Where Lease Rates are Going in a Higher Interest Rate Environment

Where Lease Rates are Going in a Higher Interest Rate Environment

Where Lease Rates are Going in a Higher Interest Rate Environment

 

Where Lease Rates are Going in a Higher Interest Rate Environment
  • Interest Rates and Lease Rentals per month correlate strongly against one another and are positive in orientation (as interest rates increase, lease rentals also increase)
  • Using A320-200 new build aircraft (years 1998 to 2017), adjusted monthly lease rates using CPI; thus adjustment is in 2017 US dollars
  • Overlaid lease rates with one-year Libor rates (no lags in the data) to establish LR vs. Interest rate relationship
  • Top Chart indicates the relationship; simple straight correlation analysis show a .81 correlation meaning that 81% of the change in lease rate is due to interest rate changes
  • The lower chart indicates a simple regression analysis of monthly lease rates using interest rates as the independent variable which shows the fit between the regression projection vs. actual lease rates; a little disconnect is apparent in the last couple of periods analyzed as competitive pressures appears to be overwhelming where rates should be trending
  • In this analysis, for each one point change in one-year Libor, monthly lease rate increases by $20K per month; if interest rates climb to their 2007 levels, monthly lease rates would increase about $80K from 2017 levels

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