Jetrader -May/June 2013 - 25

Trends in Aircraft Values

Familiar factors influence future of widebody and narrowbody aircraft values
By Dr. Stuart Hatcher, Head of Valuations & Risk, IBA Group, ISTAT Certified Appraiser

T

The last time I wrote on this subject
for Jetrader, it was in late 2010 (for the
January/February 2011 edition), and it
seemed that things were looking up. United
States majors had cut capacity, looking
toward mergers and banking on making
a proﬁt. Another important point I wrote
about was whether or not Boeing or Airbus
would launch a re-engined product. The
last couple of years have been interesting
as the economy (certainly in Europe) did
not bounce back enough to encourage us
to rush out and heavily invest in aging
A320s and 737NGs, and despite rumours
to the contrary, both Airbus and Boeing
launched a re-engined product. Since 2010,
the growing trend of young aircraft partouts has also re-triggered the debate on
economic useful life.

Narrowbody Aircraft Values
So what has happened to narrowbody
aircraft values since 2010 given all of this
pressure? Back then, it was clear that the
values of the Classics and MD80s were gone
forever. They had already been hit hard
between 2002 and 2004, and, as expected,
ﬂat-lined to the point that the value is in
the green time only. But over the last few
years, the panic has spread to the oldest
versions of the 737NGs and similar-aged
A320s. If the aircraft are in good condition, then it is likely they will get placed
or sold for continued operation, but if the
heavy check is due, or a large engine shop
visit investment is required, then part-out
becomes the obvious way out. The idea is
to pocket the reserves and make money
off the components and engines. There is
a limit to how far you can go with this
seemingly sensible strategy because once
the part-out market is saturated with parts
that many don’t want, it no longer becomes
a viable exit. Depending on the engines
you have, this has already become a reality
such that many will be over-optimistic on
what they feel they can make in a part-out

scenario. I’m not referring to those who
are active in that market, but more the
distant investor who may not know the
difference between a SAC and a DAC engine,
and the speciﬁc part numbered HPT blades
ﬁtted. Even seemingly similar engines with
identical hours and cycles could be millions
of dollars apart in value terms because
the high-value items are not necessarily
transferable to engines of a new generation, they are prone to cracking or their
lives are so long that no one needs them
for another decade.
For many aging current generation aircraft ﬁtted with less-desirable parts, it will
mean that it is more economical to keep
the aircraft in service as the part-out value
drops closer to single ﬁgures, rebalancing
the argument to keep economic lives at
25 years for the time being; providing
of course the fuel burn and maintenance
burden don’t force them into the desert.
With so many Classics and MD80s still
ﬂying, and providing the price is right, it
would seem there is still some way to go
before that happens.
There are several theories reputed to
be speciﬁcally responsible for this trend
in dropping value for current generation
aircraft: lack of ﬁnance, original equipment
manufacturer (OEM) oversupply, aggressive
leasing tactics, export credit support, technical obsolescence caused by approaching
new technology, new pricing stagnation,
dropping yields and sun spots. So with many
of these factors being here to stay for the

foreseeable future, is there the justiﬁcation
for a permanent shift? While some data may
suggest a shift is occurring, I believe the
market is dynamic enough to ﬂex for the
most popular aircraft types and recover.
If I look at historical current market
values (CMVs), (our assumption of) base
and typical sold-for-part-out CMVs for a
1998 737-800, as the values move from
base, the sold-for-part-out CMVs drop as
the parts market reacts to oversupply. The
same can be said for the same vintage
A320, although the market reacted a little
sooner (see chart on page 26).
Judging by what has happened before,
it is more likely that these mature examples
will see their 25th birthday than the ones
coming off the line between now and the
end of production, assuming the neo/MAX
programs are not delayed and oil pricing
doesn’t collapse. But we shouldn’t be surprised as it’s happened with every other
program before where replacement has
occurred. With that said, the market for the
under-ﬁve-year-olds remains bullish with
lots of competition over sale leasebacks,
which drives up the price.

Extremes in the
Widebody Market
For the widebody market, it has been
feast or famine. While on one side, the 747400 and A340 (all variants) have hit rock
bottom and are trading at eye-watering
levels, the appetite for new A330s and 777300ERs is as hectic as ever. Admittedly, the

For the widebody market, it has been feast or famine.

Jetrader 25
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