Lessors Spur Boeing to Embraer as New Planes Rule Show

Airbus SAS, Boeing Co. and Embraer SA won $19 billion in orders from lessors on the first day of the Paris Air Show, gaining support for some of the newest and largest planes from buyers spanning the global airline industry.

GE Capital Aviation Services offered the first commitment by a leasing company for Boeing’s stretched 787 Dreamliner yesterday as the Paris expo began. Embraer then won the initial customer for its upgraded regional jets, with International Lease Finance Corp. agreeing to take 50.

Lessors acquire planes to place them with carriers around the world, and their Paris purchases marked an early stamp of approval for the latest variants of signature Boeing and Embraer models. Airbus’s A380 superjumbo, shut out of orders this year through May, got a similar boost when Doric Asset Finance Ltd. agreed to buy 20 planes with a list value of $8.1 billion.

“It shows confidence in these particular programs,” Ken Herbert, senior vice president with the institutional research group at San Francisco-based Imperial Capital LLC, said in a phone interview. “Lessors have been very active over the last few years and have a very significant chunk of the order book.”

Yesterday’s deals for Dreamliners, Embraers and the double-decker A380 dominated the start of the Paris show, the industry’s biggest showcase for new products and announcements. Airbus parent European Aeronautic Defence & Space Co. said it expects to several hundred orders at the event.

Dreamliners Ahead?

SkyWest Inc. followed ILFC with orders for 100 of the new regional jets yesterday, and Boeing may win additional deals for the largest Dreamliner, the 787-10X, as soon as today. United Airlines is among the carriers poised to buy the bigger Dreamliner, people familiar with the talks said last week.

Lessors’ share of commercial aircraft purchases is now about 40 percent and may reach as much as half the market by 2016, said John Plueger, chief operating officer of Los Angeles-based Air Lease Corp. There will be “no abatement of that growth in the near term future,” he said in a Paris interview.

That’s giving leasing firms the chance to exert influence after curtailing purchases during the financial crisis that followed the 2008 bankruptcy of Lehman Brothers Holdings Inc.

‘Badly Burned’

“The lessors were part of the financial institutions, one way or another, and so got badly burned in the economic downturn,” Richard Bergmann, an El Segundo, California-based aviation analyst at consultant Accenture Plc, said in an interview. “Now they’re finally returning to their role of helping to dictate the development of aircraft.”

Leasing companies began their comeback at the 2010 air show, in Farnborough, England, as their orders eclipsed purchases by airlines. Steven Udvar-Hazy, the self-proclaimed godfather of the leasing industry and CEO of Air Lease, ordered 136 planes valued at more than $10 billion at that event.

Gecas, a unit of Fairfield, Connecticut-based General Electric Co., agreed to buy 10 787-10X Dreamliners, which will expand seating capacity to 350, 20 percent more than in the next-biggest model, and are set to enter service in 2018. The order is a validation for Boeing after the global 787 fleet was grounded for three months to fix battery flaws.

ILFC, a division of insurer American International Group Inc., ordered 50 of Embraer’s new planes in an endorsement of the Sao Jose dos Campos, Brazil-based company’s strategy of refreshing its E-Jet family instead of building an all-new aircraft.

CSeries Challenger

The jets bought by Los Angeles-based ILFC are Embraer’s two biggest models, which have about 130 seats and and will compete with Bombardier Inc.’s CSeries jetliner. That plane won’t fly for the first time until later this month.

Embraer’s updated E-Jets will heighten competition among planemakers angling for a greater share of the “sweet spot” of the regional-to-short-haul market: jets that seat 70 to 130 people, said Robert Mann, who runs consultant R.W. Mann & Co. in Port Washington, New York.

“It’s a real dogfight at the small end of the narrow-body range, with a bunch of new entrants and improving economics,” Mann said in a telephone interview.

Embraer is challenging the CSeries without the risks and costs that usually accompany an all-new aircraft, said George Ferguson, senior analyst for air transport with Bloomberg Industries in Skillman, New Jersey.

More Assured

“This makes the CSeries’ challenge a little greater,” Ferguson said. “There’s a lot less risk in buying a refreshed airplane. You’re much more assured it’s going to come on time.”

At the other end of the size spectrum, Doric Managing Director Mark Lapidus is wagering that his London-based firm can win over airlines unconvinced of the merits of a four-engine plane carrying about 525 people.

Doric’s order yesterday makes Lapidus the largest buyer of A380s since 2010. Toulouse, France-based Airbus has a 2013 sales goal for 25 of the planes, which have a list price of $403.9 million each before the discounts that are standard in the industry. Doric already owns 18 of the jets, and is lining up “one or two” potential customers for the latest aircraft, Lapidus said in an interview.

“Airlines recognize more and more that their businesses is providing flying services, not necessarily owning aircraft,” Lapidus said.

(Corrects spelling of consultant’s name in ninth paragraph of story published June 18. For more on the Paris Air Show, see SHOW.)
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