Aviation Specialists, like its peers, has a model that aids in creating residual value forecasts for the next 20 years. Aviation Specialists this year lowered its annual inflation assumption from 2% to 1.5%.
In order to create an RV forecast, the appraisal community first establishes a current market value. This is done by market intelligence, obtaining deal pricing from a variety of sources and then checking the prices obtained through additional sources.
The CMV prices the appraisers then publish are averages. Deviations that can run into the millions of dollars often emerge for particular deals that can be above or below the published CMV.
Starting with the CMV, the appraisers then use their models to forecast RVs into the future. It’s not unusual for these book figures to vary, perhaps significantly, with each other.
The 150-165 seat airplane is what Boeing calls the “heart of the market,” and orders certainly back this up. This pits the A320 against the 737-800/8.
The A320neo entered service this year. The 737-8 MAX enters service next year. Accordingly, we’ll look at The Guide’s numbers for the A320ceo and the 737-800W.
First, an important caveat.
Boeing’s been producing factory-equipped 737-800 Winglet models for many years and there was an active retro-fit program for those -800s purchased without winglets. In fact, it’s probably difficult to find an -800 without the fuel-saving devices. So all data for the 737-800 is for the Winglet model.
Airbus was slow to follow suit. For many years, Airbus claimed the A320’s wingtip fences were more efficient than the Winglet on the -800—a view many (including LNC) regarded as marketing hype.
Beginning in 2012, Airbus began producing the A320ceo with “sharklets,” its equivalent to winglets. A retrofit program was announced, but it’s not nearly as widespread as the -800 retro program. Accordingly, The Guide’s numbers are for an A320ceo without sharklets. From 2012, The Guide says add $900,000 for a sharklet-equipped A320ceo.
Because Aviation Specialists charges a goodly figure for The Guide, we’re not going to give the precise numbers of the CMVs for the A320ceo and 737-800. The chart below (Figure 1) gives the 2016 CMV for aircraft dating back to 1997.
Figure 1. Current Market Values for the A320ceo without Sharklets vs the 737-800W (winglets). Source: Aviation Specialists, The Guide.
The 737NG entered service in 1998, hence why the orange line begins there.
The CMV is close, generally about $1.5m apart, throughout the period for which The Guide reports data. Boeing likes to point to lines like this and argue that this illustrates the 737-800 has a better value than the A320.
Appraisers say one reason for this is the 737-800 typically has 12 more seats than the A320 in standard two-class configuration. Airbus is attempting to narrow this gap through reconfiguring the cabin’s galley and lavs in order to permit more seats. So far, this concept doesn’t appear to be showing up in CMVs.
Another factor in the better Boeing value, appraisers say: the 737 has one engine type, the CFM56, and the A320 comes with two: the CFM56 and the IAE V2500. One engine type provides a much broader customer base to re-sell, or re-lease, the aircraft. While the A320 has a vast customer base, those with V2500 engines split the potential market with those flying the CFM56.
Figure 2. Residual Values for the A320ceo (with sharklets) and the 737-800. Source: Aviation Specialists The Guide.
Despite the gap for the A320ceo without sharklets with the 737-800W, when going forward, a 2016 A320ceo vs a 2016 737-800W will be more of an apples-to-apples comparison. The A320ceo will be produced with sharklets, comparable with the 737-800W factory-equipped.
The Guide forecast is without sharklets. LNC adjusted the forecast prices with the $900,000 value-added to produce the chart in Figure 2.
The 737-800W retains roughly a $1.1m RV differential over the A320ceoS. At the end of the 20-year period, the A320ceoS value declines to about 28.6% of the starting value. The 737-800W RV declines to about 29.5% of the starting value.
The A321ceo outsells the 737-900ERW by a wide margin. The -900ERW is widely viewed as inferior to the A321ceo (except by Boeing, of course). Field performance is not as good. The -900ERW only carries a small number of more passengers than the -800.
Yet, according to the Aviation Specialists data, the values for the -900ER are better than one might think, given the less-attractive nature of the airplane.
To be sure, The Guide places the CMV for the A321ceo (sans sharklets) higher than the 737-900ERW. (Remember, the CMV is based on transactions, not list price.)
Figure 3: Current Market Values of the A321ceo (sans sharklets) vs the 737-900 and the 737-900ERW. Add $900,000 to the value for an A321ceoS. Source: Aviation Specialists The Guide.
The 737-900 didn’t appear until well after the A321 entered service. The standard -900 was not a successful model; only 54 were produced. It doesn’t have US transcontinental range and field performance is poor. The -900ER solved the range problem but retained the field performance issues.
The Guide shows the CMV of the A321ceo as consistently higher than the 737-900/ERW, with a delta generally of $2.5m to $3m over the -900ERW.
The A321 reverses the Boeing advantage of seating capacity of the 737-800 over the A320. The A321 has about 12 more seats than the -900/ERW. The A321ceo without sharklets is range-challenged. The airplane uses the same wing as the A320, and it’s a little small. Fuel capacity, wing-for-wing, is better in the 900ER. The sharklet-enhanced the A321 sufficiently to overcome the range issues.
Over the 20-year forecast, The Guide takes the RV down to 26% of the starting point for 2016 A321ceos and 737-900ERs (Figure 4).
Figure 4: Residual Values for the A321ceo and 737-900ERW. Source: Aviation Specialists The Guide.
Here, the dual engine options on the A321ceo don’t appear to hurt the values. The additional 12 seats would help the values. Add $900,000 to the A321ceo for sharklet-equipped aircraft.