Give us better deals — or you can take your 200 planes back. That's basically Northwest Airlines' pitch to the companies from which it leases much of its fleet.
The airline has bankruptcy court authorization to break the leases on more than 200 of the 263 planes it leased as of the end of June.
With a weak market for most of the planes, Northwest should be able to slash its lease rates by 15 to 30 percent, said Richard Aboulafia, vice president for analysis at the Teal Group, a Virginia-based aerospace and defense consulting agency.
"Anything that can be negotiated downward will be," Aboulafia said. "How much is a function of the airline's needs and the popularity of a plane. But none of the planes in Northwest's fleet are in demand, except for the (Airbus) A319s and A320s. Everything else — the 747s, DC-10s and regional jets — are quite vulnerable to downward negotiation."
The planes Northwest could return range from 34-seat Saab turbo-props to 403-seat Boeing 747-400s.
Especially good deals are available on regional jets, if Northwest wants to keep them. Northwest has 162 "RJs" on lease, most with 44 or 50 seats.
"There's a real danger of a lot of RJs being dumped on the market,'' Aboulafia said. "They're probably getting some sweet deals — double-digit reductions."
Northwest has signaled to its unions that it's keen on adding 70- to 100-seat jets to its fleet, seeing them as often better meeting its needs than small regional jets.
In fact, Northwest on Friday asked one of its regional carriers, Pinnacle Airlines, to bid for a contract to fly jets with up to 76 seats.
In its bankruptcy filings, Northwest is revealing renegotiated basic monthly lease rates for some planes. But it hasn't disclosed former rates.
Overall, CFO Neal Cohen says, Northwest expects to shave its annual aircraft lease costs by hundreds of million dollars through renegotiating existing leases, as well as financing deals for planned aircraft buys.
The airline's last 10-K filing with the Securities and Exchange Commission indicated that it expects to pay about $700 million in aircraft lease payments in 2005. But that projection came before the carrier filed for bankruptcy.
Recent court filings show that Northwest has negotiated a basic monthly lease rate of $462,500 each for four 403-seat Boeing 747-400s, manufactured in 1988 and 1989.
It also has a $185,000 amended lease on a 1986 Boeing 747-200; $165,000 each for two Airbus A320s, manufactured in 1992 and 1993; and $135,000 each for two DC-10s, manufactured in 1974 and 1977.
The savings for Northwest depend greatly on when the original leases were negotiated and the age of the aircraft, said Paul Leighton, managing director of Aircraft Value Analysis in London.
The amended lease rates on the 747-400s are what Leighton said he would expect for "early vintage 400s." In the late 1990s, the planes went for about $800,000 per month, he said. Still, it's "something of a lessor's market" now for the 747s, given the strengthening of the international travel sector and other factors, he said.
"Lease rates have improved over the last year," he wrote in an e-mail. "In some ways Northwest has missed the boat in negotiating rentals — a year ago it would have secured much lower rates."
Of course, depending on the terms of Northwest's previous leases, it could still be saving serious money. With older 747-200s, it a buyer's market, said Leighton.
"If the leases were secured in the latter 1990s then rates in excess of $350,000 would have been expected," he said. "This is very much a lessee's market, such is the lack of appetite for the aging 200."
The market also favors lessees for DC10-30s. In the late '90s, those planes would have commanded leases of more than $225,000 a month, he said.
The lease rentals of the A320s at $165,000 per month are lower than he would have expected, though.
"(It's) very much a lessor's market at the moment," he wrote.
Martin J. Moylan can be reached at [email protected] or 651-228-5479.
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