Jetrader - Summer 2017 - 41

mic Life

Technology Impact on
Aircraft Economic Life
Two significant elements that affect
economic life are the availability of competing, newer technology aircraft and
the level of operating cost inputs. A dramatic example of this is the three-engine
McDonnell Douglas MD-11F, which, for about
20 years, was the uncontested, best longhaul freighter in its size category. Of the
200 MD-11s, 91 percent were manufactured
as, or converted to, dedicated freighters.
Narrowbody freighter aircraft generally
enjoy longer economic lives compared with
passenger aircraft due to lower utilization
favoring the economics of converted or
older freighter aircraft. Long-haul, widebody freighter aircraft typically have higher
utilization rates, so the impact of more
efficient, more capable, new freighter aircraft can have a significant impact.
Throughout the 1990s and until 2010,
MD-11F economic life assumptions were
long, with current market values and projected future values strong. This changed
with the advent of the Boeing 777F, which
has 26 percent more range and 15 percent
more payload than the MD-11F. First ordered
in 2005 and first delivered in 2009, as of
May 2016 Boeing had 161 777F orders with
121 delivered, with its largest operator,
FedEx, transitioning its long-haul fleet to

the 777F as fast as achievable to benefit
from its superior economics.
Confronted with a superior new-technology aircraft and surplus freighter capacity,
MD-11F values collapsed and by 2014 were
little more than part-out value with the
operating fleet down about 25 percent and
many aircraft stored and offered for sale
or lease. Arguably, the economic life of
MD-11F as a premier long-haul freighter
aircraft fell to about 20 years. The MD-11F
fleet is being downgraded to lower utilization, shorter haul roles and has entered
the active retirement phase. This was a
completely unanticipated outcome for the
MD-11F fleet during the years it was the
best in class.

Aircraft Fleet Life
Aircraft fleet life is a basic indicator of
value and economic life. Most of an aircraft model's fleet life is in the active fleet
phase. Active fleet is the steady state of an
aircraft fleet, which exists while the entire
fleet is fully operational (with a small number of exceptions due to lost aircraft).
Aircraft fleet retirement can be divided
into three separate phases: early retirement,
active retirement and late retirement.
Early Retirement. This is the transitional
phase from the active fleet as aircraft start
to be consistently withdrawn from service

in low numbers with aircraft starting to
be routinely parted out. Up until and into
this point in the aircraft's fleet life, in the
absence of any third-party supply of parts,
OEM parts are the primary supply source,
so the value of parts from early partedout aircraft relate to the manufacturers'
illustrated parts catalogue (IPC) prices and
retail at a discount to list prices. The value
of the parts justify complete disassembly
down to the level of fasteners.
Active Retirement. This phase is when
significant numbers of aircraft are consistently withdrawn from service with a
comparable decline in the size of the operating fleet. During active retirement, the
number of stored aircraft and aircraft available for sale or lease increases, as do aircraft part-outs while the operational fleet
declines noticeably. As the operating fleet
declines arithmetically, the population of
spare parts to support the fleet increases
exponentially, transitioning the value basis
from OEM IPC list prices to the dynamics
of supply and demand. During this phase,
as the inventories of used parts increase
in size, owners will reduce the number of
parts removed to those with the best value
and demand profiles.
Late Retirement. This phase is when
the bulk of the fleet has been withdrawn
from service, leaving a residual fleet of
operating aircraft. At this point in the
fleet life, existing large inventories of
parts from parted-out aircraft and the
small operating fleet discourage extensive parting out of aircraft. There may
be residual demand for a small number
of operating aircraft, creating a value
above part-out value (which is at wholesale pricing) reflecting the "green time"
remaining to the next major airframe
and engine maintenance events and the
value of the airworthiness status of an
aircraft - particularly when the cost to
restore a stored aircraft to airworthy status and the financial risks involved cannot
be economically justified.
The values of aircraft manufactured in the
early years of the production run (first off
the line) over their entire life tend to perform better than those from the last years
of production (last off the line). When an
aircraft fleet ages, both older and younger
aircraft values tend to gravitate towards
the center, benefitting older  aircraft and
penalizing younger aircraft.
Jetrader * Summer 2017 41


Jetrader - Summer 2017

Table of Contents for the Digital Edition of Jetrader - Summer 2017

A Message from the President
Q&A: Douglas W. Runte, CFA, Managing Director, Securitized Products & High Yield Research, Deutsche Bank
Printing the Future
Upward Bound
Q&A: Abdol Moabery, President and CEO, GA Telesis, LLC
Escalation and Hope — Reflections from ISTAT Americas 2017
Forward Facing: ISTAT Asia
Aircraft Economic Life
Aviation History
Aircraft Appraisals
ISTAT Foundation
Advertiser Index
Jetrader - Summer 2017 - Intro
Jetrader - Summer 2017 - cover1
Jetrader - Summer 2017 - cover2
Jetrader - Summer 2017 - 3
Jetrader - Summer 2017 - 4
Jetrader - Summer 2017 - A Message from the President
Jetrader - Summer 2017 - 6
Jetrader - Summer 2017 - 7
Jetrader - Summer 2017 - Calendar/News
Jetrader - Summer 2017 - 9
Jetrader - Summer 2017 - Q&A: Douglas W. Runte, CFA, Managing Director, Securitized Products & High Yield Research, Deutsche Bank
Jetrader - Summer 2017 - 11
Jetrader - Summer 2017 - 12
Jetrader - Summer 2017 - 13
Jetrader - Summer 2017 - Printing the Future
Jetrader - Summer 2017 - 15
Jetrader - Summer 2017 - 16
Jetrader - Summer 2017 - 17
Jetrader - Summer 2017 - Upward Bound
Jetrader - Summer 2017 - 19
Jetrader - Summer 2017 - 20
Jetrader - Summer 2017 - 21
Jetrader - Summer 2017 - Q&A: Abdol Moabery, President and CEO, GA Telesis, LLC
Jetrader - Summer 2017 - 23
Jetrader - Summer 2017 - 24
Jetrader - Summer 2017 - 25
Jetrader - Summer 2017 - Escalation and Hope — Reflections from ISTAT Americas 2017
Jetrader - Summer 2017 - 27
Jetrader - Summer 2017 - 28
Jetrader - Summer 2017 - 29
Jetrader - Summer 2017 - 30
Jetrader - Summer 2017 - 31
Jetrader - Summer 2017 - Forward Facing: ISTAT Asia
Jetrader - Summer 2017 - 33
Jetrader - Summer 2017 - 34
Jetrader - Summer 2017 - 35
Jetrader - Summer 2017 - 36
Jetrader - Summer 2017 - 37
Jetrader - Summer 2017 - 38
Jetrader - Summer 2017 - 39
Jetrader - Summer 2017 - Aircraft Economic Life
Jetrader - Summer 2017 - 41
Jetrader - Summer 2017 - Aviation History
Jetrader - Summer 2017 - 43
Jetrader - Summer 2017 - Aircraft Appraisals
Jetrader - Summer 2017 - 45
Jetrader - Summer 2017 - ISTAT Foundation
Jetrader - Summer 2017 - 47
Jetrader - Summer 2017 - 48
Jetrader - Summer 2017 - Advertiser Index
Jetrader - Summer 2017 -
Jetrader - Summer 2017 - cover3
Jetrader - Summer 2017 - cover4