26 | Flight International | 8-14 March 2016 flightglobal.comCOVER STORY
A320CEO* VS A320NEO* DEPRECIATION PROFILESValue Retention as Percentage of New Aircraft ValueSOURCE: Flightglobal’s Ascend Values database *2015 year-of-build020406080100
A320neo A320ceo (sharklets) A320ceo20320322033203420351
20120182019202020212022202320242025202620272028202920307
20152016GEORGE DIMITROFF NEW YORK Inherent fuel economy advantage means that Airbus
A320neo and Boeing 737 Max are affecting values of
their single-aisle predecessors – but complex supply-
demand price dynamics will play out for years
GENERATION GAP
Underlying demand for single-aisle airliners has kept values firm as new models are readiedBoeingT
he introduction this year of the Airbus
A320neo by early adopters like
Lufthansa starts a technology transi-
tion programme in the single-aisle
market that will see the A320ceo family end
production in a few years, followed by the
Boeing 737NG a couple of years later, as Seattle
completes its own transition to the 737 Max.
The A320neo, powered by advanced tech-
nology Pratt & Whitney PW1100G and CFM
International Leap-1A engines, succeeds the
CFM56-5 and IAE V2500-powered A320ceo
family. Similarly the 737NG with its CFM56-7
engines will make way for the
Leap-1B-powered Max, the first of which is
due to enter service next year.
As the transition gathers pace, there are
valid questions about the value impact of
next-generation aircraft on current-generation
variants of A320 and 737 families, of which
there are close to 11,500 in service and a fur-
ther 2,500 to be delivered.
One way to understand the impact of the
transition is to consider the effect the 737NG
had on the 737 Classic. Although there are a
number of differences between that transition
and the one that is starting now, it is a good
example.
As the market values chart on the opposite
page illustrates, 737 Classic values (solid blue
and orange lines) remained robust during the
initial entry-into-service phase of the 737NG
(red line is fleet size). This did coincide with a
period of strong traffic demand from the
global aviation sector, benefitting all single-
aisle types, young and old. The impact of the
global aviation downturn in 2001 following
the 9/11 attacks is clear: 737 Classic valuesdeclined significantly. Although not shown
on this chart, 737NG values also declined
during this period, though less sharply.
The upturn in demand in the mid-2000s
drove Classic values to improve as demand
globally for all single-aisle aircraft remained
strong. The fleet of Classics in service
remained relatively constant with limited
retirements in this period, while the 737NG
fleet grew significantly so that by 2006, the
737NG fleet in airline service exceeded that ofthe 737 Classic fleet. The downturn of 2008
precipitated another decline in aircraft values
globally, including of the 737 Classic. The
demand recovery since then has typically
driven a further recovery in aircraft values, but
not of the 737 Classic. This second downturn
following the entry into service of the 737NG
family has seen demand for the previous gen-
eration permanently eroded in the face of
sufficient supply of next-generation aircraft.MACRO MOVEMENTS
Using this simple analysis as a benchmark
suggests that values of the A320ceo and
737NG should remain relatively stable (albeit
gradually trending downwards) to the next
macro demand and supply cycle, with values
expected to recover in the upturn that will
follow. Clearly, the timing and driver of each
of these cycles is currently highly speculative,
but with aviation cycles typically lasting
seven to 10 years, the second downturn
would not be expected before the late 2020s at
the earliest. It is this second downturn that
could impair 737NG and A320ceo values
permanently.
Although values in the macro sense are
expected to remain stable, there is inevitably
some impact on depreciation of last-off-the-FIN_080316_026-027.indd 26 02/03/2016 16:50