Leasing Group Avolon Cancels Big Boeing Max Order

Dublin-based leasing company Avolon has canceled an order for 75 Boeing 737 Max jets scheduled for delivery from 2020 to 2023, the lessor said early last month, dealing another blow to the U.S. aerospace giant’s troubled narrowbody program.

Avolon, which hadn’t yet placed any of the airplanes with operators, also said it had rescheduled delivery of another 16 Max jets to 2024 or later.

Notwithstanding the setback for Boeing, Airbus didn’t escape Avolon’s retrenchment unscathed, as the lessor scrapped commitments to acquire four A330neos scheduled for delivery next year while delaying the acquisition of nine A320neos from 2020/21 to 2027.

"We are a well-capitalized business and ended the quarter with unrestricted cash and undrawn secured warehouse facilities in excess of $5 billion,” said Avolon CEO Domhnal Slattery in a written statement. “Building on our strong capital base, we have acted swiftly and decisively to address the market outlook and have re-profiled elements of our order book to better align with market conditions.

“The net impact of our actions in the first quarter is to reduce our aircraft commitments in the 2020 to 2023 time frame from 284 aircraft, as at year-end, to 165 aircraft today and thereby significantly reducing our near-term capital commitments,” added Slattery. “While these actions reflect the market conditions we now face, Avolon has always maintained a flexible approach to ensure we can adapt to rapidly changing market conditions and align our business with the needs of our customers.”

Boeing, for its part, stressed the fact that Avolon still holds unfilled orders for 55 Max jets out of a backlog of more than 4,300 units.

"We have had ongoing conversations with Avolon regarding their 737 Max portfolio and the impacts from the past year," Boeing said in a statement to AIN. "We have come to a mutual agreement to restructure Avolon’s Max order book. As we have produced fewer Max airplanes than planned, we have implemented these adjustments to regain flexibility in managing the more than 4,300 unfilled 737 Max orders. This is also the right step to align to the realities of the marketplace as we balance supply and demand and protect the 737 Max’s underlying value, especially in the leasing sector. We appreciate Avolon’s ongoing commitment to the 737 Max program with 55 unfilled orders and we look forward to delivering those jets."

Avolon has received requests from more than 80 percent of its current owned and managed customer base for relief from payment obligations under their leases, it said. Those lessees account for more than 90 percent of annualized contracted rental cash flow of the current owned and managed fleet. The requests have taken several forms, it added, including requests for short-term rent deferrals for part or all of monthly rental for periods of time averaging three months.

Avolon said it expected to agree to some form of short-term rent deferral agreement with the majority of its customers.