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Aircraft Lessors May Benefit From Airline Slump

ILFC Sees New Orders From Customers Who Can't Buy

It's a staple of economic theory... no matter how bad things are, somewhere SOMEONE will benefit, and benefit greatly. In the case of airlines that have seen profits erased by high fuel prices -- but still need new aircraft badly -- those "someones" will probably be aircraft leasing companies.

International Lease Finance Corp. certainly hopes that's the case. Bloomberg reports the world's largest airliner lessor may soon order 300 narrowbody planes combined from Boeing and Airbus, for the sole purpose of offering leases to airlines that may have to cancel their previous orders for new planes. The orders may be announced during next month's Farnborough International Air Show in England.

ILFC Chief Operating Officer John Plueger says his company plans to ask for steep discounts from each manufacturer, especially if both planemakers experience the spate of order cancellations many analysts predict.

If Boeing and Airbus see their respective backlogs shrink too much, that puts ILFC in an enviable position. "A stressed marketplace provides us with a lot of opportunities, maybe buying some airplanes at reduced cost," Plueger said.

Still, there's only so much ILFC -- or any buyer -- can expect in the form of discounts, says analyst Nick Cunningham with Evolution Securities, Average order discounts hover around 30 percent; at anything over 50 percent, planemakers start losing money... even on planes like the erstwhile Boeing 737 and the newer, but still 20-years-old, Airbus A320. Even if the tooling is long-since paid for, labor costs still swell the price.

Boeing and Airbus would likely consider such steep discounts only "in absolute desperation," Cunningham said. A more realistic figure ILFC can expect is probably closer to 30-40 percent off list.

As more customers cancel or defer orders, however, planemakers may just become that desperate. Already, about two dozen airlines worldwide have filed for bankruptcy or otherwise cut operations flying this year. Others, like JetBlue Airways, have already announced they're deferring deliveries for the foreseeable future.

"There's going to be some good values on deferred or canceled orders," said Teal Group analyst Richard Aboulafia. "Production slots will open for planes getting built and you'll see great deals on those planes."

FMI: www.ilfc.com

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