By Conor Humphries
DUBLIN (Reuters) – Aircraft lessor Avolon on Friday announced the cancellation of an order for 75 Boeing <BA.N> 737 MAX planes that were due to be delivered by 2023, saying it was adjusting its order book to the disruption caused by the coronavirus pandemic.
Boeing confirmed the cancellation, which it said was the result of a mutual agreement following discussions with Avolon regarding their 737 MAX portfolio and the impact of last year’s grounding in the wake of two fatal accidents.
Industry sources said it followed lengthy talks on MAX compensation that were accelerated by the coronavirus crisis, but which culminated in both sides agreeing to cancel the unplaced jets as they
Avolon, the world’s third-biggest lessor of commercial jets, said it had also rescheduled a further 16 MAX aircraft from 2020-2023 to 2024 or beyond, but it remained committed to the MAX aircraft. Boeing said Avolon now has orders for 55 MAX jets.
Avolon signed the deal for the 75 MAX planes in 2017 and an option on 20 more in a deal worth nearly $11 billion at list prices.
But by March 2019, the MAX had been grounded worldwide following two deadly crashes.
Avolon said it had not signed agreements with airlines to lease the 75 MAX jets.
The news comes a day after Boeing outlined a plan of voluntary layoffs for employees, while warning that the coronavirus pandemic would have a lasting impact on the global aerospace industry.
Avolon Chief Executive Domhnal Slattery said coronavirus represented “the most challenging period in the history of commercial aviation.”
Boeing halted production of the 737 MAX in January after delays in winning approval for design changes and training programmes for the 737 MAX.
“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,” Boeing said.
It called the agreement “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.”
Avolon, on Friday also cancelled commitments for four wide-body Airbus <AIR.PA> A330neo aircraft and deferred delivery dates for an another 25 narrowbody aircraft to 2024 and beyond, including the 16 MAX jets.
That will reduce its aircraft commitments between 2020 and 2023 to 165 aircraft from 284, which Slattery said would be “significantly reducing our near-term capital commitments.”
Privately-held Avolon is 70%-owned by a subsidiary of Chinese conglomerate Hainan Group.
Avolon said it had received requests from more than 80% of its current owned and managed customer base for relief from payment obligations under their leases, including requests for short-term rent deferrals.
It said it expected that some form of short-term rental deferral arrangement would be agreed with a majority of customers.
Avolon said it ended the first quarter with unrestricted cash and undrawn secured warehouse facilities in excess of $5 billion.
It said it had committed to sell 21 narrowbody and widebody aircraft with an appraised value of $747 million to the Sapphire 2020-1 vehicle. Avolon ended the first quarter with an owned and managed fleet of 549 aircraft, with total orders and commitments for 306 aircraft.
(Reporting by Conor Humphries and Tim Hepher; Editing by Mark Potter and David Evans)