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ightglobal.com 8-14 March 2016 | Flight International | 29

WIDEBODIES

Liquidity? Check; all-clear for take-off

these three is fairly even (30/30/40% for Gen-

eral Electric, Pratt & Whitney and Rolls-Royce).

So, the active population of 777-200/200ER

and 777-300 aircraft with any one engine type

is very small (just 165 aircraft with GE, 165

with P&W and 214 with R-R engines) – espe-

cially compared to the larger and newer 777-

300ER, or much more populous 767-300ER.

MARKET CONCENTRATION

Of all 777s ever built, the -300ER model repre-

sents a 45% share; no other variant/engine

combination has more than a 12% share. But

of greater concern, perhaps, is that 50% of the

777 fleet is operated by just nine airlines, and

75% of the fleet is with 19 airlines. That is a

fairly small market and represents a lot of

concentration – another barrier to liquidity.

A convenient way to visualise liquidity is

to chart a type’s in-service fleet by number of

operators. In the chart below, a flatter curve

stretching further to the right indicates better

liquidity. As can be seen, the A330 fares

much better: 50% of the fleet is with the 18

largest operators and 75% is with 36 opera-

tors. Altogether there are around 100 A330

operators and that list is growing as used air-

craft find their way (usually on lease) into

new airlines that have not operated the type

before. Overall, the numbers tend to indicate

that the A330 family is, in theory, twice as

liquid as the 777 family.

Even when demand is strong, a spike in

availability could cause serious headaches for

lessors, as witnessed by the default of Japan’s

Skymark Airlines on all its A330s early last

year. The main lesson learnt from the

Skymark experience was that any aircraft,

however “new” it may be, is viewed as a

“used” aircraft by any potential buyers or

lessees once it has been configured for its orig-

inal customer and left the factory. Even if it is

less than a year old, any potential new opera-

tor looks at reconfiguring the aircraft and this

can be as costly and as time consuming as

dealing with a 10- or 15-year-old machine. It

also highlights the importance of having a

popular interior layout, rather than a niche

one. The impact of such a spike in availability

can be very harmful to lease rates, even if the

aircraft type remains in demand. Distressed

aircraft under pressure to be placed quickly

can see monthly rentals up to a third lower

than previous market rates, and also affect

other lessors going through the scheduled

lease return and remarketing process without

having experienced a default themselves.

The spike in 777 availability in 2015 was

also considerable. The number of stored 777s

tripled in 2015, from 15 to 45 examples, with

aircraft from Malaysia, Kenya, Transaero and

others.

Ascend has been monitoring all these

changes in the twin-aisle market very closely.

There were several necessary and difficult

downward revisions to -200ER values and we

expect more, gradual declines this year.

We expect that in the next five years,

values and lease rates for older 777 Classics

and older A330s will continue to decline as

lease returns and part-outs increase. There

will inevitably be a secondary market for

some aircraft – but not for all. We expect the

first 777-300ERs to start coming off lease in

the coming years, and the first A380s to do so

before 2020. We do not expect much pain to

be felt for 777-300ER values until the early to

mid-2020s, when the 777X will be in service

in some numbers and more -300ER replace-

ment occurs.

AFTERMARKET DEMAND

Contrary to tradition, it seems that most after-

market interest for used large twin-aisle air-

craft might actually come from first-tier

carriers in the Western hemisphere. Most of

the usual suspects – second-tier carriers in

developing markets – already have new air-

craft ordered directly from the OEMs. Aside

from Delta, which has been shopping for used

777-200ERs, Virgin Atlantic has expressed an

interest in leasing used 777-300ERs, as has

IAG chief executive Willie Walsh, who is also

interested in used A380s.

Although these may turn out to be good

deals for a few lucky lessors looking for new

clients, we do not believe that they are

adequate to absorb anywhere near the full

amount of capacity coming from airlines retir-

ing the types. So, many aircraft will be broken

up, which will increase the supply of spare

engines and parts, and reduce maintenance

costs for existing operators.

History has shown us that the optimal sized

twin-aisle aircraft for the secondary market is

in the 200-300-seat range, depending on con-

figuration. This is because most new operators

entering long-haul operations for the first time

need something small to begin with and an air-

craft with relatively low operating costs.

Historically this has been the 767-300ER, but

focus is now shifting to the A330-200/-300

(which has created a number of new secondary

market operators in the last few years), and in

the more distant future it will probably be the

787-8 and -9. Anything bigger than 300 seats

tends to be a tougher proposition when it

comes to the secondary market. ■

George Dimitroff is head of valuations at

Ascend Flightglobal Consultancy

A330-300; 777-300ERs would be nice, too

High Level/REX/Shutterstock

REX/Shutterstock

SOURCE: Flightglobal Fleets Analyzer

Cumulative percentage of in-service fleet

A330 AND 777 CURRENT IN-SERVICE FLEET DISTRIBUTION

Xxxxx xxxxxx

Xxxxxxx xxxx

Xxxxxxx xxxx

Xxxxx xxxxxx

Xxxxxxx xxxx

Xxxxxxx xxxx

Xxxxx xxxxxx

Xxxxxxx xxxx

Xxxxxxx xxxx

A330 777

0%

20%

40%

60%

80%

100%

1 20 40 60 80 100

Number of operators

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