Happening?
Roger Welaratne, the Managing Director and CEO of SMBC Aero Engine Lease (SAEL), has raised concerns about a potential oversupply of spare new-technology engines in the market. Currently, there is a high
demand for spare engines due to technical and supply chain disruptions, particularly affecting platforms like the CFM International Leap engines. Welaratne cautioned that once these issues are resolved, the market could face an oversupply, leading to a collapse in lease rates and asset values. He emphasized the risk of assuming that the current high demand for spare engines is permanent, warning that the market could shift from scarcity to surplus, which would undermine lease rates and erode engine asset values.
Why It's Important?
The potential oversupply of spare engines could have significant implications for the aviation industry, particularly for leasing companies and investors. If the market shifts to a surplus, it could lead to decreased lease rates and reduced asset values, impacting the profitability of engine leasing companies. This scenario could also affect airlines that rely on leasing spare engines, as they might face changes in leasing costs. The situation underscores the importance of strategic planning and risk management in the aviation industry, as companies must navigate the complexities of supply and demand fluctuations.
What's Next?
As the technical and supply chain issues are addressed, the aviation industry will need to closely monitor the balance between supply and demand for spare engines. Leasing companies like SAEL may need to adjust their investment strategies to avoid overcommitting to spare engine acquisitions. The industry could see a shift towards more cautious investment approaches, focusing on long-term leasing rather than short-term strategies. Stakeholders will likely keep a close watch on market trends to avoid potential financial pitfalls associated with an oversupply scenario.
