ISTAT Day 1: Used 777 values depend on engines, leases

Feb. 29, 2016 (c) Leeham Co.: The Boeing 777-200ER is not worth $7.7m or even $10m, ISTAT-logo_no_tag-(2c)but $37m to $47m, according to four appraisers who appeared today at the ISTAT AGM.

  • We’re at the 2016 ISTAT AGM in Phoenix and will be reporting today and tomorrow on presentations and news from the sidelines.

Doug Kelly of the consulting/appraisal firm Avitas notes that the Rolls-Royce Trent-powered 777s are, indeed, the least desirable airplanes. GE or PW-powered airplanes commands a $7m premium, he said.

AerCap is selling 777-200ERs with leases attached for more than $50m, Kelly said.

Airbus A330-300 values vary from $41m to $55m today,  but will be reduced by $10m next week in the update of the IBA valuation book, said Phil Seymour of IBA.

He cautions that around 40-50 widebody airplanes will be coming off lease in each of the next three years, which will depress values. Higher reconfiguration costs affect the values.

Fred Klein of Aviation Specialists said the Boeing 787-9 starting price for purposes of his valuations is $139m, which he said “splits the difference” between bargain deals and higher pricing. (LNC hears a typical price is $125m.)

The appraisal firm Oriel predicts a 2021 value will be $83.33m, the lowest among the five appraisers participating in the panel. It’s also the most conservative future value for the Airbus A350 at $90.76m.

Seymour said the 787-10 may sell reasonably well but have a small customer base, while the 787-8 sales may be slowing, the customer base will be broader.

Kelly said the A350-1000 has better economics than the 777-300ER, but “it’s late to the game,” so Airbus will have trouble displacing the 777 from its broad customer base. Likewise, the broad customer base for the A330-300 will make it difficult for Boeing to displace the airplane with some customers.

In audience polling, 53% of the 1,900 people attending voted that Airbus has the better single aisle/narrow body product family. Seventy-eight percent believe Boeing has the better widebody product strategy, though the gap is surprisingly big. Seymour is “very surprised” by the result. IBA’s fleet planning consulting says it’s “tough to distinguish” between the offerings.

Over the next three years, 52% of the audience predicted that values of single-aisle aircraft will fall moderately.

8 Comments on “ISTAT Day 1: Used 777 values depend on engines, leases

  1. I guess I am shocked.

    I would say clearly Airbus has the better single aisle offerings. And that’s from someone whose heart if no longer logically is still with Boeing (it was one of the iconic business as I grew up and until the bean counters to0k it down something to be proud of)

    I would say Boeing has somewhat of the better wide body but its not as clear cut as some might feel (Tinseth!) and they certainly do not have Airbus boxed in.

    777 market is interesting that Boeing is entrenched. It would seem to be easily un-entrenched going forward when you renew your fleet and don’t need the 777-9.

    It will be interesting going forward to see if Boeing moved up with the market or made the Mustang to big and lost what sold it originally.

  2. What is the reason for the RR lower appraisal?

    The guess of course is they cost more to maintain and would that be true of current RR offerings?

    Fuel efficiency is one of the most important (if fuel prices are high) but maint costs are a big driver as well.

  3. All prices quoted are with lease, my serviette calculations say the lease could be worth more than the aircraft, so that tells us nothing.

    How long before Airbus need to NEO the A350? RR is exclusive for the 1000, from memory, but not the 900? They need RR to offer a suitable new engine as early as possible in my view. It only took them 4 years to offer the A330 with another option, Trent 700 then. Getting RR to move will be the hardest part. Maybe the 1100 will be the carrot, RR get told, secretly, that they get a better offering or loose the 1100 and see another option for the 900?

    Some US senators are pushing minimum seat sizes, detractors say that evacuation times have been tested so there is no need but we have recently seen real world evacuations take up to 5 minutes. So it would seen to be a valid concern, did certifiers try 777s with 350 pax jammed into 1/3 of the aircraft? Or is it about DVT, of which there seems to be nothing on the internet, but I know of some workmates who have suffered it. Anyway, minimum seat sizes would push up aircraft sizes and probably ensure 777X and A380 a better future.

    • Very good point Martin, the income stream with lease has been factored into the ‘price’, the same as an empty building is worth less than an a tenanted one.

      So how much is the ’empty’ 777 worth , ie for those who need to buy used.

      The leasors above also are involved in new aircraft leases so have an interest in maintaining used prices otherwise they can be quickly ‘underwater’

    • I’m not sure that minimum seat sizes will change things very much in terms of which aircraft sell well. There’s a certain amount of overcapacity in the market anyway. Setting a legally binding seat size/volume will level playing field for all airlines, and would be welcomed by airlines. Legal limitations would remove a dimension from commercial competition that the airlines currently have to exploit as hard as they dare.

      It would be a welcome relief for passengers too.

      I think that airport slot restrictions will be the key driver to the longevity of A380 and 777X. Bigger planes = more passengers / slot.

  4. “Kelly said the A350-1000 has better economics than the 777-300ER, but “it’s late to the game,” so Airbus will have trouble displacing the 777 from its broad customer base.”

    Surreal. Why is he saying that? Does he have an agenda? Most of the top 20 777 operators are taking delivery of their first A350 in the next few years.

    Specifically: United Airlines, Cathay Pacific, Air France, American Airlines, British Airways, Singapore Airlines, Japan Airlines, Qatar Airways, Thai Airways, Air China, KLM, EVA Air, Delta Air Lines, Etihad Airways

    Turkish Airlines, Emirates, Saudi are around the corner and most -900 customers have -1000 pricing guarantees in their contracts.

    On Boeing superior WB strategy, w’ll have to see if the 787-10 / 777-8 combi will make inroads against the XWB’s.. frankly I just don’t see it happening.

    http://i191.photobucket.com/albums/z160/keesje_pics/Boeing%20Airbus%20Widebody%20family%20keesje_zpsh0ffp31i.jpg

    Is the ISTAT public representative of the industry, or local industry with a few outsiders?

  5. “Surreal. Why is he saying that? Does he have an agenda? Most of the top 20 777 operators are taking delivery of their first A350 in the next few years.”

    I doubt that he does since he said that it would be hard for Boeing to displace A330-300 operators. That sounds pretty balanced to me. Those top 20 are taking delivery of 772/77E replacements, which is logical, not a coup. A coup, as is alluded in the text above, is a complete mass exodus from B to A. Not the case here.

    “Specifically: United Airlines, Cathay Pacific, Air France, American Airlines, British Airways, Singapore Airlines, Japan Airlines, Qatar Airways, Thai Airways, Air China, KLM, EVA Air, Delta Air Lines, Etihad Airways

    Turkish Airlines, Emirates, Saudi are around the corner and most -900 customers have -1000 pricing guarantees in their contracts.”

    The replacement cycle for the 77W hasnt started yet and with the price of Jet A still cheap, 77W operators will hang on to their wares instead of buying new metal. I get perplexed when throngs of carriers are lumped together like this as it shows no clarity in what you are specifically trying to say here. The carriers above have the 789, 77W, 778, 779, A359, A35k and 787-10’s on order. Regarding TK, EK and Saudia: I’d be inclined to scratch Saudia as they just received their 1st 3 789’s are really pleased with them. TK could go either way but if the 779 is tied into the mix, then the picture get a lot clearer. EK is hedging against both Airbus and Boeing but as the A380 NEO has taken a back seat, things may have changed.

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