Avolon's cancellation of 75 Boeing Max orders early this month may have repercussions in the lessor market as well as for Boeing.

The Dublin-based lessor, which received eight Max aircraft before Boeing stopped deliveries to customers in March 2019, was due to take 24 deliveries last year, but only received three.

The lessor, which had an orderbook of 128 Max aircraft at the beginning of April, lost patience and decided to cut its delivery commitments over the next four years through a combination of cancellations (75 aircraft) and deferrals (16 aircraft) until 2024 or later.

Other lessors will also face placement challenges as they seek to manage their orderbooks and deliveries.

On 17 April, GECAS cancelled 69 Max orders to “better align” its fleet with customer needs. This represented 45% of its orderbook. The lessor, which has 29 Max aircraft in its portfolio, has 82 of the aircraft on order now.

On 20 April, CDB Aviation reduced its 737 Max programme backlog to 70 aircraft from 99, after cancelling 29 scheduled deliveries due between 2020 to 2024. This represented 30% of its orderbook. The Chinese lessor also made adjustments to the rest of its orderbook: all 10 of its Max 10 aircraft on order are being converted to smaller 737 Max 8 units, while deliveries of 20 Max aircraft are deferred to dates in 2024, 2025 and 2026.

On 24 April, Kuwaiti aircraft lessor Aviation Lease and Finance Company (Alafco) filed a lawsuit against Boeing after several failed attempts to reach a settlement to return advance payments worth $336 million. Alafco further demands compensation due to the cancellation of its order of 40 Boeing 737 Max aircraft, according to a stock exchange statement.

Aercap preceded Avolon in the first quarter by rescheduling the delivery positions of a portion of its orderbook. At the time of the grounding, the lessor had five aircraft leased to lessees and initial plans showed the remaining 95 aircraft being delivered through the end of 2023. Plans for 2019 called for 17 deliveries, while Boeing was to deliver 24 of the type in 2020, 28 aircraft in 2021, 27 in 2022 and three in 2023. Under its revised schedule, the operating lessor plans to take four new units this year. Aercap is expected to receive 26 new Max aircraft in 2021, 16 in 2022, 17 in 2023, 17 in 2024 and 15 aircraft thereafter.

Airfinance Journal’s Fleet Tracker showed that the leasing community accounted for more than 1,100 of the Max orderbook at the beginning of the April.

The top 10 lessor commitments also include Air Lease (135 aircraft), SMBC Aviation Capital (116), Aviation Capital Group (97), BOC Aviation (87), CALC (67) and Jackson Square Aviation (41).

A fair number of lessors are expected to amend their orderbooks via cancellations and deferrals.

So far Alafco, Avolon, GECAS and CDB Aviation have cancelled 213 aircraft but one leasing source expects a third of the lessors' total backlog to be cancelled, even if the Max flies again.

“From what we hear, lessors and airlines had the right to cancel once the grounding went over one year. Boeing tried to agree new deals with them before this to ensure they wouldn’t cancel,” he says.

“It is common knowledge that Boeing oversold to the lessor channel and lessors were struggling to place aircraft. As the grounding happened there was no demand any more and this left them with no prospects. Lessors never anticipated that scenario,” he adds.

“Lessors may not act with Boeing like Avolon by cancelling 60% of their orderbook - but will be looking at cashing some compensation in a more structured way.”

He believes it is better to cancel now and re-order when the world is in a “better place”.

Another lessor plans to reassess the market once the dust settles from the current crisis.

“Lessors will be cancelling orders,” says another source, adding that airlines may be less inclined to do so due to their anticipated need for aircraft.

"Lessors on the other hand might have their hands full over the next 12-24 months with other issues whilst they would be tied into expensive Max deliveries. They would have to take a serious haircut on the lease rates.”

Lease rental expectations have been low for the type. Airfinance Journal understands that a typical offering over the past 15 months was $260,000-265,000 per month rental for an eight- to 10-year term.

In January, Airfinance Journal heard of lease rates of between $220,000 and $240,000 per month.

"I have heard those numbers but since the grounding of the Max we have not placed any Max aircraft,” said Air Lease’s chief executive officer, John Plueger at the time.

“I would rather answer that question a year from now. Because, hopefully, the Max grounding will be lifted and it will start delivering. Lessors will start placing aircraft on lease again."

Amongst those who may not take action is Goshawk because it is in a different position compared with other lessors. Goshawk ordered 20 Max 8s in July 2018, along with 20 A320neo-family aircraft and as such has late delivery slots. On the Max side, its deliveries are scheduled between the start of 2023 and the end of 2024, making a call to either cancel or defer a little premature.

In Airfinance Journal's podcast on 24 April, Split Rock Aviation’s managing director Andy Mansell calls some of the cancellations a “get-out-of-jail-free card”.

He argues that lessors’ cancellations are not good news from Boeing in the near term, but they help the manufacturer too.

“The challenges of restarting the production line, getting the aircraft delivered and getting production back up mean if you pull out commitments in the near term, it actually helps now,” he explains.

“Rather than pushing lessors that don’t want the aircraft, there is a logic there to focus on the airlines that want them,” he adds.

According to him, there will also be significant restructurings to airline orderbooks.

Mansell does not see Boeing losing more orders from lessors because as soon as demand comes back, lessors will be back ordering aircraft again.

Boeing says its focus is on safely returning the 737 Max to service, as well as on its leasing partners as they work to meet the evolving demands of the marketplace.

“Each of our leasing customers is unique, and we will work closely with them through this challenging time,” the manufacturer tells Airfinance Journal.

“Where it has made sense, we have adjusted our orderbook to line up with the fact that we have been building fewer Max aircraft than planned,” it adds.

Over the past year, Boeing has converted 51 Max orders into 18 orders for widebody aircraft, and has worked with customers, including lessors, to re-balance their Max orderbooks.

“These disciplined adjustments provide us with greater flexibility to manage the 4,000 outstanding 737 orders and protect the value of the Max family in the marketplace. In light of the unprecedented impacts from the Covid-19 pandemic, these adjustments also help restore supply and demand in the market, especially in the leasing channel,” says Boeing.

The manufacturer says there is general agreement across the industry about the benefits of greater supply-demand balance in the aircraft leasing market.

“Over the past year, Boeing has worked to re-balance the content in this sector. We think this is the right strategy for Boeing and the broader single-aisle airplane market segment.”