BOC Aviation orders A320s, touts ‘investment value’

Here is a story we did last week for Commercial Aviation Online:

BOC Aviation and Airbus announced 3 November an order for 30 A320s, with the companies touting the “investment value” and residual value in a press release detailing the orders.

“The announcement from BOC Aviation is another vote of confidence in the long-term appeal of the A320 Family. It works well for the financial community based on its wide operator base, proven operating economics and strong residual values,” said John Leahy, Chief Operating Officer Customers, Airbus, is the press release.

“A320 Family aircraft are a good fit as they have proven economics and meet both our investment targets and our customers’ operating goals,” said BOC Aviation CEO Robert Martin in the press release.

The residual value of the A320 family has come under doubts from lessors, appraisers, airlines and financiers in response to the possibility that Airbus will proceed with the New Engine Option for the A320. Some lessors, notably AerCap and Aviation Capital Group, have publicly expressed concerns about the residual value impact of the A320 NEO on the A320 current generation (A320CG); AerCap early this year said it would not order more A320s until Airbus made a decision on NEO. AerCap has been an exclusive Airbus customer when it comes to new airplane orders.

BOC Aviation is only the third lessor to order A320s this year: GECAS and the new company, Air Lease Corp., announced orders at the Farnborough Air Show.

Airbus has previously argued that residual values of the A320CG won’t be affected because of the huge backlog of nearly 2,300 and an installed base of more than 4,400. Leahy has previously said that until deliveries of the A320NEO pass the 50% mark of the installed based-which will be increasing between now and that point in any event-residual values won’t drop.

The industry is skeptical.

Airbus said the subhead of the press release, “Lessor confident of investment value,” was added at the request of BOC Aviation.

“We have often in the past mentioned investment and residual value of aircraft with orders from leasing companies,” said Sean Lee, a spokesman. “These are key considerations for lessors when they order aircraft. Nothing to do with NEO, which would be offered as an option to existing versions anyway.

“By placing the order BOC is obviously very confident in ongoing market for those existing versions,” Lee said.

8 Comments on “BOC Aviation orders A320s, touts ‘investment value’

  1. John Leahy, how much will those used A-32Xs be worthy after Boeing launches the replacement NB airplane for both the B-737NG and A-32XCG/NEO?

    • About as much as any 737 you’d buy today, I guess?

      Did I win the cake?

  2. With bulging backlogs for A320s and 737s, while still trying to increase production rates to cope with ever increasing demand for both aircraft, the above comments from A320 customers, as well as the fact that both Airbus and Boeing appear to have overextended themselves technically, with the A350 & M400 at Airbus and the 787 & 747-8 at Boeing, I do not see how and why either manufacturer would decide to embark on a re-engining program of the A320 or the 737 at this time.

    Top priority at Airbus must be certifying the A350 on time in early 2013, while Boeing by it’s own admission, must start working immediately on a revamped 777 or to offer an all new model, to protect its market from the A350, as well as trying to determine what to do about the challenge from the A350 to both the 747-8 and 787 programs!

  3. I am struggling to understand the argument here. If the Neo turns out to be a disappointment I can see a bad effect on its eventual residual values. But the original A320 is a a well understood commodity with a massive installed base. I wouldn’t think its residuals would be much effected by the Neo. Unless the latter is a stunning success, of course. In which case Airbus will be delighted by the relative unpopularity of its previous model.

    • FF, your view is the one advanced by Airbus: the installed base of the current A320 is large enough that until 50% of this is matched by NEO, there would not be an affect on RVs for the current A320. (Boeing made the same argument with respect to a potential 737RE.) Airbus and Boeing also point to the large backlog of A320s/737s are protecting the RV.

      However, lessors, financiers and airlines are skeptical, as are appraisers, who look at the RV curve of the 737-200A v 737-Classic and the Classic v NG and draw different conclusions than Airbus and Boeing who look at the same history to reach their conclusions.

      Add to the points that some appraisers think the Airbus policy of maintaining production rates at a higher level than Boeing through downturns, which appraisers, financiers and lessors say adversely affect values and lease rates (and there is evidence to support this), combine to cause the skepticism.

  4. Scott, your comments about the 737 NG depressing the residuals of the Classic model might have the same explanation that Airbus proposes for the Neo. In other words, the relative superiority of the successor model depressed the value of the previous model more than the change itself. There may be a clue if the residual values of the NG held up better following the model change than those of the Classic immediately before the new model was announced.

    I get the impression Mr Udar-Házy, who seems to be the point of reference on airplane leasing, actually thinks the Neo will be a desirable plane. His objection is that it makes his life more complicated – in a business that sees planes simply as commodities. The fewer products you deal with, the more efficient the business will be.

  5. BOC has very conservative airline customers, and lots of them have already A320s in their fleet.
    At least the Airbus A320 are very reliable and safe, but less so than their siblings the A318, the A319 and the A321. Actually, there are 3740 units of this family in service. And only 20 of them crashed, since first flight of an A320 in 1987, i.e. the average loss was less than 1 aircraft per year. 631 passengers and crew members lost their life in those crashes, which is 24 persons per year on average.
    But the Airbus A320 are not very efficient.
    Without new engines, they would be an ecological disaster.

  6. Are there more 787 Dreamliner production delays ahead ?

    Just found: Boeing Dreamliner Test Jet Lands in Texas After Cabin Smoke

    Boeing Co. said one of its 787 Dreamliner jets landed in Texas after smoke was observed in the main cabin during a test flight.

    The incident occurred as the twin-engine 787 approached the airport in Laredo, Texas, and the crew touched down safely and evacuated the aircraft, Lori Gunter, a Boeing spokeswoman, said today in an e-mail. Emergency personnel responded, she said.

    “We are continuing to gather data regarding this event,” Gunter said.

    Source:
    http://www.bloomberg.com/news/2010-11-09/boeing-787-test-plane-makes-emergency-landing-in-texas.html

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