What's Happening?
Roger Welaratne, CEO of SMBC Aero Engine Lease (SAEL), has cautioned that the current shortage of spare new-technology engines could reverse, leading to an oversupply and pressure on lease rates and asset values. Speaking at Aviation Week's Engine Leasing, Trading & Finance Americas event, Welaratne noted that high spare-engine ratios are due to temporary technical and supply chain disruptions. He warned that once these issues are resolved, the market could face an oversupply, causing rents to collapse. Welaratne emphasized the risks of assuming current demand is permanent and highlighted the potential for the market to overshoot in both directions.
Why It's Important?
The potential shift from a shortage to an oversupply of spare engines could have significant implications
for the aviation industry. An oversupply could lead to decreased lease rates and reduced asset values, impacting engine leasing companies and investors. This scenario underscores the importance of cautious investment strategies and the need for industry stakeholders to anticipate market changes. The situation also highlights the challenges of managing supply and demand in the aviation sector, where technical issues and supply chain disruptions can have far-reaching effects.
