flight international

ightglobal.com 8-14 March 2016 | Flight International | 27

NARROWBODIES

Airbus

line examples of the current generation types.

The Current Market Value of A320ceo and

737NG examples being delivered today remain

in the low $40 million range, which has been

typical of new-build aircraft throughout the

majority of these programmes’ life cycles. The

launch of the replacement programmes, and

indeed the low fuel prices that we have been

enjoying, have had limited impact on

fundamental demand and supply.

Nevertheless, it is an observed fact that as

the end of a production cycle approaches – as

is happening now for single-aisles – deprecia-

tion for last-off-the-line airframes will be

higher. This end-of-production effect is already

built into Ascend’s Future Base Value curves.

If we consider an A320ceo without “shar-

klet” wing-tips, one with sharklets, and the first

A320neo in service, all manufactured in 2015,

we can see rather varied depreciation profiles.

Ten years from now, with zero inflation, the

plain A320ceo is expected to retain 33% of its

new value, the aircraft with sharklets 36% of its

new value, and the A320neo will retain a much

healthier 46% of its value. A bit of inflation (in

aircraft values, not the basket of goods – two

separate things), could help redeem all three

curves and push value retention upwards such

that the A320neo could be above 50%.

Finally, where are the next generation vari-

ants entering the market, in value terms?

Despite the prevailing low fuel price, demand

for the A320neo (and latterly the 737 Max)

remains strong. Most of the orderbook in the

next five years is signed and sealed, with

prices contractually fixed several years ago –

heavily discounted for launch customers and

then heavily escalated by merciless formulae

during the more-than five-year wait between

order and delivery.

VALUE PREMIUM

All things considered, at Ascend Flightglobal

Consultancy we see a current value premium

of around $5 million, on average, for an

A320neo over an A320ceo; on the leasing

front, the premium is in the region of $60,000

per month. However, lessors with speculative

A320neos on backlog that have not been

placed with an operator may find themselves

having to reduce the premium over the

A320ceo slightly, as selling aircraft on the

strength of lower fuel burn is not as easy as it

was two years ago, especially given wide-

spread expectations that low fuel prices are

likely to persist for five years or so.

With the 737 Max due to enter service in

2017, the market scenario at that point is

uncertain. For now, Base Values and Base

Lease Rates are expected to be very close to

those of the A320neo.

In summary, protecting the legacy products’

values requires a tangible premium in the pric-

ing of the new product, which there appears to

be; also critical will be output discipline from

the manufacturers, which is a bit more ques-

tionable.

What would it take to make a severe impact

on values of the current generation of A320

and 737? Three things have to happen: first,

the types must be out of production; second,

there must be a critical mass of next- generation

aircraft (arguably anything from 25-50% of the

size of the current fleet); and third, there would

have to be an economic downturn.

Unless all three coincide, the transition is

likely to be much more gradual, with values of

the current generation bowing out in a much

more dignified manner. ■

George Dimitroff is head of valuations at

Ascend Flightglobal Consultancy

737 CLASSIC MARKET VALUES AFTER 737NG ENTRY

Current Market Value ($m) 737NG/737 Classic Fleet in Service

SOURCE: Flightglobal’s Fleets Analyzer and Ascend Values databases

0

1,000

2,000

3,000

4,000

5,000

6,000

7,000

0

5

10

15

20

25

30

35

2020072008200920102011201220132014

06

2020042005

03

202002

01

20

00

191999

98

1991997

6

1919851986198719881989199019911992199319941995

84

737-300 (0-Year)

737-300 (15-Year)

737-300 (5-Year) 737-300 (10-Year)

737-300 (20-Year) 737-300 (25-Year) 737NG Fleet 737 Classic Fleet

First 737NG

Delivery

0

200

400

600

800

1,000

1,200

Jan

2011

Jan

2010

Xxxxx xxxxxx

Xxxxxxx xxxx

Xxxxxxx xxxx

Xxxxx xxxxxx

Xxxxxxx xxxx

Xxxxxxx xxxx

Xxxxx xxxxxx

Xxxxxxx xxxx

Xxxxxxx xxxx

Xxxxx xxxxxx

Xxxxxxx xxxx

Xxxxxxx xxxx

A320neos are commanding a

current value premium of about

$5 million over A320ceos

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